The Missing Middle

In Ghana our key clients are a handicraft company called CraftPro and one or two pineapple exporters.  Based on their size, both of these firms are considered to be small medium sized enterprises (SMEs).   In Ghana, SMEs provide 85% of manufacturing employment and contribute to 70% of National GDP (Abor, Quartey, 2010).  Typically micro-enterprises have access to small loans through microfinance institutions and multinationals have access to capital all over the world.  However, SMEs are in between and often referred to as the “missing middle”.  SMEs have been described as “efficient and prolific job creators”, which makes them an important vehicle for national economic growth.

The main challenges that hinder the growth of SMEs are, the lack of collateral which is important for supporting loans, and the lack of credit history.  Furthermore, SME’s are considered to be very high risk firms, since they typically need larger loans with longer repayment terms, which have a greater risk of default. Therefore, commercial banks impose higher thresholds for providing a loan.  At the same time, in order to grow the business and be able to have access to more attractive sources of financing these companies need to build their credit history and show lenders they have been able to pay off the loans, which creates a “chicken and egg” scenario.

The two projects in Ghana will no doubt be a valuable learning experience for all teams, but at the same time, our efforts to help identify and educate our clients on potential funding sources, will hopefully have a much broader impact on the companies themselves and other SMEs in Ghana.

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