Financing small and medium scale construction firms in Ghana: A framework for improvement

The activities of the construction industry are essential for economic growth of countries all over the world. The importance of the industry is more felt in developing countries where infrastructure facilities required for improved living standards are relatively under-supplied. The role played by small and medium scale contractors in the development process cannot be overemphasised. Thus, attempts have been made to address the constraints that prevent their effective participation in their industries. Unfortunately, success of such effort has been marginal. Writers testify to financing constraint on the development of small contractors, but there is dearth of empirical studies on the subject matter. The literature on small and medium-sized enterprises shows that the personal attributes of owner-managers and the characteristics of their businesses are associated with the financing needs and constraints. The factors attributed to the financing constraints are interrelated, but financing programmes aimed at small contractors have been implemented in isolation. However, the literature is replete with innovative developments relating to micro, small and medium enterprise finance, in general, which has been relevant to suggestions made in Ghana, and to existing studies that focus on small contractor finance. This thesis aims to investigate the constraints that small contractors face in securing finance and provide guidelines for future development of financing programmes. With the aid of structured questionnaires, a survey of contractors was conducted in Ghana. It was found that there is a strong desire to establish contractors' bank. The findings suggest that contractors are being denied the type of finance they consider important for the development of their businesses. It was found that, to a large extent, the financial class into which a contractor is categorised was significantly related to the sources of finance used, and the sources of finance perceived to be important for business development. There is an overwhelming support for the establishment of a contractor's bank, and the majority of contractors would want the contractors' association to be actively involved in its administration. However, the contractors' association would have to be reformed if it were to play a meaningful role in the proposed bank. There is an indication that institutions and organisations affiliated to the construction industry could play a complementary role in finding an effective way to deliver finance for contractors. The importance of effective governance in achieving success cannot be overemphasised. There would also be the need to determine the outreach of the proposed bank at the research and methodology stage.