European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.10, No.21, 2018 143 Access to External Finance by Micro Small and Medium Manufacturing Enterprises in Kumasi Metropolis: Evidence on the Impact of Financial Management Practices. Siaw Frimpong, PhD Department of Finance, School of Business, University of Cape Coast, Ghana Email: sfrimpong@ucc.edu.gh Abstract The aim of this study was to analyse how financial management practices of Micro, Small and Medium Manufacturing Enterprises (MSMMEs) affect access to external finance in Ghana. Specifically, the study analysed the effect of preparation and usage of financial information, business plan, capital budgeting and working capital management on access to external finance of MSMMEs in Ghana. The study employed Logistic regression on a sample size of 361 MSMMEs. The study found that MSMMEs’ preparation and use of financial information, business plan and capital budgeting increase the probability of MSMMEs accessing external finance. It is recommended that MSMMEs incorporate good financial management practices in their operations in order to enhance their access to external finance. Key words: Micro, Small and Medium Manufacturing Enterprises, Financial management practices, Access to finance, Logistic regression 1. Introduction One of the major constraints identified as hindering the growth and development of micro, small and medium enterprises (MSMEs) is access to finance. Access to financing is consistently cited by MSMEs as one of the main barriers to growth (International Finance Corporation (IFC), 2009). According to Olawale & Asah (2011), one of the factors limiting the survival and growth of small and medium enterprises (SMEs) is non-availability of debt financing. There is considerable evidence to support the contention that MSMEs, in particular, face a number of obstacles and problems in accessing finance, mainly because of their limited resources and perceived risk by lenders (Cassar & Holmes, 2003; AfDB/OECD, 2005; Boachie-Mensah & Marfo-Yiadom, 2006; Beck, Demirguc-Kunt & Maksimovic, 2008; World Economic Forum, 2009; Mazanai & Fatoki, 2012). This is particularly problematic and worrisome for policy makers, given that MSMEs and entrepreneurship are widely recognized as being the key sources of dynamism, innovation and flexibility in the advanced industrialized economies, emerging markets and developing economies. Micro, small and medium enterprises are major net job creators in these economies (Organisation for Economic Co-operation and Development (OECD), 2006a; 2006b). The difficulty in accessing finance has been described as the most significant constraint facing MSMEs in both developed and developing countries (Mina, Lahr & Hughes, 2012; Beck, 2007; Cassell, 2006; Mensah, 2004). According to Lashitew (2011), lack of financial access is argued to be one of the most binding constraints for small firms, especially in developing countries. In a survey conducted by Beck (2007), access to and cost of finance were ranked among the most constraining features of the business environment of MSMEs. In Ghana, access to finance continues to be a major problem confronting MSMEs. It was ranked as the most problematic factor in business operations in Ghana according to a Global Competitiveness Report 2010-2011 (World Economic Forum, 2010). Mensah (2004) asserts that there are many who believe that the single most important factor constraining the growth of the MSMEs sector is the lack of finance. A survey of small and medium-sized enterprises in Accra, Kumasi and Takoradi by Aryeetey et al., in 1993, cited in Aryeetey (1996) indicated that about 63 percent of the firms in the study applied for bank loans for their present businesses. On the average, firms applied at least twice for loans but only 50 percent had their loan applications approved. For micro enterprises, only 30 percent of applications were successful. Micro enterprises had to put in an average of three applications before one was successful. The Association of Ghana Industries (AGI) has documented access to finance as a major problem since 2010. According to the Association of Ghana Industries (AGI), cost of credit and access to credit remain the most critical factors limiting the growth of businesses operating in Ghana. Access to credit was ranked among the top six and cost of credit was ranked among the top three problems that firms face in doing business in Ghana (AGI, 2010).This trend has not changed. In 2016, access to finance was ranked fourth critical limiting factor of growth of businesses in Ghana in the first and second quarters of 2016 and third CORE Metadata, citation and similar papers at core.ac.uk Provided by International Institute for Science, Technology and Education (IISTE): E-Journals