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Foreign Banks Entry into Developing Countries: Impact on Lending to Small and Medium Enterprises (SMEs): The Ghanaian Experience - Dissertation Example

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Foreign Banks Entry into Developing Countries: Impact on Lending to Small and Medium Enterprises (SME's): The Ghanaian Experience Presented by: Presented to: Introduction The 21st century transformed the pattern of trade. It may seem cliched that the world has turned into a global village…
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Foreign Banks Entry into Developing Countries: Impact on Lending to Small and Medium Enterprises (SMEs): The Ghanaian Experience
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"Foreign Banks Entry into Developing Countries: Impact on Lending to Small and Medium Enterprises (SMEs): The Ghanaian Experience"

Download file to see previous pages This has two fold effects; cost saving by the American companies and a source of income for the Indians. Modern technology and Internet have led to a canopy of network all the world. This has increased the number of foreign banks entering the lesser developed markets. The banks have an added advantage in those markets due to the lack of competitiveness. Lesser Developed countries are mainly agrarian. The main source of income is working in the fields. The dependency ratio is quite high. However, one of the major sources of employment in these countries is the cottage and SMEs. This is especially true for people living in remote or rural areas. According to Clark, Cull and Peria (2002) small and medium scaled enterprise comprises of more than 50% of employment for some of the lesser developed countries. They are the dynamic sectors of the economy and their success could serve as a predecessor towards industrialization. However, they lack proper financing which usually hinders their growth prospects. Objectives With the advent and increased number of foreign banks dominating the market the situation has worsened. It is believed that the entry of foreign banks into the market of a less developed country would raise the competition and thus, there would be an easy and an efficient provision of loans. However, it is a fact that market asymmetries occur and the greater competition leads to a reduction is the access of credit to local firms (Petersen and Rajan, 1995). The foreign are risk averse and therefore, in order to minimize cost and maximize benefits loan only to the profitable firms that are highly credit worthy. The purpose of this study is to investigate the impact of the entrance of foreign banks into local markets. An assessment on their effects on granting loans would be prepared. Special emphasis would be laid upon SMEs. Lending behavior towards the SMEs would be analyzed and it would be assessed that whether the volume has increased or decreased with the entry of foreign banks. Moreover, changes in the services and products offered to SMEs would be identified. In addition the credit policy, credit process and characteristics of loans offered to SMEs would be appraised. Thus, the focus of the study is to deeply emphasize on the position of finances of SMEs with the prevalence of foreign banks. Basically the existence of foreign banks would be weighed upon the benefits and disadvantages to the SMEs. The research would work upon the following null hypothesis against the alternate hypothesis: H0: The existence of foreign banks provide higher provision of loans for SMEs H1: The existence of foreign banks do not provide higher provision of loans for SMEs This hypothesis would be tested by focusing upon the following questions: 1) What is the impact of Foreign Banks on Domestic Bank Lending? 2) Has credit to SME’s increased or decreased following the entry of Foreign Banks? 3) What are the different types of loans offered to SMEs and how are they delivered? 4) What are the credit policies and the criteria for assessing SMEs loan application? 5) What are terms and conditions of providing loans? 6) What possible steps do SMEs need to take in order to get financed by banks? Literature Review The backbone of all businesses is finance. The industries are heavily dependent on the lending institutions for the availability of finances. The loan market works somewhat, similar to a product market. Interest rates are the main determinants. High ...Download file to see next pagesRead More
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