Issues in Sme Development in Ghana and South Africa

International look into Journal of finance and political economy ISSN 1450-2887 relinquish 39 (2010) EuroJournals Publishing, Inc. 2010 http//www. eurojournals. com/finance. htm Issues in SME ontogenesis in gold coast and southward Africa Joshua Abor De failment of finance University of gold coast craft School, Legon Peter Quartey Institute of Statistical, Social and scotch investigate University of gold coast, Legon Abstract This opus discusses the characteristics, contributions of SMEs to stinting information, and the constraints to SME development in create countries with particular reference to gold coast and southmost Africa.SMEs in Ghana move over been noned to fork over al or so(prenominal) 85% of manufacturing trade of Ghana. They ar as well as debated to contribute about 70% to Ghanas GDP and account for about 92% of businesses in Ghana. In the Republic of confederation Africa, it is estimated that 91% of the schematic business entities ar SMEs. They also contribute in the midst of 52 to 57% to GDP and take into account about 61% to employment.Notwithstanding the recognition of the important roles SMEs play in these countries, their development is bear-sizedly constrained by a shape of factors, such(prenominal) as lack of twainer to usurp engine room limited access to world-wideist merchandises, the existence of laws, regulations and rules that impede the development of the domain weak institutional capacity, lack of management skills and training, and or so importantly finance. The paper leads some relevant recommendations to indemnity makers, development agencies, entrepreneurs, and SME managers to ascertain the appropriate strategy to change the SME sphere in these countries.Keywords SME study, Ghana, South Africa 1. 0. Introduction There is growing recognition of the important role subtle and medium trys (SMEs) play in economic development. They atomic number 18 often described as efficient and fecund agate line creators, the seeds of big businesses and the fuel of national economic engines. Even in the developed industrial economies, it is the SME welkin rather than the multinationals that is the largest employer of workers (Mullineux, 1997). Inte simpleness in the role of SMEs n the development play continues to be in the stingerting edge of polity debates in most countries. Governments at all levels stool undertaken initiatives to promote the growth of SMEs (Feeney and Riding, 1997). SME development cigargont encourage the plow of both inter and intra-regional decentralization and, they whitethorn well become a countervailing power against the economic power of large initiatives. More generally, the development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty embossment (Cook and Nixson, 2000).According to an OECD report, SMEs produce about 25% of OECD trades and 35% of Asias exports (OECD, 1997). International interrogation Journal of pay and political economy Issue 39 (2010) 219 SMEs represent over 90% of private business and contribute to to a greater extent than than 50% of employment and of GDP in most African countries (UNIDO, 1999). wasted enterprises in Ghana ar said to be a characteristic feature of the production landscape and obtain been noted to provide about 85% of manufacturing employment of Ghana (Steel and Webster, 1991 Aryeetey, 2001).SMEs be also believed to contribute about 70% to Ghanas GDP and account for about 92% of businesses in Ghana. Similarly, in the Republic of South Africa, it is estimated that 91% of the formal business entities are dainty-scale, Medium and Micro attempts (SMMEs) (Hassbroeck, 1996 Berry et al. , 2002). They also contribute between 52 and 57% to GDP and provide about 61% of employment (CSS, 1998 Ntsika, 1999 Gumede, 2000 Berry et al. , 2002).SMEs in that respectfore have a crucial role to play in stimulating growth, g enerating employment and contributing to poverty alleviation, accustomed their economic weight in African countries. How do SMEs in Ghana compare with their counterparts in South Africa and what policy slightons can be drawn for both countries to enhance the contribution of the firmament remains the focus of this paper. The rest of the paper is organized as follows Section two re bets the heterogeneous commentarys of SMEs. Section three discusses the characteristics of SMEs in ontogeny countries.Sections four and five judge the contributions of SMEs to economic development and the constraints to SME developments. The paper concludes in section six. 2. 0. What is an SME? The issue of what constitutes a small or medium enterprise is a major disturb in the literature. Different authors have unremarkably given different definitions to this category of business. SMEs have thus not been spared with the definition problem that is usually associated with concepts which have man y components. The definition of profligates by size varies among researchers.Some test to use the capital as tacks maculation others use skill of labour and delveover level. new(prenominal)s define SMEs in bournes of their legal status and method acting of production. Storey (1994) tries to sum up the danger of using size to define the status of a stiff by stating that in some sectors all firms may be regarded as small, whilst in other sectors there are possibly no firms which are small. The Bolton Committee (1971) first formulated an economic and statistical definition of a small firm.Under the economic definition, a firm is said to be small if it meets the chase three criteria It has a relatively small percentage of their market place It is managed by owners or part owners in a personalized way, and not through the medium of a formalized management organize It is independent, in the sense of not forming part of a large enterprise. Under the statistical definition, the Committee proposed the followers criteria The size of the small firm sector and its contribution to GDP, employment, exports, etc. The extent to which the small firm sectors economic contribution has changed over time Applying the statistical definition in a cross-country comparison of the small firms economic contribution. The Bolton Committee applied different definitions of the small firm to different sectors. Whereas firms in manufacturing, turn and mining were specify in ground of consider of employees (in which grounds, 200 or less suitable the firm to be a small firm), those in the retail, services, wholesale, etc. were defined in terms of pecuniary turnover (in which case the range is 50,000-200,000 British Pounds to be classified as small firm).Firms in the street transport exertion are classified as small if they have 5 or fewer vehicles. There have been criticisms of the Bolton definitions. These centre mainly on the apparent inconsistencies between defin ing characteristics based on number of employees and those based on managerial approach. The European Commission (EC) defined SMEs largely in term of the number of employees as follows firms with 0 to 9 employees micro enterprises 220 International Research Journal of Finance and political economy Issue 39 (2010) 10 to 99 employees small enterprises 100 to 499 employees medium enterprises.Thus, the SME sector is comprised of enterprises (except agriculture, hunting, forestry and fishing) which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firms upper limit is to a greater extent appropriate, given the increase in productivity over the last two decades (Storey, 1994). Finally, the EC definition did not assume the SME group is homogenous that is, the definition makes a distinction between micro, small, and medium-sized enterprises.However, the EC definition is as well all-embracing to be applied to a number of countries. Researchers would have to use definitions for small firms which are to a greater extent appropriate to their particular target group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile, unless size is a factor which influences mathematical process. For instance, the relationship between size and performance matters when assessing the carry on of a credit programme on a target group (Storey, 1994).Weston and Copeland (1998) hold that definitions of size of enterprises contact from a lack of universal applic readiness. In their view, this is because enterprises may be conceived of in varying terms. Size has been defined in different contexts, in terms of the number of employees, annual turnover, industry of enterprise, ownership of enterprise, and value of dogged assets. Van der Wijst (1989) conceptualises small and medium businesses as privately held firm s with 1 9 and 10 99 slew employed, respectively. Jordan et al (1998) define SMEs as firms with fewer than 100 employees and less than 15 trillion turnover.Michaelas et al (1999) consider small independent private limited companies with fewer than 200 employees and Lopez and Aybar (2000) considered companies with sales below 15 trillion as small. According to the British department of flip-flop and Industry, the best description of a small firm remains that employ by the Bolton Committee in its 1971 composing on clarified Firms. This stated that a small firm is an independent business, managed by its owner or part-owners and having a small market share (Department of Trade and Industry, 2001).The UNIDO also defines SMEs in terms of number of employees by giving different classifications for industrialized and developing countries (see Elaian, 1996). The definition for industrialized countries is given as follows Large firms with 500 or more workers Medium firms with 1 00-499 workers excellent firms with 99 or less workers. The classification given for developing countries is as follows Large firms with 100 or more workers Medium firms with 20-99 workers weensy firms with 5-19 workers Micro firms with less than 5 workers.It is clear from the various definitions that there is not a general consensus over what constitutes an SME. Definitions vary across industries and also across countries. It is important now to examine definitions of SMEs given in the context of Ghana and South Africa. 2. 1. The Ghanaian line There have been various definitions given for little enterprises in Ghana but the most commonly use criterion is the number of employees of the enterprise (Kayanula and Quartey, 2000). In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources.In its Industrial Statistics, the Ghana Statistical Service (GSS) considers firms with fewer than 10 emplo yees as small-scale enterprises and their counterparts with more than 10 employees as medium and large-sized enterprises. Ironically, the GSS in its national accounts considered companies with up to 9 employees as SMEs (Kayanula and Quartey, 2000). The value of fixed assets in the firm has also been used as an alternative criterion for defining SMEs. However, the topic Board for down in the mouth crustal plate Industries (NBSSI) in Ghana applies both theInternational Research Journal of Finance and economic science Issue 39 (2010) 221 fixed asset and number of employees criteria. It defines a small-scale enterprise as a firm with not more than 9 workers, and has plant and machinery (excluding land, buildings and vehicles) not surpassing 10 million Ghanaian cedis. The Ghana Enterprise cultivation Commission (GEDC), on the other hand, uses a 10 million Ghanaian cedis upper limit definition for plant and machinery. It is important to caution that the process of valuing fixed ass ets poses a problem.Secondly, the continuous depreciation of the local currency as against major trading currencies often makes such definitions outdated (Kayanula and Quartey, 2000). In defining small-scale enterprises in Ghana, Steel and Webster (1991), and Osei et al (1993) used an employment cut-off point of 30 employees. Osei et al (1993), however, classified small-scale enterprises into three categories. These are (i) micro employing less than 6 people (ii) actually small employing 6-9 people (iii) small between 10 and 29 employees.A more recent definition is the one given by the Regional Project on Enterprise Development Ghana manufacturing survey paper. The survey report classified firms into (i) micro enterprise, less than 5 employees (ii) small enterprise, 5 29 employees (iii) medium enterprise, 30 99 employees (iv) large enterprise, 100 and more employees (see Teal, 2002). 2. 2. The South African Situation The most widely used framework in South Africa is the definiti on of the National petty melody Act 102 of 1996, which defines five categories of businesses in South Africa.The definition uses the number of employees (the most common mode of definition) per enterprise size category combined with the annual turnover categories, the gross assets excluding fixed property. The definitions for the various enterprise categories are given as follows Survivalist enterprise The income generated is less than the minimum income standard or the poverty line. This category is considered pre-entrepreneurial, and includes hawkers, vendors and subsistence farmers. (In practice, survivalist enterprises are often categorised as part of the micro-enterprise sector). Micro enterprise The turnover is less than the VAT alteration limit (that is, R150 000 per year). These enterprises usually lack formality in terms of registration. They include, for example, spaza shops, minibus taxis and household industries. They employ no more than 5 people. Very small enterpr ise These are enterprises employing fewer than 10 paid employees, except mining, electricity, manufacturing and construction sectors, in which the figure is 20 employees. These enterprises operate in the formal market and have access to technology. Small enterprise The upper limit is 50 employees. Small enterprises are generally more established than very small enterprises and exhibit more complex business practices. Medium enterprise The maximum number of employees is 100, or 200 for the mining, electricity, manufacturing and construction sectors. These enterprises are often characterised by the decentralisation of power to an additional management layer. The National Small Business Acts definitions of the different categories of business may be summarised as set out in Table 1 below. 222 Table 1International Research Journal of Finance and Economics Issue 39 (2010) Definitions of SMMEs given in the National Small Business Act rate of Employees Fewer than 100 to 200, depending o n industry Fewer than 50 Annual Turnover (in South African rand) Less than R4 million to R50 million, depending upon industry Less than R2 million to R25 million, depending on industry Less than R200 000 to R500 000, depending on industry Less than R150 000 Gross Assets, Excluding Fixed Property Less than R2 million to R18 million, depending on industry Less than R2 million to R4. million, depending on industry Less than R150 000 to R500 000, depending on Industry Less than R100 000 Enterprise Size Medium Small Fewer than 10 to 20, depending on industry Micro Fewer than 5 Source Falkena et al. (2001) Very Small From the above, two key contrast can be drawn between the definitions of SMEs in Ghana and their counterparts in South Africa. First, Act 102 of 1996 defines SMEs in South Africa whereas there is no such legislation in Ghana.Secondly, the cut off points for the various SME size categories in South Africa are much higher(prenominal) than that of Ghana. This may be a result of the fact that South Africa has a much higher income levels than Ghana. 3. 0. Characteristics of SMEs in Developing Countries fisher cat and Reuber (2000) enumerate a number of characteristics of SMEs in developing countries under the broad headings labour characteristics, sectors of activity, gender of owner and efficiency. Given that most SMEs are one-person businesses, the largest employment category is working proprietors.This group makes up more than half the SME workforce in most developing countries their families, who tend to be unpaid but dynamic in the enterprise, make up roughly another quarter. The remaining portion of the workforce is split between hired workers and trainees or apprentices. SMEs are more labour intensive than larger firms and therefore have lower capital costs associated with job creation (Anheier and Seibel, 1987 Liedholm and Mead, 1987 Schmitz, 1995). In terms of activity, they are loosely engaged in retailing, trading, or manufacturing (Fisher an d Reuber, 2000).While it is a common perception that the majority of SMEs will fall into the first category, the resemblance of SME activity that takes place in the retail sector varies considerably between countries, and between rural and urban regions within countries. Retailing is mostly order in urban regions, while manufacturing can be base in either rural or urban centres. However, the extent of involvement of a country in manufacturing will depend on a number of factors, including, availability of raw materials, taste and consumption patterns of domestic consumers, and the level of development of the export markets.In Ghana, SMEs can be categorized into urban and rural enterprises. The cerebrate can be subdivided into organized and nonunionized enterprises. The organized ones mostly have paid employees with a registered office, whereas the unorganized category is mainly made up of artisans who work in open spaces, temporary wooden structures, or at home, and employ few or in some cases no salaried workers (Kayanula and Quartey, 2000). They rely mostly on family members or apprentices. Rural enterprises are largely made up of family groups, indivi forked artisans, women engaged in food production from local crops.The major activities within this sector include- soap and detergents, fabrics, clothing and tailoring, fabric and leather, village blacksmiths, tin-smithing, ceramics, timber and mining, bricks and cement, beverages, food processing, bakeries, wood furniture, electronic assembly, agro processing, chemical-based products and mechanics (Osei et al. , 1993 Kayanula and Quartey, 2000). Majority of SMEs are feminine-owned businesses, which more often than not are home-based compared to those owned by males they are operated from home and are mostly not considered in official statistics.This clearly affects their chances of gaining access to financing schemes, since such International Research Journal of Finance and Economics Issue 39 (2010) 223 programmes are designed without sufficient consideration of the needs of businesses owned by females. These female entrepreneurs often get the impression that they are not capable of taking advantage of these credit schemes, because the administrative costs associated with the schemes often outweigh the benefits. Prior empirical studies in Ghana have shown that female-owned SMEs often have difficulty accessing finance.Females are mostly involved in sole-proprietorship businesses which are mainly microenterprises and as such may lack the necessary collateral to qualify for loans (Aryeetey et al, 1994 Abor and Biekpe, 2006). Measures of enterprise efficiency (e. g. labour productivity or sum up factor productivity) vary greatly both within and across industries. Firm size may be associated with some other factors that are correlated with efficiency, such as managerial skill and technology, and the effects of the policy environment.Most studies in developing countries indicate th at the smallest firms are the least efficient, and there is some evidence that both small and large firms are relatively inefficient compared to medium-scale enterprises (Little et al. , 1987). It is often argued that SMEs are more innovative than larger firms. Many small firms bring innovations to the market place, but the contribution of innovations to productivity often takes time, and larger firms may have more resources to adopt and implement them (Acs et al. , 1999). 4. 0. Contributions of SMEs to Economic DevelopmentThere is a general consensus that the performance of SMEs is important for both economic and social development of developing countries. From the economic perspective, SMEs provide a number of benefits (Advani, 1997). SMEs have been noted to be one of the major areas of concern to many policy makers in an attempt to accelerate the rate of growth in low-income countries. These enterprises have been recognized as the engines through which the growth objectives of de veloping countries can be achieved. They are potential sources of employment and income in many developing countries.SMEs seem to have advantages over their large-scale competitors in that they are able to adapt more easily to market conditions, given their broadly skilled technologies. They are able to withstand adverse economic conditions because of their flexible nature (Kayanula and Quartey, 2000). SMEs are more labour intensive than larger firms and therefore have lower capital costs associated with job creation (Anheier and Seibel, 1987 Liedholm and Mead, 1987 Schmitz, 1995). They perform useful roles in ensuring income stability, growth and employment.Since SMEs are labour intensive, they are more promising to succeed in smaller urban centres and rural areas, where they can contribute to a more withal distribution of economic activity in a region and can help to slow the immix of migration to large cities. Due to their regional dispersion and their labour intensity, it is argued, small-scale production units can promote a more equitable distribution of income than large firms. They also improve the efficiency of domestic markets and make amentiferous use of scarce resources, thus facilitating long-term economic growth (Kayanula and Quartey, 2000).SMEs contribute to a countrys national product by either manufacturing goods of value, or through the provision of services to both consumers and/or other enterprises. This encompasses the provision of products and, to a lesser extent, services to unconnected clients, thereby contributing to overall export performance. In Ghana and South Africa, SMEs represent a vast portion of businesses. They represent about 92% of Ghanaian businesses and contribute about 70% to Ghanas GDP and over 80% to employment.SMEs also account for about 91% of the formal business entities in South Africa, contributing between 52% and 57% of GDP and providing about 61% of employment (CSS, 1998 Ntsika, 1999 Gumede, 2000 Berry et al. , 2002). From an economic perspective, however, enterprises are not safe suppliers, but also consumers this plays an important role if they are able to position themselves in a market with purchasing power their consume for industrial or consumer goods will stimulate the activity of their suppliers, just as their own activity is stimulated by the demands of their clients.Demand in the form of investment plays a dual role, both from a demand-side (with regard to the suppliers of industrial goods) and on the supplyside (through the potential for new production arising from upgraded equipment). In addition, demand 224 International Research Journal of Finance and Economics Issue 39 (2010) is important to the income-generation potential of SMEs and their ability to stimulate the demand for both consumer and capital goods (Berry et al. , 2002). 5. 0. General Constraints to SME DevelopmentDespite the potential role of SMEs to quicken growth and job creation in developing countries, a number of bottlenecks affect their ability to pull their full potential. SME development is hampered by a number of factors, including finance, lack of managerial skills, equipment and technology, regulatory issues, and access to multinational markets (Anheier and Seibel, 1987 Steel and Webster, 1991 Aryeetey et al, 1994 Gockel and Akoena, 2002). The lack of managerial know-how places significant constraints on SME development.Even though SMEs tend to attract prompt managers, they can hardly compete with larger firms. The scarcity of management talent, prevalent in most countries in the region, has a magnified impact on SMEs. The lack of support services or their relatively higher unit cost can hamper SMEs efforts to improve their management, because consulting firms are often not equipped with appropriate cost-effective management solutions for SMEs. Besides, despite the numerous institutions providing training and advisory services, there is still a skills breach in the SME sector as a whole (Kayanula and Quartey, 2000).This is because entrepreneurs cannot afford the high cost of training and advisory services while others do not see the need to upgrade their skills due to complacency. In terms of technology, SMEs often have difficulties in gaining access to appropriate technologies and information on available techniques (Aryeetey et al. , 1994). In most cases, SMEs utilize foreign technology with a scarce percentage of shared ownership or leasing. They usually acquire foreign licenses, because local patents are difficult to obtain.Regulatory constraints also pose serious challenges to SME development and although wideranging structural reforms have led to some improvements, prospects for enterprise development remain to be addressed at the firm-level. The high start-up costs for firms, including licensing and registration requirements, can impose excessive and unnecessary burdens on SMEs. The high cost of settling legal claims, and excessive delays in court proceedings adversely affect SME operations. In the case of Ghana, the cumbersome procedure for registering and commencing business are key issues often cited.The orb Bank Doing Business Report (2006) indicated that it takes 127 days to deal with licensing issues and there are 16 procedures involved in licensing a business in Ghana. It takes longer (176 days) in South Africa and there were 18 procedures involved in dealing with licensing issues. Meanwhile, the absence of just legislation favours larger firms, while the lack of protection for property rights limits SMEs access to foreign technologies (Kayanula and Quartey, 2000).Previously insulated from international competition, many SMEs are now faced with greater external competition and the need to expand market share. However, their limited international marketing experience, poor quality control and product standardisation, and little access to international partners, continue to impede SMEs expansion into internati onal markets (Aryeetey et al. , 1994). They also lack the necessary information about foreign markets. One important problem that SMEs often face is access to capital (Lader, 1996).Lack of adequate monetary resources places significant constraints on SME development. Cook and Nixson (2000) observe that, notwithstanding the recognition of the role of SMEs in the development process in many developing countries, SMEs development is always constrained by the limited availability of pecuniary resources to meet a variety of operational and investment needs. A World Bank study found that about 90% of small enterprises surveyed stated that credit was a major constraint to new investment (Parker et al. , 1995).Levy (1993) also found that there is limited access to financial resources available to smaller enterprises compared to larger organisations and the consequences for their growth and development. The role of finance has been viewed as a critical element for the development of SMEs ( Cook and Nixson, 2000). A large portion of the SME sector does not have access to adequate and appropriate forms of credit and equity, or indeed to financial services more generally (Parker et al. , 1995). In competing for the corporate market, formal financial institutions have shuffled their products to serve the needs of large corporates.International Research Journal of Finance and Economics Issue 39 (2010) 225 A cursory analysis of survey and research results of SMEs in South Africa, for instance, reveals common reactions from SME owners interviewed. When asked what they perceive as constraints in their businesses and especially in establishing or expanding their businesses, they answered that access to funds is a major constraint. This is reflected in perception questions answered by SME owners in many surveys (see BEES, 1995 Graham and Quattara, 1996 Rwingema and Karungu, 1999).This situation is not different in the case of Ghana (see Sowa et al. , 1992 Aryeetey, 1998 Bigst en et al. , 2000, Abor and Biekpe 2006, 2007 Quartey, 2002). A priori, it might seem surprising that finance should be so important. Requirements such as identifying a product and a market, acquiring any necessary property rights or licenses, and keeping proper records are all in some sense more fundamental to running a small enterprise than is finance (Green et al. , 2002). Some studies have consequently shown that a large number of small enterprises fail because of non-financial reasons.Other constraints SMEs face include lack of access to appropriate technology the existence of laws, regulations and rules that impede the development of the sector weak institutional capacity and lack of management skills and training (see Sowa et al. , 1992 Aryeetey et al. , 1994 Parker et al. , 1995 Kayanula and Quartey, 2000). However, potential providers of finance, whether formal or informal, are unlikely to commit funds to a business which they view as not being on a sound footing, irrespecti ve of the exact nature of the unsoundness.Lack of funds may be the spry reason for a business failing to start or to progress, even when the more fundamental reason lies elsewhere. Finance is said to be the glue that holds together all the diverse aspects involved in small business start-up and development (Green et al. , 2002). 6. 0. Conclusion This paper has reviewed various definitions of SMEs and also discussed the characteristics, contributions of SMEs to economic development, and the constraints to SME development. In reviewing the definitions of SMEs, it was concluded that there is no single, universal, uniformly acceptable definition of SMEs.Several measures or indicators have been used to define the SME sector. The most commonly used is the number of employees of the enterprise. However, in applying this definition, confusion often arises in respect of the arbitrariness and cut-off points used by various official sources. The definitions of SMEs within the context of Ghana and South Africa were also examined, given that this paper focuses on these two countries. SMEs often fall into two categories, that is, urban and rural enterprises. The former can be sub-divided into organized and unorganized enterprises.The organized groups have registered offices and paid workers, whilst the unorganized ones are mainly made up of artisans. Rural enterprises are largely made up of family groups and individual artisans. The activities in the SME sector range from clayware and ceramics to manufacturing of spare parts and electronic assembly. SMEs in Ghana and South Africa have a lot of similarities in terms of their characteristics as well as the vital role they play in the two economies. However, they differ in terms of size and regulation.For instance, the cut off point for the various categories of SMEs in Ghana are much lower than they pertain in South Africa. Secondly, whereas a national legislation defines an SME in South Africa, no such Act exist in Ghana. The study also observed that SMEs constitute a vital element of the development process, and their contributions in terms of production, employment and income in developing countries is widely recognized. Hence, vex in the role of SMEs in the development process continues to be high on the agenda of policy makers in the two countries.Notwithstanding the recognition, the development of SMEs is always constrained by a number of factors such as, lack of access to appropriate technology, limited access to international markets, the existence of laws, regulations and rules that impede the development of the sector weak institutional capacity and lack of management skills and training. However, access to finance remains the greatest concern for the majority of SMEs. This study suggests that, to improve access to credit to SMEs, entrepreneurs should be encouraged to form cooperatives since financial institutions believe peer pressure often reduces the risk 26 International Research Journa l of Finance and Economics Issue 39 (2010) of default, Secondly, the government through tax incentives can encourage certain training institutions and NGOs to provide training to entrepreneurs on simple record keeping and managerial know-how. Also, a national legislation in Ghana to define what constitutes an SME and their legal as well as tax obligations will help to integrate a number of informal enterprises into the formal framework. This should be complemented with steps to minimize the legal procedures involved in doing business in both countries.It is also suggested that technology transfer through simple, inexpensive and adaptable technology should be promoted to enhance the productivity of SMEs. References 1 2 Abor, J. and N. Biekpe, 2006. 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