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The purpose of this research study is to investigate the relationship between financial inclusion, to be specific access to finance and its impact on the performance of firms in the Construction sector of Ghana. As it is well known in the literature that financial inclusion generally has a positive influence on performance, will the results differ if the scope is narrowed down from country level to firms with similar characteristics?
Firstly, the paper seeks to identify the level of financial inclusion among firms in the Construction sector of Ghana. Secondly, through the use of OLS regression methods, the relationship between financial inclusion variables and performance is analysed. Taking cross- sectional data from 42 Construction firms in the Greater Accra Region registered with the Association of Builders and Contractors Ghana.
The analysis showed that not all financial inclusion variables were significant to the performance of firms in the construction sector. However, agreeing with existing literature that there is a positive causality relationship between access to finance and financial performance. Heavy influences on financial performance came from long term financial services. And a discovery that regulations could greatly influence financial performance as well.
These results speak loads into future policy formulation especially for a country that suffers from a great infrastructural deficit. The performance of construction firms can be greatly enhanced if these policies make firms in the sector more financially inclusive. The focus of these policies must be on long term financial service provision which will be the funds most beneficial to construction firms in Ghana.
A basic need of every corporation for startup, survival, and growth is funds. It is apparent that funds play quite a significant role in the form of initial capital, working capital and in the cause of growth, companies make capital investments which may bring in positive returns or even the expansion of staff (Organisation for Economic Co-operation and Development, 2006). Access to funds then becomes a key factor for every firm. The need for systems within an economy to facilitate this ease of access is paramount and its impact needs to be consistently analysed not just for deeper understanding but also the knowledge that may influence policy. Analyses on access to funds is not a new concept in literature. It has been established by (Malhorta et al., 2007) that insufficient financial resources are key obstacles to firm growth. Especially in developing countries, a consistent factor faced by firms is their access to funds. (Regasa, Fielding, & Roberts, 2017) explained the association between financial access or financial inclusion and growth of firms in Ethiopia. By studying how access to various forms of funds to firm growth establishing that external funds had a negative relation with firm growth. Access to finance is not the only subject to consider with regard to firm performance. The concept of financial inclusion has to be involved. Access to finance and financial inclusion are interwoven variables. It is one factor to access finance for productivity and another factor as to the decisions of firms to use various financial services that are available in order to run their businesses. In the past, various literature has clamped financial inclusion as part of financial development. In effect, the relationship between financial development and economic growth have been explored to a great extent. However, financial development does not necessarily single out financial inclusion and its impact. (Sarma, 2008).
It is therefore imperative that a direct relationship is clearly defined as that will be beneficial to research and policy.
The construction sector of Ghana has always had great potential for economic transformation and growth. Aside from its political stance, it has been recorded that the construction sector has been a key donor to the overall Gross Domestic Product of Ghana since 2006. Construction has made an average contribution of GHS 2311.61 Million to the GDP of Ghana since 2006 (Tradeeconomics.com, 2018) However, as a developing country, Ghana still continues to lag severely in infrastructural growth in comparison to the demands for more amenities. According to the National Population Council, it is estimated that Ghana has a population growth rate of about 2.5% annually. The implication of this is that there is a greater need for faster infrastructural growth. The infrastructural deficit cannot be manned by the government alone. There has to be a collaborative effort from firms in the construction sector which have not been all that prevalent in the country. If firms must participate, then it obvious that they will need to have access to funds as most construction projects tend to be capital intensive in nature. Very little has been done in research that narrows down on the influence of financial inclusion and access to funds on the level of output of construction companies in Ghana. If access to funds and financial inclusion contribute to a major role in the performance of firms, can the challenges of firms in the construction sector of Ghana and their contribution or lack thereof be attributed to financial inclusion variables? Will recent government policies towards restructuring funds that favor the sector be a warranted move?
While the impact of financial inclusion and financial access have been explored in various facets, there are still important gaps that can be identified. Most literature studies look at its broad encompassing and macro-level impact as well as its effect across firms in multiple sectors (Regasa et al., 2017, Fowowe, 2017). And while this is important, The argument here
is that each sector of the economy stipulates certain specific characteristics of firms operating within it (Bongomin et al, 2017). The studies done so far do not look at the impact of these variables on a sector-specific perspective. There has to be a consideration for the nuances and demands exclusive to the sector and how such characteristics may or may not affect existing empirical research. Such an understanding of how access to funds and financial inclusion affects firms with similar demands and characteristics, in this case in the construction sector may open doorways for sector-specific policy changes that may have a more lasting effect on firms in that sector. This paper will seek to reveal the importance or effect of access to finance of firms in the construction sector and explore its effect on their performance. Which may have implications on the economy as a whole.
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