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

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