Collateral ability of small and medium-sized enterprises financing in a developing country

Abstract

ABSTRACT Small and medium-sized enterprises (SMEs) in developing countries face financial constraints, and their ability to provide collateral in accessing financing is even more challenging. There is a gap between the collateral requirements of financial institutions (FIs) and what SMEs are able to provide. Using data gathered from FIs and 388 SMEs in the Greater Accra Region of Ghana, we show that landed property is mostly required by FIs, while personal guarantees, limited savings, and equipment are the top-ranked forms of security SMEs are able to use. The implication is for FIs to include approaches, such as close relationship banking, guarantees, and insurance over assets as a means to accept SMEs’ collateral and extend financing to them for their mutual benefit.