Investment readiness, access to external finance and performance of small and medium-scale enterprises in The Accra metropolis, Ghana

Abstract

There is growing recognition of the important role Small and Medium-Scale Enterprises (SMEs) play in economic development. SMEs are often described as efficient and prolific job creators, the seeds of big businesses and the fuel of national economic engines. This study set out to examine the investment readiness, access to external finance and performance of SMEs in the Accra Metropolis in Ghana. A mixed method approach employing both quantitative and qualitative research methodology was utilized. Face-to-face interviews using questionnaires were employed to collect data from 500owner/managers of SMEs in the metropolis. In addition, eight groups of 14 members each were organised for focus group discussions. Structural equation modelling using partial least squares and the Ordinary Least Square were employed to examine the relationships. The results of the study revealed that access to external finance has a positive and significant effect on the performance of SMEs. Secondly, the investment readiness variables such as owner/manager's age, financial leverage and financial information were found to have positive and significant relationship with access to external finance of SMEs. Also, owner/manager's age, years of experience and financial information were found to have positive and significant relationship with SME performance. The study implies that, in addition to increasing the supply of finance to the SME sector, governments can enhance the ability of SMEs to access the available funds by ensuring they are investment ready. It was recommended that government should support SMEs and also develop programmes to enhance investment readiness amongst SMEs.