Bridging the SME funding gap in developing economies

: the Ghanaian perspective

Abstract

Small and medium enterprises (SMEs) face distinct financing constraints compared to larger organisations, with limited access to finance representing one of the most critical barriers to their growth and sustainability. Driven by SMEs' significant contributions to economic development and job creation in Ghana, this study provides a comprehensive, size-differentiated picture of the SME financing landscape by identifying available funding sources, examining the challenges that SMEs and finance providers respectively face, and surfacing alternative financing mechanisms that could bridge the financing gap. The research adopts a mixed-methods approach grounded in the pragmatic philosophical paradigm, combining inductive reasoning with multiple theoretical frameworks. Quantitative data were collected from a survey of 390 SMEs across four Ghanaian regions, disaggregated by three firm-size groups: micro-enterprises (1–10 employees, n = 313), small enterprises (11–30 employees, n = 57), and medium enterprises (30+ employees, n = 11). These data are supplemented by qualitative interviews with six SME owners, four commercial banks, two microfinance institutions, two credit unions, and one government agency, providing both demand-side and supply-side perspectives on the financing ecosystem. Approximately 79.6% of Ghanaian SMEs rely on informal sources personal savings and social networks while only 12.8% have ever applied for formal finance. Accessibility, rather than appropriateness or cost, drives financing choices across all groups, confirming that observed patterns reflect constrained choice rather than strategic preference necessitating a modification of Pecking Order Theory for severely constrained markets. From the supply side, institutional segmentation creates gaps rather than comprehensive coverage, leaving growth-stage, asset-light, and agricultural enterprises systematically underserved. The study contributes a three-category discouraged-borrower typology, a size-differentiated modification of Pecking Order Theory, and the demonstration that financing barriers compound multiplicatively rather than additively. For policy implications, micro-enterprises require legal formalisation support, practical financial management training, and formalised community-based instruments such as ROSCA systems and VSLA-linked credit; small enterprises require receivables and inventory-backed financing; and medium enterprises require supply chain finance and development finance institution engagement. Across all groups, a subsidised enterprise record- management system, government-backed partial credit guarantee schemes calibrated to financial capacity rather than employment size, audit service support, and a nationally coordinated SME financing policy with legislative backing are identified as essential conditions for closing Ghana's SME financing gap.

Thesis embargoed. Available: 17/07/2028

Date of Award	May 2026
Original language	English
Awarding Institution	University of Brighton
Supervisor	Catherine Matthews (Supervisor) & Rob Hayward (Supervisor)