THE IMPACT OF ADVANCES TO SMALL AND MEDIUM SCALE ENTERPRISES BY RURAL BANKS ON THEIR PROFITABILITY

Abstract

The study sought to assess the impact of loans/credit to SMEs by rural banks on their profitability towards the socio - economic development of Ghana. Closed - ended questionnaires were prepared as a major instrument to collect primary data from a sample size of 370 SMEs out of which 70 represents a sample size of the bank (SRB). However, the secondary data made use of financial statements and 'Other related documents from SRB ltd.

It is recognized that the provision of financial services to small and medium enterprises (SMEs) now represents an important growth opportunities, and commercially viable services for financial institutions. Although there was a recognition that access to domestic savings and credit service could help rural households, the poor, petty traders, and indigenous and entrepreneurs to finance production and other socio - economic activities in Ghana, the universal banks rarely extended its services to them, due to rigidissties, perception of high risk, high operational cost, lack of collateral securities for loans, improper records and low business return (Bank of Ghana 2006). Hence the introduction of Rural Banks to help mitigate the above problems and provide financial services to the rural folks and prospective entrepreneurs. Sekyere Rural Bank Ltd (SRB) is one of the rural banks that provide financial services to SMEs by granting loans in the form of capital formation for most SMEs to commence operations. The study sought to assess the impact of loans/credit to SMEs by rural banks on the profitability of the rural bank towards the socio-economic development of Ghana. Closed – ended questionnaires were prepared as a major instrument to collect primary data from a sample size of 2872 of which 2850 represents the SMEs and 22 represents a sample size of the bank (SRB). However, the secondary data made use of financial statements and other related documents from SRB Ltd.