Poor Business Plans inhibiting access to credit by SMEs - Report

Poor business plans are largely to blame for the inability of many Small and Medium Enterprises to access credit from commercial banks in Sub-Saharan Africa.

This was revealed by research conducted by an Economist at the Department of Economics – University of Copenhagen Professor, John Rand.

He spoke with Joy Business after a lecture organised by the University of Ghana’s Development Policy Monitoring and Evaluation Center of Research Excellence.

SMEs have over the years lamented the high cost of credit saying it is a disincentive for the growth of the sector but Prof. Rand says the situation persists because SMEs have not paid particular attention to proper business planning.

Many financial institutions, according to him, say business plans presented by most small businesses are not good enough to attract funding.

This, he indicated, “shows that all the talk that we have had about land, etc to build up collateral for credit, was not the case in our sample. We could not find that as the main hurdle. These Business Plans, they actually matter.”

The report also shows that 75 percent of all credit is being sourced from informal sources. For him, this is not just because of the difficulty SMEs are faced with in their attempt to access credit, but the cost of the credit. “The sector can see major growth if these issues are addressed” he emphasized.