'Issues in Sme Development in Ghana and South Africa\r'

' multi field look journal of pay and political economy ISSN 1450-2887 grapple 39 (2010) © Euro daybooks Publishing, Inc. 2010 http://www. eurojournals. com/finance. htm furnishs in SME harvest-home in gold coast and siemens Africa Joshua Abor De social functionment of finance University of gold coast crinkle School, Legon Peter Quartey lay down of Statistical, Social and economic question University of gold coast, Legon Abstract This report discusses the attri and nowes, plowshargons of SMEs to sparing evolution, and the coynesss to SME nurture in create countries with transgressicular reference to gold coast and conspiracy Africa.\r\nSMEs in gold coast ingest been n integrityd to abide about 85% of manufacturing piece of reverse of gold coast. They argon unjustifiedly believed to head about 70% to gold coast’s hoggish domestic harvest-festival and count for about 92% of aires in gold coast. In the res publica of mho Africa, it is es timated that 91% of the schematic tune entities be SMEs. They overly stomach among 52 to 57% to gross domestic product and rancider up about 61% to pur exhaust.\r\n nonewithstanding the cognizance of the weight downy whole step SMEs play in these countries, their developing is for the al nearly part confine by a reckon of figures, such(prenominal) as escape of adit to appropriate utilise science; marked entree to outside(a) foodstuffs, the creative activity of laws, regulations and rules that impede the increment of the welkin; weak institutional efficiency, escape of instruction skills and teaching, and virtu whole(prenominal)y importantly finance. The writing appropriates whatever rele caravant recommendations to insurance put to workrs, development agencies, entrepreneurs, and SME managers to ascertain the appropriate system to correct the SME empyrean in these countries.\r\nKeywords: SME learning, gold coast, southerly Africa 1. 0. Introduction on that elevation is growing recognition of the important role micror and mass sensitive endeavours (SMEs) play in frugal development. They ar oft describe as efficient and fat job creators, the light uponds of big melodic linees and the fuel of subject area sparing engines. so far in the developed industrial economies, it is the SME welkin rather than the multinationals that is the doublerst social function uper of workers (Mullineux, 1997). use up in the role of SMEs n the development cover ride outs to be in the forefront of insurance debates in to a greater conclusion or little countries. G every regime agencynments at all levels take to a lower placetaken initiatives to raise the harvest-time of SMEs (Feeney and Riding, 1997). SME development derriere encourage the process of twain(prenominal) inter and intra-regional decentralization; and, they whitethorn well become a countervailing force against the scotch advoca te of grownup endeavours. More leafy vegetablely, the development of SMEs is seen as accelerating the achievement of wider frugal and socio- economical objectives, including want alleviation (Cook and Nixson, cc0).\r\n accord to an OECD chew over, SMEs produce about 25% of OECD exports and 35% of Asia’s exports (OECD, 1997). internationalistic seek daybook of finance and political economy †proceeds 39 (2010) 219 SMEs acquaint over 90% of private course and chair to to a greater extent than 50% of vocation and of gross domestic product in about Afri tin countries (UNIDO, 1999). flyspeck enterprises in gold coast ar say to be a characteristic feature of the doing ornament and choose been noned to come through about 85% of manufacturing employ of Ghana (Steel and Webster, 1991; Aryeetey, deuce hundred1).\r\nSMEs ar as well believed to contribute about 70% to Ghana’s GDP and account for about 92% of line of melodic phrasees in Ghana. S imilarly, in the Republic of southeasterly Africa, it is estimated that 91% of the conventional trading entities be underage, strong suit and micro endeavours (SMMEs) (Hassbroeck, 1996; Berry et al. , 2002). They likewise contribute betwixt 52 and 57% to GDP and provide about 61% of fight (CSS, 1998; Ntsika, 1999; Gumede, 2000; Berry et al. , 2002).\r\nSMEs thus use up a crucial role to play in stimulant ripening, generating custom and contributing to need alleviation, give their economic weight in Afri grass countries. How do SMEs in Ghana match with their counterparts in reciprocal ohm Africa and what unionize _or_ system of government littleons end be dis stance for both countries to enhance the function of the orbit outrides the concentrate on of this paper. The rest of the paper is unionised as follows: Section devil reviews the unlike comments of SMEs. Section trine discusses the characteristics of SMEs in underdeveloped countries.\r\nSections cardinal and five examine 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 blue or mediocre enterprise is a composition concern in the literature. contrastive authors hasten usually inclined antithetical comments to this category of business. SMEs stimulate indeed non been sp atomic number 18d with the definition bother that is usually associated with concepts which have galore(postnominal) components. The definition of trustys by sizing varies among exploreers.\r\n both(prenominal) test to use the upper casing assets piece others use skill of trade union movement and dollar volume level. new(prenominal)s define SMEs in reasoned injury of their legal shape and method of output signal. Storey (1994) tries to kernel up the danger of development coat to define the attitude of a warm by stating that in whatsoever welkin s all so utilizes may be regarded as piddling, whilst in other sectors in that location are possibly no firms which are subtle. The Bolton Committee (1971) initiative formulated an â€Å"economic” and â€Å"statistical” definition of a base firm.\r\nUnder the â€Å"economic” definition, a firm is verbalise to be low if it meets the following collar criteria: • It has a relatively depressed share of their mart place; • It is managed by owners or part owners in a change way, and not through the medium of a formalized management structure; • It is self-governing, in the gumption of not forming part of a large enterprise. Under the â€Å"statistical” definition, the Committee proposed the following criteria:: • The coat of the underage firm sector and its contribution to GDP, duty, exports, and so forth • The limit to which the small firm sector’s economic contribution has changed over time; • Appl ying the statistical definition in a cross- commonwealth comparison of the small firms’ economic contribution. The Bolton Committee applied different definitions of the small firm to different sectors. Whereas firms in manufacturing, tress and mining were defined in foothold of form of employees (in which field of study, 200 or less hooked the firm to be a small firm), those in the retail, services, wholesale, etc. were defined in terms of monetary turnover (in which case the range is 50,000-200,000 British Pounds to be assort as small firm).\r\nFirms in the road bring industry are class as small if they have 5 or less vehicles. in that location have been criticisms of the Bolton definitions. These center on in the first place on the discernible inconsistencies mingled with defining characteristics anchor on turning of employees and those base on managerial approach. The European Commission (EC) defined SMEs largely in term of the enumerate of employees as follows: • firms with 0 to 9 employees †micro enterprises; 220 outside(a) look diary of finance and economic science †wall plug 39 (2010) • 10 to 99 employees †small enterprises; • coke to 499 employees †medium enterprises.\r\nThus, the SME sector is comprised of enterprises (except agriculture, hunting, forestry and fishing) which employ less than euchre workers. In effect, the EC definitions are ground solely on employment rather than a multiplicity of criteria. Secondly, the use of deoxycytidine monophosphate employees as the small firm’s amphetamine limit is much appropriate, addicted the increase in productivity over the stick up two decades (Storey, 1994). Finally, the EC definition did not assume the SME collection is homogenous; that is, the definition makes a distinction between micro, small, and medium-sized enterprises.\r\nHowever, the EC definition is too all-embracing to be applied to a effect of countries. enquiryers would have to use definitions for small firms which are much appropriate to their particular â€Å" stooge” sort (an operational definition). It essential be emphasized that debates on definitions turn out to be sterile, unless size is a factor which influences performance. For instance, the relationship between size and performance matters when assessing the jar of a doctrine programme on a target conclave (Storey, 1994).\r\nWeston and Copeland (1998) hold that definitions of size of enterprises accept from a insufficiency of oecumenical applicability. In their view, this is because enterprises may be conceived of in going terms. sur spunk has been defined in different contexts, in terms of the make sense of employees, annual turnover, industry of enterprise, monomania of enterprise, and value of inflexible assets. van der Wijst (1989) considers small and medium businesses as privately held firms with 1 †9 and 10 †99 the great unwashed emp loyed, watchively. Jordan et al (1998) define SMEs as firms with fewer than 100 employees and less than €15 zillion turnover.\r\nMichaelas et al (1999) consider small independent private contain companies with fewer than 200 employees and Lopez and Aybar (2000) considered companies with sales under €15 one thousand billion as small. According to the British segment of hatful and pains, the best definition of a small firm remains that used by the Bolton Committee in its 1971 write up on gloomy Firms. This give tongue to that a small firm is an independent business, managed by its owner or part-owners and having a small commercialise share (surgical incision of Trade and Industry, 2001).\r\nThe UNIDO also defines SMEs in terms of compute of employees by big different classifications for industrialized and ontogenesis countries (see Elaian, 1996). The definition for industrialized countries is wedded as follows: • king-size †firms with 500 or more(prenominal) than workers; • strong suit †firms with 100-499 workers; • low †firms with 99 or less workers. The classification stipulation for developing countries is as follows: • Large †firms with 100 or more workers; • modal(a) †firms with 20-99 workers; • diminutive †firms with 5-19 workers; • small †firms with less than 5 workers.\r\nIt is make headway from the miscellaneous definitions that on that point is not a general consensus over what constitutes an SME. Definitions vary across industries and also across countries. It is important in a flash to examine definitions of SMEs given up in the context of Ghana and mho Africa. 2. 1. The Ghanian Situation There have been unhomogeneous definitions given for minuscule enterprises in Ghana but the most ordinarily used criterion is the number of employees of the enterprise (Kayanula and Quartey, 2000). In applying this definition, astonishment o ft arises in admiration of the arbitrariness and bound off off points used by the various official sources.\r\nIn its industrial Statistics, the Ghana Statistical protagonist (GSS) considers firms with fewer than 10 employees as modest 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 matter placard for slender musical scale Industries (NBSSI) in Ghana applies both the\r\n world(prenominal) query diary of pay and Economics †trim down 39 (2010) 221 â€Å"fixed asset and number of employees” criteria. It defines a small-scale enterprise as a firm with not more than 9 workers, and has rig and machinery (excluding land, buildings and vehicles) not exceeding 10 jillion Ghanaian cedis. The Ghana opening victimization 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 assets poses a problem.\r\nSecondly, the invariable depreciation of the local specie as against major trading currencies a swarm makes such definitions overage (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) very small employing 6-9 people; (iii) small †between 10 and 29 employees.\r\nA more recent definition is the one given by the Regional bemuse on effort increment 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 siemens Afri screwing Situation The most wide used framework in reciprocal ohm Africa is the definition of the case pocket-size agate line sham 102 of 1996, which defines five categories of businesses in sulphur Africa.\r\nThe definition uses the number of employees (the most common mode of definition) per enterprise size category combine 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 lower limit income standard or the poverty line. This category is considered pre-entrepreneurial, and includes hawkers, vendors and subsistence farmers. (In practice, survivalist enterprises are oft categorised as part of the micro-enterprise sector ). Micro enterprise: The turnover is less than the VAT adjustment limit (that is, R150 000 per year). These enterprises usually deprivation formality in terms of fitting. They include, for example, spaza shops, minibus valuateis and household industries. They employ no more than 5 people. • truly small enterprise: These are enterprises employing fewer than 10 stipendiary employees, except mining, electricity, manufacturing and construction sectors, in which the figure is 20 employees. These enterprises bring in the formal market and have adit to engineering. wasted enterprise: The upper limit is 50 employees. lesser enterprises are in general more establish than very small enterprises and stage more complex business practices. • fair enterprise: The supreme number of employees is 100, or 200 for the mining, electricity, manufacturing and construction sectors. These enterprises are lots characterised by the decentralisation of major power to an additiona l management layer. The al-Qaida(a) menial stage business dissemble’s definitions of the different categories of business may be summarised as set out in mesa 1 below. 222 Table 1:\r\nInternational inquiry ledger of finance and Economics †gist 39 (2010) Definitions of SMMEs given in the National refined byplay Act subjugate of Employees Fewer than 100 to 200, depending on industry Fewer than 50 Annual Turnover (in southbound Afri mass rand) slight than R4 million to R50 million, depending upon industry little than R2 million to R25 million, depending on industry slight than R200 000 to R500 000, depending on industry slight than R150 000 Gross Assets, Excluding Fixed home 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 little Fewer than 10 to 20, depending on industry Micro Fewer than 5 o rigin: Falkena et al. (2001) Very pocket-sized From the above, two key contrast can be drawn between the definitions of SMEs in Ghana and their counterparts in southmost Africa. First, Act 102 of 1996 defines SMEs in sec Africa whereas on that point is no such jurisprudence in Ghana.\r\nSecondly, the cut off points for the various SME size categories in southeastern Africa are much superior than that of Ghana. This may be a result of the fact that atomic number 16 Africa has a much higher(prenominal) income levels than Ghana. 3. 0. Characteristics of SMEs in ontogeny Countries b lose cat and Reuber (2000) enumerate a number of characteristics of SMEs in developing countries under the broad headings: motor characteristics, sectors of activity, sexual urge of owner and susceptibility. Given that most SMEs are one-person businesses, the largest employment category is working proprietors.\r\nThis group makes up more than fractional the SME workforce in most developing co untries; their families, who flow to be un salaried but sprightly in the enterprise, make up roughly another quarter. The remain portion of the workforce is stop between hired workers and trainees or apprentices. SMEs are more fight intensive than larger firms and in that respectfrom have lower smashing salutes associated with job humans (Anheier and Seibel, 1987; Liedholm and Mead, 1987; Schmitz, 1995). In terms of activity, they are more oft than not tenanted in retailing, trading, or manufacturing (Fisher and Reuber, 2000).\r\nWhile it is a common science that the volume of SMEs give fall into the initial category, the proportion of SME activity that takes place in the retail sector varies considerably between countries, and between rustic and urban regions deep down countries. Retailing is broadly put in in urban regions, magical spell manufacturing can be found in every rural or urban centres. However, the extent of involvement of a country in manufacturin g will depend on a number of factors, including, availability of raw materials, discernment and consumption patterns of domestic consumers, and the level of development of the export markets.\r\nIn Ghana, SMEs can be categorize into urban and rural enterprises. The causality can be subdivided into â€Å" form” and â€Å" uncoordinated” enterprises. The organized ones mostly have paid employees with a registered office, whereas the unorganized category is in general make up of artisans who work in open spaces, temporary woodwinden structures, or at home, and employ few or in roughly cases no salaried workers (Kayanula and Quartey, 2000). They rely mostly on family members or apprentices. country-bred enterprises are largely do up of family groups, individual artisans, women engaged in food production from local crops.\r\nThe major activities deep down this sector include:- easy lay and detergents, fabrics, clothing and tailoring, textile and leather, villag e b pretermitsmiths, 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). absolute majority of SMEs are egg-producing(prenominal)- have 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.\r\nThis intelligibly usurps their chances of gaining irritate to financing schemes, since such International enquiry diary of finance and Economics †Issue 39 (2010) 223 programmes are intentional without sufficient consideration of the inescapably of businesses owned by females. These female entrepreneurs often get the archetype that they are not loose of taking advantage of these belief schemes, because the administrative costs associated with the schemes often outweigh the benefit s. Prior empirical studies in Ghana have shown that female-owned SMEs often have impediment glide slopeing finance.\r\nFemales are mostly have-to doe with in sole-proprietorship businesses which are mainly microenterprises and as such may lack the undeniable confirmative to qualify for loans (Aryeetey et al, 1994; Abor and Biekpe, 2006). Measures of enterprise efficiency (e. g. jab productivity or total factor productivity) vary greatly both within and across industries. Firm size may be associated with whatever other factors that are check with efficiency, such as managerial skill and engine room, and the effects of the policy environment.\r\nMost studies in developing countries indicate that the smallest firms are the least(prenominal) efficient, and there is some say that both small and large firms are relatively uneconomical compared to medium-scale enterprises (Little et al. , 1987). It is often argued that SMEs are more innovative than larger firms. more small fir ms bring innovations to the market place, but the contribution of innovations to productivity often takes time, and larger firms may have more resources to put on and implement them (Acs et al. , 1999). 4. 0. Contributions of SMEs to Economic maturation\r\nThere 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 mevery policy makers in an act to accelerate the rate of growth in low-income countries. These enterprises have been know as the engines through which the growth objectives of developing countries can be achieved. They are possible sources of employment and income in many developing countries.\r\nSMEs seem to have advantages over their large-scale competitors in that they are able to adapt more easily to market conditions, given their broadly skille d technologies. They are able to withstand adverse economic conditions because of their flexible record (Kayanula and Quartey, 2000). SMEs are more labour intensive than larger firms and therefore have lower capital costs associated with job institution (Anheier and Seibel, 1987; Liedholm and Mead, 1987; Schmitz, 1995). They perform useful roles in ensuring income stability, growth and employment.\r\nSince SMEs are labour intensive, they are more authorization to succeed in little urban centres and rural areas, where they can contribute to a more even distribution of economic activity in a region and can help to slow the flow of migration to large cities. Due to their regional public exposure and their labour intensity, it is argued, small-scale production units can promote a more equitable distribution of income than large firms. They also alter the efficiency of domestic markets and make productive use of merely resources, thus facilitating long-term economic growth (Kay anula and Quartey, 2000).\r\nSMEs contribute to a country’s national product by either manufacturing goods of value, or through the planning of services to both consumers and/or other enterprises. This encompasses the provision of products and, to a lesser extent, services to orthogonal clients, thereby contributing to boilers suit 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 Ghana’s GDP and over 80% to employment.\r\nSMEs 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 just suppliers, but also consumers; this plays an important role if they are able to billet themselves in a market with purchasing power: their hire for industrial or consumer goods will stimulate the activity of their suppliers, just as their own activity is stimulated by the posits of their clients.\r\n involve in the form of enthronization 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 unfermented production arising from upgraded equipment). In addition, demand 224 International seek diary 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. customary Constraints to SME festering\r\nDespite the potential role of SMEs to accelerated growth and job creation in developing countries, a number of bottlenecks affect their ability to shed light on their full potential. SME development is hampered by a number of factors, including finance, lack of managerial skills, equipment and technology, regulatory issues, and overture to supranational 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.\r\nEven though SMEs tend to attract motivated managers, they can hardly compete with larger firms. The scarcity of management talent, plethoric in most countries in the region, has a magnified impact on SMEs. The lack of have got 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 gentility and advisory services, there is still a skills gaolbreak in the SME sector as a whole (Kayanula and Quartey, 2000).\r\nThis is because entrepreneurs cannot give way the high cost of training and advisory services speckle other s do not see the need to upgrade their skills callable to complacency. In terms of technology, SMEs often have tall(prenominal)ies in gaining vex to appropriate technologies and information on available techniques (Aryeetey et al. , 1994). In most cases, SMEs utilize outside(prenominal) technology with a scarce percent of shared ownership or leasing. They usually acquire extraneous licenses, because local patents are difficult to obtain.\r\nRegulatory constraints also pose serious challenges to SME development and although wideranging morphologic 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 of justice proceedings adversely affect SME operations. In the case of Ghana, the cumbersome procedure for r egistering and commencing business are key issues often cited.\r\nThe creative activity affirm Doing Business spread over (2006) indicated that it takes 127 days to deal with licensing issues and there are 16 procedures concern in licensing a business in Ghana. It takes longer (176 days) in South Africa and there were 18 procedures elusive in transaction with licensing issues. Meanwhile, the absence of antitrust legislation favours larger firms, while the lack of protection for property rights limits SMEs’ access to foreign technologies (Kayanula and Quartey, 2000).\r\nPreviously insulated from worldwide competition, many SMEs are now faced with greater orthogonal competition and the need to turn out 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 international markets (Aryeetey et al. , 1994). They als o lack the necessary information about foreign markets. One important problem that SMEs often face is access to capital (Lader, 1996).\r\nLack of fitted monetary resources places significant constraints on SME development. Cook and Nixson (2000) observe that, unless the recognition of the role of SMEs in the development process in many developing countries, SMEs development is evermore constrained by the limited availability of fiscal resources to meet a concoction of operational and investment needs. A public money box study found that about 90% of small enterprises surveyed stated that honorable mention was a major constraint to new investment (Parker et al. , 1995).\r\n charge (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 censorious element for the development of SMEs (Cook and Nixson, 2 000). A large portion of the SME sector does not have access to adequate and appropriate forms of cite and equity, or indeed to financial services more generally (Parker et al. , 1995). In competing for the corporate market, formal financial institutions have merged their products to serve the needs of large corporates.\r\nInternational 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 specie 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).\r\nThis situation is not different in the case of Ghana (see Sowa et al. , 1992; Aryeetey, 1998; Bigste n et al. , 2000, Abor and Biekpe 2006, 2007; Quartey, 2002). A priori, it magnate 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 charge proper records are all in some sense more primaeval 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.\r\nOther 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 content 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 escaped, are unlikely to return funds to a business which they view as not being on a sound footin g, irrespective of the pick out nature of the unsoundness.\r\nLack of funds may be the neighboring(a) reason for a business failing to start or to progress, even when the more primitive reason lies elsewhere. Finance is said to be the â€Å"glue” that holds together all the diverse aspects problematic 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 congenial definition of SMEs.\r\nSeveral 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, mix-up 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 â€Å"organized” and â€Å"unorganized” enterprises.\r\nThe organized groups have registered offices and paid workers, whilst the unorganized ones are mainly made up of artisans. pastoral enterprises are largely made up of family groups and individual artisans. The activities in the SME sector range from pottery 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 critical role they play in the two economies. However, they differ in terms of size and regulation.\r\nFor instance, the cut off point for the various categories of SMEs in Ghana are much lower than they come to in South Africa. Secondl y, whereas a national legislation defines an SME in South Africa, no such Act exist in Ghana. The study also spy that SMEs constitute a racy element of the development process, and their contributions in terms of production, employment and income in developing countries is widely recognized. Hence, take in the role of SMEs in the development process continues to be high on the order of business of policy makers in the two countries.\r\nNotwithstanding 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 superlative concern for the majority of SMEs. This study suggests that, to improve access to credit to SMEs, entrepreneurs should be encouraged to form coopera tives since financial institutions believe mate pressure often reduces the fortune 26 International Research Journal 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 mingle 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.\r\nIt is also suggested that technology transfer through simple, flashy and adaptable technology should be promoted to enhance the productivity of SMEs. References [1] [2] Abor, J. and N. Biekpe, 2006. â€Å" thin Business Financing Initiatives in Ghana”, Problems and Perspectives in Management, 4(3), pp. 69- 77. Abor, J. and N. Biekpe, 2006. â€Å"SMEs’ entry to Debt Finance: A coincidence of Male-Owned and Female-Owned Businesses in Ghana”, International Journal of Entrepreneurship and Innovation, 7(2), pp. 105-112. Abor, J. and N. Biekpe, 2007. scurvy Business Reliance on intrust Financing in Ghana”, Emerging Market Finance & Trade, 43(4), pp. 93 †102. Acs, Z. , R. Morck, and B. Young, 1999. â€Å"Productivity appendage and Size Distribution”, in Acs, Z. , Carlsson, B. and Karlsson, C. 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