PARTICIPATION IN THE CREDIT MARKET BY SMALL SCALE ENTERPRISES IN GHANA: EVIDENCE FROM WA MUNICIPALITY

Abstract

This study analyses the determinants of small scale enterprises participation in credit market and also examines their choice of credit source in the Wa Municipality of Ghana using 200 small scale enterprises. Primary data were collected with the help of self-administered structured questionnaires. In a departure from much of the existing literature, bivariate probit model is used to account for potential unobserved heterogeneity. The study finds evidence of a positive correlation between the unobserved factors affecting participation and choice of credit sources. The results revealed that entrepreneur’s decision to participate in the credit market is significantly influenced by age, household size, education, income and wealth. Also, age and its squared term and education significantly influenced entrepreneurs’ preference for formal credit sources. The study recommends that appropriate educational packages both formal and informal such as evening schools and adult literacy programmes should be organised for owners of small scale enterprises. There is also the need for policy measures to increase access to formal financial resources by small-scale enterprises via the establishment of credit insurance scheme to protect the financial institutions against high risks associated with advancing credit to small-scale enterprises