Does Source of Finance Matter for Microenterprise Productivity Growth in Ghana?

Abstract

The primary goal of this study is to gauge the incentive properties of the various sources of microenterprise financing. Specifically, the study seeks to investigate the effects of nature and a range of institutional sources of finance on micro and small enterprises’ (MSEs) productivity edge and growth. Using non-farm household enterprise data from Ghana, the study findings suggest that too much of grant and internal source of finance, compared to debt finance, can be counterproductive. It has the tendency to undermine the motivation and incentive for microentrepreneur to be innovative in bringing about a higher productivity. However, awareness of appropriate sources, and access to a more formal finance, are found to be associated with productivity edge. Having access to semi-formal and formal financial institutions do not only afford microentrepreneurs to make the needed investment in innovations and newest vintage of capital stocks, which embodied modern technologies and productive efficiencies, but also MSEs are more likely to receive technical and managerial advice that will eventually lead to higher productivity and growth.