SMEs' Financing and Banks' Profitability

A "Good Date" for Banks in Ghana?

Isaac Boadi*, Leo Paul Dana, Gerard Mertens, Lord Mensah

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Small and medium enterprises (SMEs) are the core of most economies and are a major source of economic growth. In recent times, banks have been actively involved in the financing of SMEs through the provision of loans to this sector. This paper investigates the impact of SMEs financing on banks' profitability in Ghana. The study employed the fixed effect model as the main regression tool. The study result reveals that SMEs significantly contribute to banks' profitability in Ghana. Interestingly, transaction cost in administering SME loans was insignificant in all the models. Higher inflation reduces the real value of the loan and erodes the interest returns on the total credit to the SMEs. Conversely, growth of GDP enhances the growth of the bank profit.

Original languageEnglish
Pages (from-to)257-277
Number of pages21
JournalJournal of African Business
Volume18
Issue number2
DOIs
Publication statusPublished - 2017

Keywords

  • SMEs
  • financing
  • banks
  • profitability
  • Ghana
  • IMPERFECT INFORMATION
  • COMMERCIAL BANKING
  • EMPIRICAL-EVIDENCE
  • ECONOMIC-GROWTH
  • SMALL FIRMS
  • PANEL-DATA
  • DETERMINANTS
  • CREDIT
  • EFFICIENCY
  • PERFORMANCE

Cite this

Boadi, Isaac ; Dana, Leo Paul ; Mertens, Gerard ; Mensah, Lord. / SMEs' Financing and Banks' Profitability : A "Good Date" for Banks in Ghana?. In: Journal of African Business. 2017 ; Vol. 18, No. 2. pp. 257-277.
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title = "SMEs' Financing and Banks' Profitability: A {"}Good Date{"} for Banks in Ghana?",
abstract = "Small and medium enterprises (SMEs) are the core of most economies and are a major source of economic growth. In recent times, banks have been actively involved in the financing of SMEs through the provision of loans to this sector. This paper investigates the impact of SMEs financing on banks' profitability in Ghana. The study employed the fixed effect model as the main regression tool. The study result reveals that SMEs significantly contribute to banks' profitability in Ghana. Interestingly, transaction cost in administering SME loans was insignificant in all the models. Higher inflation reduces the real value of the loan and erodes the interest returns on the total credit to the SMEs. Conversely, growth of GDP enhances the growth of the bank profit.",
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author = "Isaac Boadi and Dana, {Leo Paul} and Gerard Mertens and Lord Mensah",
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SMEs' Financing and Banks' Profitability : A "Good Date" for Banks in Ghana? / Boadi, Isaac; Dana, Leo Paul; Mertens, Gerard; Mensah, Lord.

In: Journal of African Business, Vol. 18, No. 2, 2017, p. 257-277.

Research output: Contribution to journalArticleAcademicpeer-review

TY - JOUR

T1 - SMEs' Financing and Banks' Profitability

T2 - A "Good Date" for Banks in Ghana?

AU - Boadi, Isaac

AU - Dana, Leo Paul

AU - Mertens, Gerard

AU - Mensah, Lord

PY - 2017

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AB - Small and medium enterprises (SMEs) are the core of most economies and are a major source of economic growth. In recent times, banks have been actively involved in the financing of SMEs through the provision of loans to this sector. This paper investigates the impact of SMEs financing on banks' profitability in Ghana. The study employed the fixed effect model as the main regression tool. The study result reveals that SMEs significantly contribute to banks' profitability in Ghana. Interestingly, transaction cost in administering SME loans was insignificant in all the models. Higher inflation reduces the real value of the loan and erodes the interest returns on the total credit to the SMEs. Conversely, growth of GDP enhances the growth of the bank profit.

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KW - ECONOMIC-GROWTH

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KW - PANEL-DATA

KW - DETERMINANTS

KW - CREDIT

KW - EFFICIENCY

KW - PERFORMANCE

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