Determinants of Ghanaian banks’ credit to the “missing middle”: a supply side approach

Abstract

Purpose

The purpose of this paper is to use bank-level panel data to examine the determinants of Ghanaian banks credit to SMEs often referred to as the “Missing Middle.” Demands for bank credit by SMEs sector have been over flogged by researchers in recent times. Determinants of banks’ credit to SMEs from the supply side using most recent data for both micro (bank level) and macro (country) level data is a contribution to empirical literature.

Design/methodology/approach

The study employed the Generalized methods of moments using ten banks listed on the Ghana Stock Exchange to examine factors that determine banks credit to SMEs in Ghana. Bank-specific and country-specific data were collected from the financial statements of the sampled commercial banks operating in Ghana compiled by Ghana Association of Bankers over the period 1997-2014 consisting of 180 observations. The macroeconomic variables were retrieved from Ghana Statistical Service and Bank of Ghana, respectively.

Findings

The result of the study reveal that apart from the size of top management and GDP growth, the rest of micro (bank-specific variables) and macro (country) level sampled statistically influences bank credit to SMEs. Specifically, the coefficient of bank size, its profitability and inflation variables are negative demonstrating that in Ghana, bigger, most profitable banks and high inflation period limit credit to the SMEs sector. The coefficients of board size and bank origin variables were found to be positive indicating banks with huge board size and foreign banks tend to provide more credit to SMEs.

Originality/value

The main value of this paper is to examine determinants of Ghanaian banks credit to the “Missing Middle.” A supply side approach.

Citation

Boadi, I. (2016), "Determinants of Ghanaian banks’ credit to the “missing middle”: a supply side approach", International Journal of Bank Marketing, Vol. 34 No. 6, pp. 924-939. https://doi.org/10.1108/IJBM-12-2015-0194