Entrepreneurship and bank credit rationing in Ghana

Abstract

Previous researchers have empirically investigated the existence or otherwise of credit rationing of small businesses in both developed and developing economies. Particularly lacking are the study on the evidence of credit rationing on the individual entrepreneurs as founders and/or owner-managers of these small businesses. To fill this gap, this study examines two sets of data from the entrepreneurs of small businesses and the credit managers of commercial banks in Ghana. This study aimed at investigating the extent to which the entrepreneurs of small businesses were able to access bank credit they required for working capital and long-term investment projects. The performance and success of the entrepreneur is largely dependent on the entrepreneur’s level of human and social capital. Entrepreneurs with a higher level of education, prior work experience and social networking are considered to possess a higher competitive advantage over inexperience entrepreneurs in terms of information search, opportunity identification, exploitation and pursuance of resources including finance. This thesis contributes significantly to the development of this accession. The overall results lend support to the argument that the habitual entrepreneur is more likely to have access to external finance at the start of a new venture compared to the novice entrepreneur. Secondly, the habitual (experienced) entrepreneurs for reasons of higher levels of human and social capital are less likely to be credit rationed compared to the novice (inexperienced) entrepreneurs. Thirdly, experienced entrepreneurs located further away from their banks are less likely to be credit rationed compared to novice entrepreneur. This study has several implications for commercial bank managers (practitioners) and policy makers in Ghana in particular and in general for all developing countries.