The Demand for Landed Property as Collateral for Loan Facilities and its Impact on Small Enterprises’ Investment Drive

One of the biggest constraints in developing countries, as far as investment by small and medium enterprises (SMEs) is concerned, is finance. They (SMEs) often cite difficult access to finance as an important constraint on their operations. For starters the problem is often seed capital whilst that of established enterprises is working capital as well as finance for expansion. The last resort, in most cases, for most of these needy investors and prospective investors is often to borrow from financial institutions. Financial institutions, however in granting the credit required, would normally demand some form of security for the repayment of the money loaned. One of such securities often demanded by financial institutions (especially in developing countries such as Ghana) is landed property.

This study “The Demand for Landed Property as Collateral for Loan Facilities and its Impact on Small Enterprises’ Investment Drive” examines the issues associated with the demand for and the use of landed property as collateral by financial institutions and SMEs respectively and the impact of this requirement on investment drive in Wa Municipality of Ghana. The study revealed that small enterprises’ ability (ownership of landed property) to meet the requirement of landed property as collateral varies significantly from their willingness to mortgage their property. Fewer SMEs are able to meet the requirement than those who cannot. There was however, massive support for the requirement. The requirement was found to impact negatively on the investment drive of SMEs. The findings are based on a sample of 302 respondents made up of all (7) financial institutions in the Municipality that accept landed property as collateral and 205 SMEs identified as legal and successful and therefore potential candidates for bank financing.