The Effect of Microfinance Access on the Financial Performance of Innovative Small and Medium-sized Enterprises in Ghana

Abstract

This study assessed the effect of microfinance access on ingenious Small and Medium-sized Enterprises (SMEs) in Ghana. The general purpose of this study looked at how the operations of Micro Finance Institutions influenced the financial performance of the Small and Medium-sized Enterprises (SMEs), either positively or negatively. Its specific objectives also examined how access to credit, which is a key operation of the MFIs, affected the monetary performance of these SMEs and gave policy recommendations which could help policymakers in their decision making. It employed data from the World Bank Enterprise Survey (WBES) portal for the case of Ghana which was conducted on 713 firms and spanned from February 2023 to February 2024. The research utilized a purely quantitative method, implementing the multiple linear regression model and the ordinary least squares approach (OLS) as its appropriate estimation technique. Diagnostic tests such as Ramsey RESET tests, VIF tests, and Breusch-Pagan tests were also performed to evaluate the validity and robustness of the models and assumptions that were used in the analysis. The results showed that truly, access to credit had a positive and significant influence on the financial performance of SMEs. However, it was found that the percentage of SMEs that utilized MFI services was approximately twenty percent, which was below average, and this was largely as a result of high interests on loans as well as complex application procedures. It was then recommended that structured policies such as MFIs offering better lending rates, and introduction of digitized means of application procedures must be put in place. It was also recommended that there should be targeted financial support for women-led SMEs due to their difficulty in accessing funds.