History and Development of Banks in India

History and Development of Banks in India INTRODUCTION: The banking industry in India seems to be unaffected from the global financial crises which started from U.S in the last quarter of 2008. Despite the fallout and nationalization of banks across developed economies, banks in India seems to be on the strong fundamental base and seems to be well insulated from the financial turbulence emerging from the western economies. The Indian banking industry is well placed as compare to their banking industries western counterparts which are depending upon government bailout and stimulus packages. The strong economic growth in the past, low defaulter ratio, absence of complex financial products, regular intervention by central bank, proactive adjustment of monetary policy and so called close banking culture has favored the banking industry in India in recent global financial turmoil. Although there will no impact on the Indian banking system similar to that in west but the banks in India will adopt for more of defensive approach in credit disburs al in coming period. In order to safe guard their interest, banks will follow stringent norms for credit disbursal. There will be more focus on analyzing borrower financial health . A nation with 1 billion plus, India is the fastest growing country in terms of population and soon to overtake China as worlds largest populated country. The discerning impact on the over-stretched limited resources explains why India always tends to be deficient in infrastructure and opportunity. The largest economy of the world often frustrated researchers, as there was no single predictable pattern of the market; the multiplicity of government regulations and widespread government ownership had always kept investors away from exploring the vast Indian market. However, with India being liberalised today, banking intermediation has been playing a crucial role in economic development through its credit channel. Foreign banks have entered the soil but that has not yet posed a threat to the vast network of public sector banks that still conduct 92% of banking business in India. Banking in India has undergone a major revamp. It has come a long way since its creation which dates back to the British era. The present banking systems has come into place after many transformations from the Older systems. Against this background the present chapter deals with the evolution of the Indian Banking systems, the various reforms that has been made to make banks more effective, the role of private and foreign sector banks and last the challenges the Indian banks faces in the New Millennium . The banking system is central to a nations economy. Banks are special as they not only accept and deploy large amounts of uncollateralised public funds in a fiduciary capacity, but also leverage such funds through credit creation. In India, prior to nationalisation, banking was restricted mainly to the urban areas and neglected in the rural and semi-urban areas. Large industries and big business houses enjoyed major portion of the credit facilities. Agriculture, small-scale industries and exports did not receive the deserved attention. Therefore, inspired by a larger social purpose, 14 major banks were nationalised in 1969 and six more in 1980. Since then the banking system in India has played a pivotal role in the Indian economy, acting as an instrument of social and economic change. The rationale behind bank nationalisation has been succinctly put forth by eminent bankers: Many bank failures and crises over two centuries, and the damage they did under laissez faire conditions; the needs of planned growth and equitable distribution of credit, which in privately owned banks was concentrated mainly on the controlling industrial houses and influential borrowers; the needs of growing small scale industry and farming regarding finance, equipment and inputs; from all these there emerged an inexorable demand for banking legislation, some government control and a central banking authority, adding up, in the final analysis, to social control and nationalisation (Tandon, 1989). Post nationalisation, the Indian banking system registered tremendous growth in volume. Despite the undeniable and multifold gains of bank nationalization, it may be noted that the important financial institutions were all state owned and were subject to central direction and control. Banks enjoyed little autonomy as both lending and deposit rates were controlled until the end of the 1980s. Although nationalisation of banks helped in the spread of banking to the rural and hitherto uncovered areas, the monopoly granted to the public sector and lack of competition led to overall inefficiency and low productivity. By 1991, the countrys financial system was saddled with an inefficient and financially unsound banking sector. Some of the reasons for this were (i) high reserve requirements, (ii) administered interest rates, (iii) directed credit and (iv) lack of competition (v) political interference and corruption. As recommended by the Narasimham Committee Report (1991) several reform mea sures were introduced which included reduction of reserve requirements, de-regulation of interest rates, introduction of prudential norms, strengthening of bank supervision and improving the competitiveness of the system, particularly by allowing entry of private sector banks. With a view to adopting the Basel Committee (1988) framework on capital adequacy norms, the Reserve Bank introduced a risk-weighted asset ratio system for banks in India as a capital adequacy measure in 1992. Banks were asked to maintain risk-weighted capital adequacy ratio initially at the lower level of 4 per cent, which was gradually increased to 9 per cent. Banks were also directed to identify problem loans on their balance sheets and make provisions for bad loans and bring down the burgeoning problem of non-performing assets. The period 1992-97 laid the foundations for reform in the banking system (Rangarajan, 1998). The second Narasimham Committee Report (1998) focussed on issues like strengthening of th e banking system, upgrading of technology and human resource development. The report laid emphasis on two aspects of banking regulation, viz., capital adequacy and asset classification and resolution of NPA-related problems. Commercial banks in India are expected to start implementing Basel II norms with effect from March 31, 2007. They are expected to adopt the standardised approach for credit risk and the basic indicator approach for operational risk initially. After adequate skills are developed, both at the banks and at the supervisory levels, some banks may be allowed to migrate to the internal rating based (IRB) approach (Reddy 2005). At present, banks in India are venturing into non-traditional areas and generating income through diversified activities other than the core banking activities. Strategic mergers and acquisitions are being explored and implemented. With this, the banking sector is currently on the threshold of an exciting phase. Against this backdrop, this paper endeavours to study the important banking indicators for the last 25-year period from 1981 to 2005. These indicators have been broadly grouped into different categories, viz., (i) number of banks and offices (ii) deposits and credit (iii) investments (iv) capital to risk-weighted assets ratio (CRAR) (v) non performing assets (NPAs) (vi) Income composition (vii) Expenditure composition (viii) return on assets (ROAs) and (ix) some select ratios. Accordingly, the paper discusses these banking indicators in nine sections in the same order as listed above. The paper concludes in section X by drawing important inferences from the trends of these di fferent banking parameters. The number of offices of all scheduled commercial banks almost doubledfrom 29,677 in 1980 to 55,537 in 2005. This rapid increase in the number of bank offices is observed in the case of all the bank groups. However, the number of banks in the case of foreign bank group and domestic private sector bank group decreased from 42 in 2000 to 31 in 2005 and from 33 in 2000 to 29 in 2005, respectively. This fall in the number of banks is reflective of the consolidation process and, in particular, the mergers and acquisitions that are the order of the banking system at present (Table 1). BANKING IN THE OLDER DAYS Banking is believed to be a part of Indian society from as early as Vedic age; transition from mere money lending to banking must have happened before Manu, the great Hindu jurist, who had devoted a large section of his work to deposits and advances and also formulated rules for calculating interest on both 1. During the Mogul period indigenous bankers (rich individuals or families) helped foreign trades and commerce by lending money to the business. It was during the East Indian period when agency houses started managing the banking business. The first Joint Stock bank India saw came in 1786 named the General Bank of India followed by the Bank of Hindustan and the Bengal Bank. Only the Bank of Hindustan continued to be in the show until 1906 while the other two disappeared in the meantime. East India Company established three banks in first half of 19th century: the Bank of Bengal in 1809, the Bank of Bombay in 1840, and the Bank of Madras in 1843. Eventually these three banks (which used to be referred to as Presidency Banks) were made independent units and they really did well for almost a century. In 1920, these three were amalgamated and a new Imperial Bank of India was established in 1921. Reserve Bank of India Act was passed in 1934 and finally in 1935, the Central Bank was created and christened as Reserve Bank of India. Imperial Bank was undertaken as State Bank of India after passing the State Bank of India Act in 1955. During the last phase of freedom fighting (Swadeshi Movement) few banks with purely Indian man agement were established like Punjab National bank (PNB), Bank of India (BoI) Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd, etc.July 19, 1969 was an important day in the history of Indian banking industry. Fourteen major banks of the country were nationalised and on April 15, 1980 six more commercial private banks were taken over by the Indian government. In the wake of liberalisation that started in the last decade a few foreign banks entered the foray of commercial banks. To date there are around 40 banks of foreign origin that are  operating in the market, like ABN AMRO Bank, ANZ Grindlays Bank, American Express Bank, HSBC Bank, Barclays Bank and Citibank groups to name a few major of them. HISTORY OF INDIAN BANKS: We can identify three distinct phases in the history of Indian Banking. Early phase from 1786 to 1969 Nationalisation of Banks and up to 1991 prior to banking sector Reforms New phase of Indian Banking with the advent of Financial Banking Sector Reforms after 1991. The first phase is from 1786 to 1969, the early phase up to the nationalisation of the fourteen largest of Indian scheduled banks. It was also the traditional or conservative phase of Indian Banking. The advent of banking system of India started with the establishment of the first joint stock bank, The General Bank of India in the year 1786. After this first bank, Bank of Hindustan and Bengal Bank came to existence. In the mid of 19th century, East India Company established three banks The Bank of Bengal in 1809, The Bank of Bombay in 1840, and bank of Madras in 1843. These banks were independent units and called Presidency banks. These three banks were amalgamated in 1920 and a new bank, Imperial Bank of India was established. All these institutions started as private shareholders banks and the shareholders were mostly Europeans. The Allahabad Bank was established in 1865. The next bank to be set up was the Punjab National Bank Ltd., which was established with its headquarters at La hore in 1894 for the first time exclusively by Indians. Most of the Indian commercial banks, however, owe their origin to the 20th century. Bank of India, Central Bank of India, Bank of Baroda, the Canara Bank, the Indian Bank, and the Bank of Mysore were established between 1906 and 1913. The last major commercial bank to be set up in this phase was the United Commercial Bank in 1943. Earlier the establishment of Reserve Bank of India in 1935 as the central bank of the country was an important step in the development of commercial banking in India. The history of joint stock banking in this first phase was characterised by slow growth and periodic failures. There were as many as one thousand one hundred banks, mostly small banks, failed during the period from 1913 to 1948. The Government of India concerned by the frequent bank failures in the country causing miseries to innumerable small depositors and others enacted The Banking Companies Act, 1949. The title of the Act was changed as Banking Regulation Act 1949, as per amending Act of 1965 (Act No.23 of 1965). The Act is the first regulatory step undertaken by the Government to streamline the functioning and activities of commercial banks in India. Reserve Bank of India as the Central Banking Authority of the country was vested with extensive powers for banking supervision. Salient features of the Act are discussed in a separate page/article At the time of Independence of the country in 1947, the banking sector in India was relatively small and extremely weak. The banks were largely confined to urban areas, extending loans primarily to trading sector dealing with agricultural produce. There were a large number of commercial banks, but banking services were not available at rural and semi-urban areas. Such services were not extended to different sectors of the economy like agriculture, small industries, professionals and self-employed entrepreneurs, artisans, retail traders etc. DRAW BACK OF INDIAN BANKING SYSTEM BEFORE NATIONALISATION Commercial banks, as they were privately owned, on regional or sectarian basis resulted in development of banking on ethnic and provincial basis with parochial outlook. These Institutions did not play their due role in the planned development of the country. Deposit mobilisation was slow. Public had less confidence in the banks on account of frequent bank failures. The savings bank facility provided by the Postal department was viewed a comparatively safer field of investment of savings by the public. Even the deficient savings thus mobilised by commercial banks were not channeled for the development of the economy of the country. Funds were largely given to traders, who hoarded agricultural produce after harvest, creating an artificial scarcity, to make a good fortune in selling them at a later period, when prices were soaring. The Reserve Bank of India had to step in at these occasions to introduce selective credit controls on several commodities to remedy this situation. Such cont rols were imposed on advances against Rice, Paddy, Wheat, Other foodgrains (like jowar, millets, ragi etc.) pulses, oilseeds etc. When the country attained independence Indian Banking was exclusively in the private sector. In addition to the Imperial Bank, there were five big banks each holding public deposits aggregating Rs.100 Crores and more, viz. the Central Bank of India Ltd., the Punjab National Bank Ltd., the Bank of India Ltd., the Bank of Baroda Ltd. and the United Commercial Bank Ltd. Rest of the banks were exclusively regional in character holding deposits of less than fifty Crores. Government first implemented the exercise of nationalisation of a significant part of the Indian Banking system in the year 1955, when Imperial Bank of India was Nationalised in that year for the stated objective of extension of banking facilities on a large scale, more particularly in the rural and semi-urban areas, and for diverse other public purposes to form State Bank of India. SBI was to act as the principal agent of the RBI and handle banking transactions of the Union State Governments throughout India. The step w as in fact in furtherance of the objectives of supporting a powerful rural credit cooperative movement in India and as recommended by the The All-India Rural Credit Survey Committee Report, 1954. State Bank of India was obliged to open an accepted number of branches within five years in unbanked centres. Government subsidised the bank for opening unremunerative branches in non-urban centres. The seven banks now forming subsidiaries of SBI were nationalised in the year 1960. This brought one-third of the banking segment under the direct control of the Government of India. But the major process of nationalisation was carried out on 19th July 1969, when the then Prime Minister of India, Mrs.Indira Gandhi announced the nationalisation of fourteen major commercial banks in the country. One more phase of nationalisation was carried out in the year 1980, when seven more banks were nationalised. This brought 80% of the banking segment in India under Government ownership. The country entered the second phase, i.e. the phase of Nationalised Banking with emphasis on Social Banking in 1969/70. Chronology of Salient steps by the Government after Independence to Regulate Banking Institutions in the Country 1949: Enactment of Banking Regulation Act. 1955 (Phase I): Nationalisation of State Bank of India 1959 (Phase II): Nationalisation of SBI subsidiaries 1961: Insurance cover extended to deposits 1969 (Phase III): Nationalisation of 14 major banks 1971: Creation of credit guarantee corporation 1975: Creation of regional rural banks 1980 (Phase IV): Nationalisation of seven banks with deposits over 200 crores. Shortcomings in the Functioning of Nationalised Banking Institutions However Nationalised banks in their enthusiasm for development banking, looking exclusively to branch opening, deposit accretion and social banking, neglected prudential norms, profitability criteria, risk-management and building adequate capital as a buffer to counter-balance the ever expanding risk-inherent assets held by them. They failed to recognise the emerging non-performing assets and to build adequate provisions to neutralise the adverse effects of such assets. Basking in the sunshine of Government ownership that gave to the public implicit faith and confidence about the sustainability of Government-owned institutions, they failed to collect before hand whatever is needed for the rainy day. And surfeit blindly indulged is sure to bring the sick hour. In the early Nineties after two decades of lop-sided policies, these banks paid heavily for their misdirected performance in place of pragmatic and balanced policies. The RBI/Government of India has to step in at the crisis-hour to implement remedial steps. Reforms in the financial and banking sectors and liberal re capitalisation of the ailing and weakened public sector banks followed. However it is relevant to mention here that the advent of banking sector reforms brought the era of modern banking of global standards in the history of Indian banking. The emphasis shifted to efficient, and prudential banking linked to better customer care and customer service. The old ideology of social banking was not abandoned, but the responsibility for development banking is blended with the paramount need for complying with norms of prudency and efficiency. Composition of Indian Banking System The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions 2. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look into their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the high revenue niche retail segments. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The banking system has three tiers. These are the scheduled commercial banks; the Regional rural banks which operate in rural areas not covered by the scheduled banks; And the cooperative and special purpose rural banks. Under the ambit of the nationalized banks come the specialized banking institutions. These co-operatives, rural banks focus on areas of agriculture, rural development etc., unlike commercial banks these co-operative banks do not lend on the basis of a prime lending rate. They also have various tax sops because of their holding pattern and lending structure and hence have lower overheads. This enables them to give a marginally higher percentage on savings deposits. Many of these cooperative banks diversified into specialized areas (catering to the vast retail audience) like car finance, housing loans, truck finance etc. In order to keep pace with their public sector and private counterparts, the co-operative banks too have invested heavily in information technology to offer high-end computerized banking services to its clients. Given below is the total list of banks operating in India. SCHEDULED AND NON SCHEDULED BANKS There are approximately Eighty scheduled commercial banks, Indian and foreign; almost Two Hundred regional rural banks; more than Three Hundred Fifty central cooperative banks, Twenty land development banks; and a number of primary agricultural credit societies. In terms of business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector.India had a fairly well developed commercial banking system in existence at the time of independence in 1947. The Reserve Bank of India (RBI) was established in 1935. While the RBI became a state owned institution from January 1, 1949, the Banking Regulation Act was enacted in 1949 providing a framework for regulation and supervision of commercial banking activity. The first step towards the nationalisation of commercial banks was the result of a report (under the aegis of RBI) by the Committee of Direction of All India Rural Credit Survey (1951) which till today is the locus classicus on the subject. The Committee recommended one strong integrated state partnered commercial banking institution to stimulate banking development in general and rural credit in particular. Thus, the Imperial Bank was taken over by the Government and renamed as the State Bank of India (SBI) on July 1, 1955 with the RBI acquiring overriding substantial holding of shares. A number of erstwhile banks owned by princely states were made subsidiaries of SBI in 1959. Thus, the beginning of the Plan era also saw the emergence of public ownership of one of the most prominent of the commercial banks. The All-India Rural Credit Survey Committee Report, 1954 recommended an integrated approach to cooperative credit and emphasised the need for viable credit cooperative societies by expanding their area of operation, encouraging rural savings and diversifying business. The Committee also recommended for Government participation in the share capital of the cooperatives. The report subsequently paved the way for the present structure and composition of the Cooperative Banks in the country There was a feeling that though the Indian banking system had made considerable progress in the 50s and 60s, it established close links between commercial and industry houses, resulting in cornering of bank credit by these segments to the exclusion of agriculture and small industries. To meet these concerns, in 1967, the Government introduced the concept of social control in the banking industry. The scheme of social control was aimed at bringing some changes in the management and distribution of credit by the commercial banks. The close link between big business houses and big banks was intended to be snapped or at least made ineffective by the reconstitution of the Board of Directors to the effect that 51 per cent of the directors were to have special knowledge or practical experience. Appointment of whole-time Chairman with special knowledge and practical experience of working of commercial banks or financial or economic or business administration was intended to professionalise t he top management. Imposition of restrictions on loans to be granted to the directors concerns was another step towards avoiding undesirable flow of credit to the units in which the directors were interested. The scheme also provided for the take-over of banks under certain circumstances. Political compulsion then partially attributed to inadequacies of the social control, led to the Government of India nationalising, in 1969,fourteen major scheduled commercial banks which had deposits above a cut-off size. The objective was to serve better the needs of development of the economy in conformity with national priorities and objectives. In a somewhat repeat of the same experience, eleven years after nationalisation, the Government announced the nationalisation of seven more scheduled commercial banks above the cut-off size. The second round of nationalisation gave an impression that if a private sector bank grew to the cut-off size it would be under the threat of nationalisation. From the fifties a number of exclusively state-owned development financial institutions (DFIs) were also set up both at the national and state level, with a lone exception of Industrial Credit and Investment Corporation (ICICI) which had a minority private share holding. The mutual fund activity was also a virtual monopoly of Government owned institution, viz., the Unit Trust of India. Refinance institutions in agriculture and industry sectors were also developed, similar in nature to the DFIs. Insurance, both Life and General, also became state monopolies. REFORM MEASURES The major challenge of the reform has been to introduce elements of market incentive as a dominant factor gradually replacing the administratively coordinated planned actions for development. Such a paradigm shift has several dimensions, the corporate governance being one of the important elements. The evolution of corporate governance in banks, particularly, in PSBs, thus reflects changes in monetary policy, regulatory environment, and structural transformations and to some extent, on the character of the self-regulatory organizations functioning in the financial sector. Policy Environment During the reform period, the policy environment enhanced competition and provided greater opportunity for exercise of what may be called genuine corporate element in each bank to replace the elements of coordinated actions of all entities as a joint family to fulfill predetermined Plan priorities. Greater competition has been infused in the banking system by permitting entry of private sector banks (Nine licences since 1993), and liberal licensing of more branches by foreign banks and the entry of new foreign banks. With the development of a multi-institutional structure in the financial sector, emphasis is on efficiency through competition irrespective of ownership. Since non-bank intermediation has increased, banks have had to improve efficiency to ensure survival. REGULATORY ENVIRONMENT Prudential regulation and supervision have formed a critical component of the financial sector reform programme since its inception, and India has endeavored to international prudential norms and practices. These norms have been progressively tightened over the years, particularly against the backdrop of the Asian crisis. Bank exposures to sensitive sectors such as equity and real estate have been curtailed. The Banking Regulation Act 1949 prevents connected lending (i.e. lending by banks to directors or companies in which Directors are interested). Periodical inspection of banks has been the main instrument of supervision, though recently there has been a move toward supplementary on-site inspections with off-site surveillance. The system of Annual Financial Inspection was introduced in 1992, in place of the earlier system of Annual Financial Review/Financial Inspections. The inspection objectives and procedures, have been redefined to evaluate the banks safety and soundness; to appraise the quality of the Board and management; to ensure compliance with banking laws regulation; to provide an appraisal of soundness of the banks assets; to analyse the financial factors which determine banks solvency and to identify areas where corrective action is needed to strengthen the institution and improve its performance. Inspection based upon the new guidelines have started since 1997. SELF REGULATORY ORGANIZATIONS India has had the distinction of experimenting with Self Regulatory Organisations (SROs) in the financial system since the pre-independence days. At present, there are four SROs in the financial system Indian Banks Association (IBA), Foreign Exchange Dealers Association of India (FEDAI), Primary Dealers Association of India (PDAI) and Fixed Income Money Market Dealers Association of India (FIMMDAI). INDIAN BANKS ASSOCIATION The IBA established in 1946 as a voluntary association of banks, strove towards strengthening the banking industry through consensus and co-ordination. Since nationalisation of banks, PSBs tended to dominate IBA and developed close links with Government and RBI. Often, the reactive and consensus and coordinated approach bordered on cartelisation. To illustrate, IBA had worked out a schedule of benchmark service charges for the services rendered by member banks, which were not mandatory in nature, but were being adopted by all banks. The practice of fixing rates for services of banks was consistent with a regime of administered interest rates but not consistent with the principle of competition. Hence, the IBA was directed by the RBI to desist from working out a schedule of benchmark service charges for the services rendered by member banks. Responding to the imperatives caused by the changing scenario in the reform era, the IBA has, over the years, refocused its vision, redefined its role, and modified its operational modalities. FOREIGN EXCHANGE DEALERS ASSOCIATION OF INDIA (FEDAI) In the area of foreign exchange, FEDAI was established in 1958, and banks were required to abide by terms and conditions prescribed by FEDAI for transacting foreign exchange business. In the light of reforms, FEDAI has refocused its role by giving up fixing of rates, but plays a multifarious role covering training of banks personnel, accounting standards, evolving risk measurement models like the VaR History and Development of Banks in India History and Development of Banks in India INTRODUCTION: The banking industry in India seems to be unaffected from the global financial crises which started from U.S in the last quarter of 2008. Despite the fallout and nationalization of banks across developed economies, banks in India seems to be on the strong fundamental base and seems to be well insulated from the financial turbulence emerging from the western economies. The Indian banking industry is well placed as compare to their banking industries western counterparts which are depending upon government bailout and stimulus packages. The strong economic growth in the past, low defaulter ratio, absence of complex financial products, regular intervention by central bank, proactive adjustment of monetary policy and so called close banking culture has favored the banking industry in India in recent global financial turmoil. Although there will no impact on the Indian banking system similar to that in west but the banks in India will adopt for more of defensive approach in credit disburs al in coming period. In order to safe guard their interest, banks will follow stringent norms for credit disbursal. There will be more focus on analyzing borrower financial health . A nation with 1 billion plus, India is the fastest growing country in terms of population and soon to overtake China as worlds largest populated country. The discerning impact on the over-stretched limited resources explains why India always tends to be deficient in infrastructure and opportunity. The largest economy of the world often frustrated researchers, as there was no single predictable pattern of the market; the multiplicity of government regulations and widespread government ownership had always kept investors away from exploring the vast Indian market. However, with India being liberalised today, banking intermediation has been playing a crucial role in economic development through its credit channel. Foreign banks have entered the soil but that has not yet posed a threat to the vast network of public sector banks that still conduct 92% of banking business in India. Banking in India has undergone a major revamp. It has come a long way since its creation which dates back to the British era. The present banking systems has come into place after many transformations from the Older systems. Against this background the present chapter deals with the evolution of the Indian Banking systems, the various reforms that has been made to make banks more effective, the role of private and foreign sector banks and last the challenges the Indian banks faces in the New Millennium . The banking system is central to a nations economy. Banks are special as they not only accept and deploy large amounts of uncollateralised public funds in a fiduciary capacity, but also leverage such funds through credit creation. In India, prior to nationalisation, banking was restricted mainly to the urban areas and neglected in the rural and semi-urban areas. Large industries and big business houses enjoyed major portion of the credit facilities. Agriculture, small-scale industries and exports did not receive the deserved attention. Therefore, inspired by a larger social purpose, 14 major banks were nationalised in 1969 and six more in 1980. Since then the banking system in India has played a pivotal role in the Indian economy, acting as an instrument of social and economic change. The rationale behind bank nationalisation has been succinctly put forth by eminent bankers: Many bank failures and crises over two centuries, and the damage they did under laissez faire conditions; the needs of planned growth and equitable distribution of credit, which in privately owned banks was concentrated mainly on the controlling industrial houses and influential borrowers; the needs of growing small scale industry and farming regarding finance, equipment and inputs; from all these there emerged an inexorable demand for banking legislation, some government control and a central banking authority, adding up, in the final analysis, to social control and nationalisation (Tandon, 1989). Post nationalisation, the Indian banking system registered tremendous growth in volume. Despite the undeniable and multifold gains of bank nationalization, it may be noted that the important financial institutions were all state owned and were subject to central direction and control. Banks enjoyed little autonomy as both lending and deposit rates were controlled until the end of the 1980s. Although nationalisation of banks helped in the spread of banking to the rural and hitherto uncovered areas, the monopoly granted to the public sector and lack of competition led to overall inefficiency and low productivity. By 1991, the countrys financial system was saddled with an inefficient and financially unsound banking sector. Some of the reasons for this were (i) high reserve requirements, (ii) administered interest rates, (iii) directed credit and (iv) lack of competition (v) political interference and corruption. As recommended by the Narasimham Committee Report (1991) several reform mea sures were introduced which included reduction of reserve requirements, de-regulation of interest rates, introduction of prudential norms, strengthening of bank supervision and improving the competitiveness of the system, particularly by allowing entry of private sector banks. With a view to adopting the Basel Committee (1988) framework on capital adequacy norms, the Reserve Bank introduced a risk-weighted asset ratio system for banks in India as a capital adequacy measure in 1992. Banks were asked to maintain risk-weighted capital adequacy ratio initially at the lower level of 4 per cent, which was gradually increased to 9 per cent. Banks were also directed to identify problem loans on their balance sheets and make provisions for bad loans and bring down the burgeoning problem of non-performing assets. The period 1992-97 laid the foundations for reform in the banking system (Rangarajan, 1998). The second Narasimham Committee Report (1998) focussed on issues like strengthening of th e banking system, upgrading of technology and human resource development. The report laid emphasis on two aspects of banking regulation, viz., capital adequacy and asset classification and resolution of NPA-related problems. Commercial banks in India are expected to start implementing Basel II norms with effect from March 31, 2007. They are expected to adopt the standardised approach for credit risk and the basic indicator approach for operational risk initially. After adequate skills are developed, both at the banks and at the supervisory levels, some banks may be allowed to migrate to the internal rating based (IRB) approach (Reddy 2005). At present, banks in India are venturing into non-traditional areas and generating income through diversified activities other than the core banking activities. Strategic mergers and acquisitions are being explored and implemented. With this, the banking sector is currently on the threshold of an exciting phase. Against this backdrop, this paper endeavours to study the important banking indicators for the last 25-year period from 1981 to 2005. These indicators have been broadly grouped into different categories, viz., (i) number of banks and offices (ii) deposits and credit (iii) investments (iv) capital to risk-weighted assets ratio (CRAR) (v) non performing assets (NPAs) (vi) Income composition (vii) Expenditure composition (viii) return on assets (ROAs) and (ix) some select ratios. Accordingly, the paper discusses these banking indicators in nine sections in the same order as listed above. The paper concludes in section X by drawing important inferences from the trends of these di fferent banking parameters. The number of offices of all scheduled commercial banks almost doubledfrom 29,677 in 1980 to 55,537 in 2005. This rapid increase in the number of bank offices is observed in the case of all the bank groups. However, the number of banks in the case of foreign bank group and domestic private sector bank group decreased from 42 in 2000 to 31 in 2005 and from 33 in 2000 to 29 in 2005, respectively. This fall in the number of banks is reflective of the consolidation process and, in particular, the mergers and acquisitions that are the order of the banking system at present (Table 1). BANKING IN THE OLDER DAYS Banking is believed to be a part of Indian society from as early as Vedic age; transition from mere money lending to banking must have happened before Manu, the great Hindu jurist, who had devoted a large section of his work to deposits and advances and also formulated rules for calculating interest on both 1. During the Mogul period indigenous bankers (rich individuals or families) helped foreign trades and commerce by lending money to the business. It was during the East Indian period when agency houses started managing the banking business. The first Joint Stock bank India saw came in 1786 named the General Bank of India followed by the Bank of Hindustan and the Bengal Bank. Only the Bank of Hindustan continued to be in the show until 1906 while the other two disappeared in the meantime. East India Company established three banks in first half of 19th century: the Bank of Bengal in 1809, the Bank of Bombay in 1840, and the Bank of Madras in 1843. Eventually these three banks (which used to be referred to as Presidency Banks) were made independent units and they really did well for almost a century. In 1920, these three were amalgamated and a new Imperial Bank of India was established in 1921. Reserve Bank of India Act was passed in 1934 and finally in 1935, the Central Bank was created and christened as Reserve Bank of India. Imperial Bank was undertaken as State Bank of India after passing the State Bank of India Act in 1955. During the last phase of freedom fighting (Swadeshi Movement) few banks with purely Indian man agement were established like Punjab National bank (PNB), Bank of India (BoI) Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd, etc.July 19, 1969 was an important day in the history of Indian banking industry. Fourteen major banks of the country were nationalised and on April 15, 1980 six more commercial private banks were taken over by the Indian government. In the wake of liberalisation that started in the last decade a few foreign banks entered the foray of commercial banks. To date there are around 40 banks of foreign origin that are  operating in the market, like ABN AMRO Bank, ANZ Grindlays Bank, American Express Bank, HSBC Bank, Barclays Bank and Citibank groups to name a few major of them. HISTORY OF INDIAN BANKS: We can identify three distinct phases in the history of Indian Banking. Early phase from 1786 to 1969 Nationalisation of Banks and up to 1991 prior to banking sector Reforms New phase of Indian Banking with the advent of Financial Banking Sector Reforms after 1991. The first phase is from 1786 to 1969, the early phase up to the nationalisation of the fourteen largest of Indian scheduled banks. It was also the traditional or conservative phase of Indian Banking. The advent of banking system of India started with the establishment of the first joint stock bank, The General Bank of India in the year 1786. After this first bank, Bank of Hindustan and Bengal Bank came to existence. In the mid of 19th century, East India Company established three banks The Bank of Bengal in 1809, The Bank of Bombay in 1840, and bank of Madras in 1843. These banks were independent units and called Presidency banks. These three banks were amalgamated in 1920 and a new bank, Imperial Bank of India was established. All these institutions started as private shareholders banks and the shareholders were mostly Europeans. The Allahabad Bank was established in 1865. The next bank to be set up was the Punjab National Bank Ltd., which was established with its headquarters at La hore in 1894 for the first time exclusively by Indians. Most of the Indian commercial banks, however, owe their origin to the 20th century. Bank of India, Central Bank of India, Bank of Baroda, the Canara Bank, the Indian Bank, and the Bank of Mysore were established between 1906 and 1913. The last major commercial bank to be set up in this phase was the United Commercial Bank in 1943. Earlier the establishment of Reserve Bank of India in 1935 as the central bank of the country was an important step in the development of commercial banking in India. The history of joint stock banking in this first phase was characterised by slow growth and periodic failures. There were as many as one thousand one hundred banks, mostly small banks, failed during the period from 1913 to 1948. The Government of India concerned by the frequent bank failures in the country causing miseries to innumerable small depositors and others enacted The Banking Companies Act, 1949. The title of the Act was changed as Banking Regulation Act 1949, as per amending Act of 1965 (Act No.23 of 1965). The Act is the first regulatory step undertaken by the Government to streamline the functioning and activities of commercial banks in India. Reserve Bank of India as the Central Banking Authority of the country was vested with extensive powers for banking supervision. Salient features of the Act are discussed in a separate page/article At the time of Independence of the country in 1947, the banking sector in India was relatively small and extremely weak. The banks were largely confined to urban areas, extending loans primarily to trading sector dealing with agricultural produce. There were a large number of commercial banks, but banking services were not available at rural and semi-urban areas. Such services were not extended to different sectors of the economy like agriculture, small industries, professionals and self-employed entrepreneurs, artisans, retail traders etc. DRAW BACK OF INDIAN BANKING SYSTEM BEFORE NATIONALISATION Commercial banks, as they were privately owned, on regional or sectarian basis resulted in development of banking on ethnic and provincial basis with parochial outlook. These Institutions did not play their due role in the planned development of the country. Deposit mobilisation was slow. Public had less confidence in the banks on account of frequent bank failures. The savings bank facility provided by the Postal department was viewed a comparatively safer field of investment of savings by the public. Even the deficient savings thus mobilised by commercial banks were not channeled for the development of the economy of the country. Funds were largely given to traders, who hoarded agricultural produce after harvest, creating an artificial scarcity, to make a good fortune in selling them at a later period, when prices were soaring. The Reserve Bank of India had to step in at these occasions to introduce selective credit controls on several commodities to remedy this situation. Such cont rols were imposed on advances against Rice, Paddy, Wheat, Other foodgrains (like jowar, millets, ragi etc.) pulses, oilseeds etc. When the country attained independence Indian Banking was exclusively in the private sector. In addition to the Imperial Bank, there were five big banks each holding public deposits aggregating Rs.100 Crores and more, viz. the Central Bank of India Ltd., the Punjab National Bank Ltd., the Bank of India Ltd., the Bank of Baroda Ltd. and the United Commercial Bank Ltd. Rest of the banks were exclusively regional in character holding deposits of less than fifty Crores. Government first implemented the exercise of nationalisation of a significant part of the Indian Banking system in the year 1955, when Imperial Bank of India was Nationalised in that year for the stated objective of extension of banking facilities on a large scale, more particularly in the rural and semi-urban areas, and for diverse other public purposes to form State Bank of India. SBI was to act as the principal agent of the RBI and handle banking transactions of the Union State Governments throughout India. The step w as in fact in furtherance of the objectives of supporting a powerful rural credit cooperative movement in India and as recommended by the The All-India Rural Credit Survey Committee Report, 1954. State Bank of India was obliged to open an accepted number of branches within five years in unbanked centres. Government subsidised the bank for opening unremunerative branches in non-urban centres. The seven banks now forming subsidiaries of SBI were nationalised in the year 1960. This brought one-third of the banking segment under the direct control of the Government of India. But the major process of nationalisation was carried out on 19th July 1969, when the then Prime Minister of India, Mrs.Indira Gandhi announced the nationalisation of fourteen major commercial banks in the country. One more phase of nationalisation was carried out in the year 1980, when seven more banks were nationalised. This brought 80% of the banking segment in India under Government ownership. The country entered the second phase, i.e. the phase of Nationalised Banking with emphasis on Social Banking in 1969/70. Chronology of Salient steps by the Government after Independence to Regulate Banking Institutions in the Country 1949: Enactment of Banking Regulation Act. 1955 (Phase I): Nationalisation of State Bank of India 1959 (Phase II): Nationalisation of SBI subsidiaries 1961: Insurance cover extended to deposits 1969 (Phase III): Nationalisation of 14 major banks 1971: Creation of credit guarantee corporation 1975: Creation of regional rural banks 1980 (Phase IV): Nationalisation of seven banks with deposits over 200 crores. Shortcomings in the Functioning of Nationalised Banking Institutions However Nationalised banks in their enthusiasm for development banking, looking exclusively to branch opening, deposit accretion and social banking, neglected prudential norms, profitability criteria, risk-management and building adequate capital as a buffer to counter-balance the ever expanding risk-inherent assets held by them. They failed to recognise the emerging non-performing assets and to build adequate provisions to neutralise the adverse effects of such assets. Basking in the sunshine of Government ownership that gave to the public implicit faith and confidence about the sustainability of Government-owned institutions, they failed to collect before hand whatever is needed for the rainy day. And surfeit blindly indulged is sure to bring the sick hour. In the early Nineties after two decades of lop-sided policies, these banks paid heavily for their misdirected performance in place of pragmatic and balanced policies. The RBI/Government of India has to step in at the crisis-hour to implement remedial steps. Reforms in the financial and banking sectors and liberal re capitalisation of the ailing and weakened public sector banks followed. However it is relevant to mention here that the advent of banking sector reforms brought the era of modern banking of global standards in the history of Indian banking. The emphasis shifted to efficient, and prudential banking linked to better customer care and customer service. The old ideology of social banking was not abandoned, but the responsibility for development banking is blended with the paramount need for complying with norms of prudency and efficiency. Composition of Indian Banking System The Indian banking can be broadly categorized into nationalized (government owned), private banks and specialized banking institutions 2. The Reserve Bank of India acts a centralized body monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in 1969, the public sector banks or the nationalized banks have acquired a place of prominence and has since then seen tremendous progress. The need to become highly customer focused has forced the slow-moving public sector banks to adopt a fast track approach. The unleashing of products and services through the net has galvanized players at all levels of the banking and financial institutions market grid to look into their existing portfolio offering. Conservative banking practices allowed Indian banks to be insulated partially from the Asian currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed in approach and armed with efficient branch networks focus primarily on the high revenue niche retail segments. The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks (banks owned by the government) continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. The banking system has three tiers. These are the scheduled commercial banks; the Regional rural banks which operate in rural areas not covered by the scheduled banks; And the cooperative and special purpose rural banks. Under the ambit of the nationalized banks come the specialized banking institutions. These co-operatives, rural banks focus on areas of agriculture, rural development etc., unlike commercial banks these co-operative banks do not lend on the basis of a prime lending rate. They also have various tax sops because of their holding pattern and lending structure and hence have lower overheads. This enables them to give a marginally higher percentage on savings deposits. Many of these cooperative banks diversified into specialized areas (catering to the vast retail audience) like car finance, housing loans, truck finance etc. In order to keep pace with their public sector and private counterparts, the co-operative banks too have invested heavily in information technology to offer high-end computerized banking services to its clients. Given below is the total list of banks operating in India. SCHEDULED AND NON SCHEDULED BANKS There are approximately Eighty scheduled commercial banks, Indian and foreign; almost Two Hundred regional rural banks; more than Three Hundred Fifty central cooperative banks, Twenty land development banks; and a number of primary agricultural credit societies. In terms of business, the public sector banks, namely the State Bank of India and the nationalized banks, dominate the banking sector.India had a fairly well developed commercial banking system in existence at the time of independence in 1947. The Reserve Bank of India (RBI) was established in 1935. While the RBI became a state owned institution from January 1, 1949, the Banking Regulation Act was enacted in 1949 providing a framework for regulation and supervision of commercial banking activity. The first step towards the nationalisation of commercial banks was the result of a report (under the aegis of RBI) by the Committee of Direction of All India Rural Credit Survey (1951) which till today is the locus classicus on the subject. The Committee recommended one strong integrated state partnered commercial banking institution to stimulate banking development in general and rural credit in particular. Thus, the Imperial Bank was taken over by the Government and renamed as the State Bank of India (SBI) on July 1, 1955 with the RBI acquiring overriding substantial holding of shares. A number of erstwhile banks owned by princely states were made subsidiaries of SBI in 1959. Thus, the beginning of the Plan era also saw the emergence of public ownership of one of the most prominent of the commercial banks. The All-India Rural Credit Survey Committee Report, 1954 recommended an integrated approach to cooperative credit and emphasised the need for viable credit cooperative societies by expanding their area of operation, encouraging rural savings and diversifying business. The Committee also recommended for Government participation in the share capital of the cooperatives. The report subsequently paved the way for the present structure and composition of the Cooperative Banks in the country There was a feeling that though the Indian banking system had made considerable progress in the 50s and 60s, it established close links between commercial and industry houses, resulting in cornering of bank credit by these segments to the exclusion of agriculture and small industries. To meet these concerns, in 1967, the Government introduced the concept of social control in the banking industry. The scheme of social control was aimed at bringing some changes in the management and distribution of credit by the commercial banks. The close link between big business houses and big banks was intended to be snapped or at least made ineffective by the reconstitution of the Board of Directors to the effect that 51 per cent of the directors were to have special knowledge or practical experience. Appointment of whole-time Chairman with special knowledge and practical experience of working of commercial banks or financial or economic or business administration was intended to professionalise t he top management. Imposition of restrictions on loans to be granted to the directors concerns was another step towards avoiding undesirable flow of credit to the units in which the directors were interested. The scheme also provided for the take-over of banks under certain circumstances. Political compulsion then partially attributed to inadequacies of the social control, led to the Government of India nationalising, in 1969,fourteen major scheduled commercial banks which had deposits above a cut-off size. The objective was to serve better the needs of development of the economy in conformity with national priorities and objectives. In a somewhat repeat of the same experience, eleven years after nationalisation, the Government announced the nationalisation of seven more scheduled commercial banks above the cut-off size. The second round of nationalisation gave an impression that if a private sector bank grew to the cut-off size it would be under the threat of nationalisation. From the fifties a number of exclusively state-owned development financial institutions (DFIs) were also set up both at the national and state level, with a lone exception of Industrial Credit and Investment Corporation (ICICI) which had a minority private share holding. The mutual fund activity was also a virtual monopoly of Government owned institution, viz., the Unit Trust of India. Refinance institutions in agriculture and industry sectors were also developed, similar in nature to the DFIs. Insurance, both Life and General, also became state monopolies. REFORM MEASURES The major challenge of the reform has been to introduce elements of market incentive as a dominant factor gradually replacing the administratively coordinated planned actions for development. Such a paradigm shift has several dimensions, the corporate governance being one of the important elements. The evolution of corporate governance in banks, particularly, in PSBs, thus reflects changes in monetary policy, regulatory environment, and structural transformations and to some extent, on the character of the self-regulatory organizations functioning in the financial sector. Policy Environment During the reform period, the policy environment enhanced competition and provided greater opportunity for exercise of what may be called genuine corporate element in each bank to replace the elements of coordinated actions of all entities as a joint family to fulfill predetermined Plan priorities. Greater competition has been infused in the banking system by permitting entry of private sector banks (Nine licences since 1993), and liberal licensing of more branches by foreign banks and the entry of new foreign banks. With the development of a multi-institutional structure in the financial sector, emphasis is on efficiency through competition irrespective of ownership. Since non-bank intermediation has increased, banks have had to improve efficiency to ensure survival. REGULATORY ENVIRONMENT Prudential regulation and supervision have formed a critical component of the financial sector reform programme since its inception, and India has endeavored to international prudential norms and practices. These norms have been progressively tightened over the years, particularly against the backdrop of the Asian crisis. Bank exposures to sensitive sectors such as equity and real estate have been curtailed. The Banking Regulation Act 1949 prevents connected lending (i.e. lending by banks to directors or companies in which Directors are interested). Periodical inspection of banks has been the main instrument of supervision, though recently there has been a move toward supplementary on-site inspections with off-site surveillance. The system of Annual Financial Inspection was introduced in 1992, in place of the earlier system of Annual Financial Review/Financial Inspections. The inspection objectives and procedures, have been redefined to evaluate the banks safety and soundness; to appraise the quality of the Board and management; to ensure compliance with banking laws regulation; to provide an appraisal of soundness of the banks assets; to analyse the financial factors which determine banks solvency and to identify areas where corrective action is needed to strengthen the institution and improve its performance. Inspection based upon the new guidelines have started since 1997. SELF REGULATORY ORGANIZATIONS India has had the distinction of experimenting with Self Regulatory Organisations (SROs) in the financial system since the pre-independence days. At present, there are four SROs in the financial system Indian Banks Association (IBA), Foreign Exchange Dealers Association of India (FEDAI), Primary Dealers Association of India (PDAI) and Fixed Income Money Market Dealers Association of India (FIMMDAI). INDIAN BANKS ASSOCIATION The IBA established in 1946 as a voluntary association of banks, strove towards strengthening the banking industry through consensus and co-ordination. Since nationalisation of banks, PSBs tended to dominate IBA and developed close links with Government and RBI. Often, the reactive and consensus and coordinated approach bordered on cartelisation. To illustrate, IBA had worked out a schedule of benchmark service charges for the services rendered by member banks, which were not mandatory in nature, but were being adopted by all banks. The practice of fixing rates for services of banks was consistent with a regime of administered interest rates but not consistent with the principle of competition. Hence, the IBA was directed by the RBI to desist from working out a schedule of benchmark service charges for the services rendered by member banks. Responding to the imperatives caused by the changing scenario in the reform era, the IBA has, over the years, refocused its vision, redefined its role, and modified its operational modalities. FOREIGN EXCHANGE DEALERS ASSOCIATION OF INDIA (FEDAI) In the area of foreign exchange, FEDAI was established in 1958, and banks were required to abide by terms and conditions prescribed by FEDAI for transacting foreign exchange business. In the light of reforms, FEDAI has refocused its role by giving up fixing of rates, but plays a multifarious role covering training of banks personnel, accounting standards, evolving risk measurement models like the VaR

The United States Constitutional History History Essay

The United States of America is a land of free-spirited people where they lead lives of their pick, in general footings, of class. The authorities that runs the state bases itself upon the Constitution, one of the oldest written fundamental laws in the universe today. The figure one aim that lay behind the creative activity of a written Constitution was to put the foundations for a strong and well-disciplined cardinal authorities in order to counter the effects of the old ages of agitation and emotion that had been caused by the Articles of Confederation and Perpetual Union that had served as the agencies of regulating the independent settlements of America from 1778 forward ( US Constitution: Americans.Net, 2010 ) . The United States Constitution has been functioning as the theoretical account upon which several other authoritiess all over the universe have based their ain fundamental laws ( Katz, 2010 ) . In the United States, the Constitution serves as the footing for all Torahs, and this paper focuses on the unbelievable history of the papers and how it relates to Americans ‘ lives today. The Constitution was written in the City of Brotherly Love, Philadelphia, Pennsylvania, 1787. The Continental Congress of the New American Republic was responsible for its devise, and the settlements really adopted the Constitution in 1789. The intent of the authorities is found in the Preamble to the Constitution. For the authorities to be a success, the Establishing Fathers established three primary rules on which the American authorities is based: built-in rights or rights that anyone life in America has ; self authorities or authorities by the people ; and separation of powers, or subdivisions with different powers. Through the clip since the Constitution was drafted, this papers has seemingly worked ; it has merely been amended twenty seven times. The papers is known as a life papers because it can be amended. The Constitution is a papers strong plenty for safety, and at the same clip, it is flexible plenty to let for freedoms. The Constitution is organized into three parts: a p reamble that describes the intent of the papers and authorities ; articles that set up how the authorities is structured and how the Fundamental law can be changed ; and the amendments ( alterations to the Constitution ; the first 10 are called the Bill of Rights ) ( Ben ‘s Guide, 2010 ) . As a point of historical mention, the Articles of Confederation were the first written authorities certification of the United States ( Biggs, 2010 ) . It was during the period after the American Revolution or what is besides known as the American War of Independence elsewhere in the universe, that this papers was created so that the several settlements that had been involved in the war could be brought or bound together. The war was fought from 1775 to 1783 between Great Britain and the 13 British settlements that existed in North America and their Alliess France and Spain ( Biggs, 2010 ) . This war resulted in the overthrow of British regulation and the constitution of the new United States of America ( McLaughlin, 1936 ) . The 13 settlements that had been under the regulation of Great Britain besides signed The Declaration of Independence in 1776, and the Continental Congress subsequently ratified it on July 4, 1776, which, to this twenty-four hours, is celebrated as the American Independence Day all over the United States. Great Britain officially recognized the long anticipated independency of all of the American settlements through a declaration, the Treaty of Paris, in 1783. Some background about the events of this period and the assorted wars that led to the formal sign language of the Declaration of Independence are necessary in order to understand the conditions of America at that clip ( Katz, 2010 ) . It was during the 1760 ‘s that the Seven Years War that had been fought between the old ages 1756 to 1763 came to an terminal and France ceded Canada to Great Britain ; King George III had in the interim ascended the throne of Great Britain in the twelvemonth 1760. There was great unrest, nevertheless, and the authorities came under a batch of terrible unfavorable judgment from all topographic points, peculiarly from people like John Wilkes ; furthermore, this unrest began to distribute to the British American settlements. During the 1770 ‘s the agitation grew, and dealingss between Great Britain and the 13 American settlements were going progressively stressed. In 1775, things became so badly strained that the contingency of a war interrupting out between the assorted cabals became a world, and at that place was contending in Lexington and Concord in North America, and this heralded the beginning of the American Revolution. Independence that up until so was merely a obsc ure construct became a necessity after the reading of the publication Common Sense by Thomas Paine, who advocated non partial but ‘full ‘ independency ( McLaughlin, 1936 ) . In 1776 independency was officially declared, and this declaration was referred to as the Lee Resolution named so after the reading of this papers by Richard Henry Lee of Virginia on June 7, 1776. The papers was presented to the Continental Congress, which was the original federal legislative assembly of the 13 settlements, and that subsequently became the legislative assembly of the independent United States of America from 1774 to 1789, during which clip the American Revolution had taken topographic point. There were, in fact, two Continental United states congresss ( McLaughlin, 1936 ) . The alleged Intolerable Acts passed by the British in 1774 to stem the turning unrest in American British settlements acted as the ground for the American Revolution to hold taken topographic point, and this in bend led to the creative activity of the first Continental Congress. These terrible punitory Acts include, among others, the Quartering Act, the Quebec Act, the Currency Act, the Massachusetts Government Act, etc. In add-on, there was the Stamp Act that had led to the formation of the Stamp Congress, and at that place was widespread dissatisfaction and unrest following this act. The settlements were united against the British in their pursuit for independency. This led to the bonding of the settlements and as understanding for them grew, there was a demand for the different authoritiess to maintain in touch with one another, united against the British regulation. The First Continental Congress was hence formed in 1774, but it was highly short lived ( McLaughlin, 1936 ) . However, the First Continental Congress was able to carry through the drafting of the Articles of Association, which was really a request of ailments and grudges of the 13 settlements against the British regulation, and stated that certain economic countenances would be imposed so that some kind of declaration would be arrived at. It is widely supposed that this really of import papers had the consequence of rushing the start of the American Revolution. The thought behind the Articles of Association was that all British goods would be boycotted, and exports of goods to Great Britain would be ended, unless the Intolerable Acts were repealed. Though the boycott proved to be successful, but the directive of changing the Intolerable Acts could non be implemented since there was an eruption of unfastened contending at this clip. The Second Continental Congress was formed in the twelvemonth 1775 and functioned until the twelvemonth 1789 ( Katz, 2010 ) . By 1775, the Congress had changed its policy to openly back up rebellions, and the Continental Army was formed to function the map of supplying a individual bid station for the 13 settlements that were contending British regulation. George Washington was nominated as Commander in Chief. Quite a few conflicts back uping the 13 settlements and the rebellion against the British were fought by the Continental Army under George Washington: of note were the Siege of Boston, the Battles of Long Island, Trenton, Princeton, Saratoga, and Yorktown. The Siege of Boston was one of the more of import conflicts fought from 1775 to 1776. Though the besieging was non every bit successful as it was hoped to be, the existent consequence was that the Continental Army became a existent force for the British to think with, and besides united the settlements into a individual force against the dictatorship of the British regulation ( Katz, 2010 ) . The Declaration of Independence in 1776 came during a clip that it was used as a tool for the intent of propaganda, in which the several settlements under British regulation in America tried to acquire those settlements that were still loath to fall in in the battle for independency to fall in them, every bit good as to arouse such foreign assistance as may be possible in this battle for a worthy cause, that of independency. Members of the Continental Congress became united in this battle, though they were really good cognizant that the Revolution could neglect, in which instance they would all lose their lives. Therefore, the Revolution had to win. The constructs of natural jurisprudence and that of self-government were strongly recommended in the declaration. Some of the outside influences on the Declaration of Independence were those of the Act of Abjuration from the Dutch Republic, and the Hagiographas of Algernon Sydney every bit good as those of John Locke. In add-on, several r ules of the establishing male parents ‘ thoughts were besides included in the Declaration, and these served to be the foundation for the authorship of the U.S. Constitution that came shortly thenceforth. The same theoretical account has been used by several other states in the universe in their declarations of independency ( United States Declaration of Independence, 2010 ) . It is a misguided construct that American sires were in fact entirely responsible for the creative activity of the Constitution and the democracy that modern America continues to bask. However, this is a error, since it has been proven that these sires did non really want to make a democracy ; they wanted to make a republican type of authorities that would be meant wholly for the people of America, but that would non supply people from all walks of life to take part in the devising of the authorities by voting and moving as representative leaders of the common people. The sires were really surprised at the consequence that the sign language of the Constitution had created, at the democratic society and authorities that resulted after the confirmation of the Constitution ( McLaughlin, 1936 ) . The confirmation in itself was a long one, and it involved in no little portion the reading of the written Constitution by each province for the ground of confirmation, for which each province was required to make an independent ratifying commission headed up by particular delegates. The treatments of the advantages and the disadvantages of the freshly written fundamental law began about instantly after it was signed, and the two opposing cabals of the Federalists ( to whom the bulk of the sires belonged ) , and the Anti-Federalists, who formed the opposing group, brought these frontward. The feeling in America at the clip of the authorship of the Constitution was that of pro-democracy. The political every bit good as the industrial clime was that of a democracy. Peoples who had been considered underclass citizens found themselves to be on a degree with everyone else, and they could even run for office if they desired to make so ( Katz, 2010 ) . Everyone had the right to vote, and people like the common husbandman, the labourer, and the local merchandiser or artisan declared that they excessively had a rightful topographic point within their authorities, and their friends did their best to promote them and to vote them into power. By 1825, the construct of cosmopolitan white male right to vote came into being, and political office came to be meant for the common man excessively. This resulted in political relations going a concern of covering and wheeling where everyone had an equal right to vote and besides to run for office. Monarchy was replaced by democracy, and this led to equality, which up to today is one of the basic rules of democracy in the American Constitution, brought into clear accent by the Declaration of Independence ( McLaughlin, 1936 ) . Equality was meant to travel across all walks of life ; for illustration, in the chase of belongings, or of felicity, etc. , and this chase was furthered in a broad every bit good as a actual mode, and people were bit by bit larning to do major determinations on their ain alternatively of depending, as had been the tradition until so, on their higher-ups, who were people wealthier than they were. The long held rules of benevolence and backing by the wealthy who were able to and would traditionally confer wealths or anything else of value on the traditionally hapless and needy was now being replaced at a rapid rate, and these people were going progressively less necessary for the being of the lower categories. Therefore, the system of category differentiation where there was a distinguishable division between the upper and the lower categories based on wealth and other standard was being abolished and was being replaced by an classless society where everyone was an equal in the eyes o f the jurisprudence ( Katz, 2010 ) . The several politicians who were traditionally comfortable blue bloods with big land retentions and with perfectly no involvement in other people ‘s wealth were being replaced by those people who believed in the construct that those who had no function to play in the market place and who would non really be cognizant of the workings of the market topographic point ; hence, entire engagement of all the participants was perfectly necessary, and therefore those blue bloods who did non acquire wholly involved in the workings of the market would decidedly non be cognizant of all its facets of working and would besides non be cognizant of the day-to-day modus operandi in the life of the common adult male. The blue blood was, in fact, being ridiculed for his slothful and even evil behaviour because he was a adult male of leisure and was hence blowing his clip, and the belief that the elect knew what was best was besides altering quickly, and the common adult male was being represented by his ain sort in political relations ( McLaughlin, 1936 ) . Equality and equal chance for all, and the engagement of everyone in commercialism and work of his state were taking topographic point. Everyone was extoling the single attempt and this encouraged all those interested to take portion in the workings of the market, therefore conveying the rules of enlightenment and the ensuing republicanism to the bow forepart. Superiority of the elite was abolished and the single attempt was recognized and self-assertion became the norm. The economic destiny rested on the person and this resulted in the crowding of more and more people into the major metropoliss in their hunt for more and better resources to foster their ain economic position. This mode of endeavoring for being better than earlier resulted in the creative activity of an industrial energy that resulted in the development of the spirit of competition and individuality and besides the demand to be difficult working and hardworking, in a topographic point where the demand for labour and commercialism was widely expressed ( Katz, 2010 ) . All labour began to be considered every bit of import, whether it was done with the head or with the custodies, and this became the mantra for the mean American, who kept in head the rule that the American citizen had to fight valorously for the accomplishment of certain ends like rapid advancement and gaining of belongings and felicity at the terminal of it. This spirit of rugged individuality and fight had the consequence of people being wary of one another and non in the least concerned with each other ‘s public assistance ; they besides became cognizant that they would non be able to swear anyone else, particularly one in a place of high quality in the authorities, and this feeling brought about the outgrowth of the new construct of local democracy of the American that personified the thought of interest-group political relations ( McLaughlin, 1936 ) . The construct of equality became so embedded in the heads of ordinary people that the mean American came to believe that there was no individual force or individual on Earth who was in any manner at all superior to themselves. Thus it was that the ordinary and common adult male eventually found a voice for his sentiments and he was able to come in the governmental organisation at all points available to him. He was in bend bale to convey to the attending of the authorities all the little and infinitesimal inside informations of which merely he was aware of up until that point of clip. It was at this clip that partiality became an of import characteristic of the American authorities that was built on trust, and people began to organize parties based on the same rule of trust. Government occupations now became ‘payable ‘ and wages were paid to those in authorities services, as against the ages old pattern of volunteering and hence no fee being collectible to voluntaries ( I ntroduction, 2010 ) . American federalism that came into being more than two hundred old ages ago is still in the procedure of encouraging and besides implementing a big figure of alterations in its fundamental law. All the three types of the regulating system of America, the federal and the province and the local are all portion of the lives of the mean American citizen. However, turning outlooks of the people and the interrelatednesss between the different authoritiess have been undergoing huge alterations over the old ages, and these alterations have resulted in the turning complexness of the workings of the authoritiess. The Fundamental law that was formed in the twelvemonth 1787 was based on the federal system of administration, wherein the people of the state would be able to retain their sovereignty while at the same clip deputing some powers to the provinces every bit good as to the national authoritiess ( McLaughlin, 1936 ) . This means that the American authorities waistcoats big sum of powers in the provinces wherein they are really wholly functional constitutional civil orders that can do and interrupt their ain determinations for the American citizen at their ain free will. There has been a long raging argument, nevertheless, about the very nature of American federalism, a argument that was started at the clip of the authorship of the Constitution of America. While some like George Washington argued for the vesting of more authorization and powers in the federal authorities, some others like Thomas Jefferson had the sentiment that the American Union must be powerful, and that power should that stay within the provinces merely. The American Civil War ( 1860 to 1865 ) resulted to some extent in the answering and resolution of some of the jobs of American federalism being faced until that clip ( McLaughlin, 1936 ) . When President Franklin Delano Roosevelt came to power, the really first act that he performed was that of composing up a plan called the New Deal that served to be the foundation on which most of the modern twenty-four hours plans of Social Security, Compensation for Unemployment and federal public assistance plans meant for the common adult male were based under the maps and responsibilities of the federal authorities, and several of these public assistance plans were administered by the province but financed by the federal authorities, and this led to the development of the federal authorities ‘s ‘grant-in-aid ‘ system. From 1950 to 1960, the federal authorities became singularly responsible for the publicity and the safeguarding of peoples ‘ civil autonomies and civil rights and besides of the abolition of racial segregation and favoritism based on gender and race and ethnicity ( Katz, 2010 ) . Virtually all of the province Torahs that supported segregation of any sort were eliminated. This led to a new development, that of the people of a peculiar province looking up to the federal authorities to seek to work out or to screen out the jobs that they were confronting in their ain place provinces, peculiarly in the affairs of legal personal businesss in which an person could appeal to the Supreme Court at the national degree for justness that was denied to them by their ain province. This construct of the federal authorities being granted with separate powers from that of the province came to be known as the construct of double federalism, whereby the national authorities and the province authoritiess possess an wholly separate set of powers and duties apart from one another ( Katz, 2010 ) . This construct meant that the national and the province authoritiess, though vested with separate powers, must collaborate with each other to cover with the assortment of economic and societal jobs of the population. This concerted federalism lasted from the 1950s to the sixtiess, and one of the most of import responsibilities of these intergovernmental relationships was for the federal authorities to allow assistance to the provinces for some of import grounds that would be reciprocally agreed upon. For case, the building of the interstate main roads in several provinces for which the federal authorities bore more than 90 per centum of the outgo, and besides gave valuable adept advice on the trifles of the building, and besides put up new criterions for the edifice of more roads in America. In this manner, American federalism can be defined as an ongoing and continual procedure of political and economic, every bit good as administrative, aspects that influences the American authorit ies even today ( Katz, 2010 ) . Equally far as constitutional issues are concerned, it has been the widely accepted regulation that Congress will pass its budget in such a manner that it can make economic and political issues at the national degree, therefore doing it possible for national Torahs to decide issues at the province degrees ( issues of land protection, protection against fire, etc. ) that are basically local jobs. However, in 1995, the Court out of the blue held forth the determination that the national authorities did non hold the right to interfere in a province affair and the inquiry of the national authorities exerting authorization on the ordinance of commercialism was besides questioned. This may good be the beginning of the restrictions that will be set for the federal authorities ‘s authorization in approaching old ages. The issue of go forthing the full determination doing procedure of policy devising and support to province and local authoritiess has besides been questioned late ( McLau ghlin, 1936 ) . To happen the beginning point of American constitutional history is a most hard undertaking. There were certain of import rules of constitutional authorities that were in being a long clip before the United States was even founded ; some of these rules are normally, though instead slackly, said to hold had their beginning in the Magna Charta. This means merely that, to cognize to the full the ideas and thoughts that are steadfastly rooted within the constitutional system, it is helpful to cognize the background, the chief class of British constitutional history. There are in the Fundamental law footings and commissariats that unwrap their full significance merely when studied as a portion of English constitutional history: habeas principal, measure of civil death, common jurisprudence, test by jury, and other such phrases. Furthermore, the establishments and the simple, though all of import, constitutional rules were non all of a sudden abandoned in 18th century America. Even in the most current history, the American tribunals have found it necessary to analyze the Torahs and constitutional rules of England, which were really old when the Federal Convention met in 1787 in Philadelphia ( McLaughlin, 1936 ) . Furthermore, institutional signifiers, distinguished from rules, were the merchandises of long growing ; to some extent, their beginnings can be traced back to British history. They are, though, more readily seen in the American settlements. When these settlements became provinces, their establishments were emulated in really large step on the existent establishments of the settlements as they had developed in anterior old ages. The framers of the federal Constitution were in bend guided by the province fundamental laws ; they did non come in upon their enormous attempt simply by taking to disregard the yesteryear ; they did non seek in any big grade to contrive what was new and unseasoned. Therefore, a complete constitutional history of the United States would include at least a full lineation of colonial development. Indeed, the provinces as they stand to-day are a portion of our system of authorities, and an thorough intervention of our history would needfully cover with the begin ning and development of province institutional signifiers ; it would, for case, trade with the bicameral system and the place and authorization of the governor. But if one is to compact his work within manageable, comprehensible bounds, he must get down someplace and control his anxiousness to seek beginnings and to portray the forces which worked through the earlier centuries ( McLaughlin, 1936 ) . Constitutional history, so, when viewed in its entirety, is of largely illimitable content ; to grok it wholly, one must hold in head the societal and the industrial alteration and motion. Institutions and rules do non develop or travel out of context from each other ; they bear the print of an existent societal demand and of necessary accommodation, though the littorals of clip frequently seem to dart in vain against the walls of wont and of established pattern. However, once more, there is a batch for one individual to see. Among these, he or she must be satisfied by occasional mentions to the societal and economic life that cause constitutional contentions and history for of import findings by electors, legislative assemblies, and tribunals ( McLaughlin, 1936 ) . If chronological order is to be followed, instead than merely logical order, we may anticipate to happen this interweaving, and in general it may be necessary to go forth to the reader the comparatively easy undertaking of finding whether the facts and the statements as presented lead to the outgrowth of limited authoritiess and guarded by written fundamental laws or give grounds of the rule of variegation, which is embodied in federal legislative acts. In the heads of the work forces of the twenty-four hours, the aplomb and fully-developed consequences of their ain words were non of class absolutely plain. They were participants in a great motion, to the full of which could non be wholly appreciated ( McLaughlin, 1936 ) . The Constitution of the United States is the firm foundation of the American authorities. In 4,543 words, it describes the construction of the authorities and delineates the rights of the American people. No jurisprudence can be passed that contradicts its rules, and surely no individual, or the authorities itself, is exempt from following its dogmas. This is the really ground that it is frequently normally called the supreme jurisprudence of the land ( Ben ‘s Guide, 2010 ) . In many ways, the Constitution has been offering solutions, non merely to the assorted jobs of yearss gone by, but besides to the jobs of today. The Constitution is a life and eupneic papers ; it is most surely non a dead papers without life or spirit. After more than two hundred old ages, we are still protected by the Constitution ‘s basic doctrine. There is non another papers in any state that has the sense of way that the Constitution gives to the American people, for the United States Constitutio n is the footing for all American jurisprudence ( Biggs, 2010 ) .

Issues in Sme Development in Ghana and South Africa

International Research Journal of Finance and Economics ISSN 1450-2887 Issue 39 (2010)  © EuroJournals Publishing, Inc. 2010 http://www. eurojournals. com/finance. htm Issues in SME Development in Ghana and South Africa Joshua Abor Department of Finance University of Ghana Business School, Legon Peter Quartey Institute of Statistical, Social and Economic Research University of Ghana, Legon Abstract This paper discusses the characteristics, contributions of SMEs to economic development, and the constraints to SME development in developing countries with particular reference to Ghana and South Africa. SMEs in Ghana have been noted to provide about 85% of manufacturing employment of Ghana. They are also believed to contribute about 70% to Ghana’s GDP and account for about 92% of businesses in Ghana. In the Republic of South Africa, it is estimated that 91% of the formal business entities are SMEs. They also contribute between 52 to 57% to GDP and provide about 61% to employment. Notwithstanding the recognition of the important roles SMEs play in these countries, their development is largely constrained by a number of factors, such as lack of access to appropriate technology; limited access to international markets, the existence of laws, regulations and rules that impede the development of the sector; weak institutional capacity, lack of management skills and training, and most importantly finance. The paper provides some relevant recommendations to policy makers, development agencies, entrepreneurs, and SME managers to ascertain the appropriate strategy to improve the SME sector in these countries. Keywords: SME Development, Ghana, South Africa 1. 0. Introduction There is growing recognition of the important role small and medium enterprises (SMEs) play in economic development. They are often described as efficient and prolific job creators, the seeds of big businesses and the fuel of national economic engines. Even in the developed industrial economies, it is the SME sector rather than the multinationals that is the largest employer of workers (Mullineux, 1997). Interest in the role of SMEs n the development process continues to be in the forefront of policy debates in most countries. Governments at all levels have undertaken initiatives to promote the growth of SMEs (Feeney and Riding, 1997). SME development can encourage the process of both inter and intra-regional decentralization; and, they may well become a countervailing force against the economic power of larger enterprises. More generally, the development of SMEs is seen as accelerating the achievement of wider economi c and socio-economic objectives, including poverty alleviation (Cook and Nixson, 2000). According to an OECD report, SMEs produce about 25% of OECD exports and 35% of Asia’s exports (OECD, 1997). International Research Journal of Finance and Economics – Issue 39 (2010) 219 SMEs represent over 90% of private business and contribute to more than 50% of employment and of GDP in most African countries (UNIDO, 1999). Small enterprises in Ghana are said to be a characteristic feature of the production landscape and have been noted to provide about 85% of manufacturing employment of Ghana (Steel and Webster, 1991; Aryeetey, 2001). SMEs are also believed to contribute about 70% to Ghana’s GDP and account for about 92% of businesses in Ghana. Similarly, in the Republic of South Africa, it is estimated that 91% of the formal business entities are Small, Medium and Micro Enterprises (SMMEs) (Hassbroeck, 1996; Berry et al. , 2002). They also contribute between 52 and 57% to GDP and provide about 61% of employment (CSS, 1998; Ntsika, 1999; Gumede, 2000; Berry et al. , 2002). SMEs therefore have a crucial role to play in stimulating growth, generating employment and contributing to poverty alleviation, given their economic weight in African countries. How do SMEs in Ghana compare with their counterparts in South Africa and what policy lessons can be drawn for both countries to enhance the contribution of the sector remains the focus of this paper. The rest of the paper is organized as follows: Section two reviews the various definitions of SMEs. Section three discusses the characteristics of SMEs in developing countries. Sections four and five examine the contributions of SMEs to economic development and the constraints to SME developments. The paper concludes in section six. 2. 0. What is an SME? The issue of what constitutes a small or medium enterprise is a major concern in the literature. Different authors have usually given different definitions to this category of business. SMEs have indeed not been spared with the definition problem that is usually associated with concepts which have many components. The definition of firms by size varies among researchers. Some attempt to use the capital assets while others use skill of labour and turnover level. Others define SMEs in terms of their legal status and method of production. Storey (1994) tries to sum up the danger of using size to define the status of a firm by stating that in some sectors all firms may be regarded as small, whilst in other sectors there are possibly no firms which are small. The Bolton Committee (1971) first formulated an â€Å"economic† and â€Å"statistical† definition of a small firm. Under the â€Å"economic† definition, a firm is said to be small if it meets the following three criteria: †¢ It has a relatively small share of their market place; †¢ It is managed by owners or part owners in a personalized way, and not through the medium of a formalized management structure; †¢ It is independent, in the sense of not forming part of a large enterprise. Under the â€Å"statistical† definition, the Committee proposed the following criteria:: †¢ The size of the small firm sector and its contribution to GDP, employment, exports, etc. †¢ The extent to which the small firm sector’s economic contribution has changed over time; †¢ Applying the statistical definition in a cross-country comparison of the small firms’ economic contribution. The Bolton Committee applied different definitions of the small firm to different sectors. Whereas firms in manufacturing, construction and mining were defined in terms of number of employees (in which case, 200 or less qualified the firm to be a small firm), those in the retail, services, wholesale, etc. were defined in terms of monetary turnover (in which case the range is 50,000-200,000 British Pounds to be classified as small firm). Firms in the road transport industry are classified as small if they have 5 or fewer vehicles. There have been criticisms of the Bolton definitions. These centre mainly on the apparent inconsistencies between defining characteristics based on number of employees and those based on managerial approach. The European Commission (EC) defined SMEs largely in term of the number of employees as follows: †¢ firms with 0 to 9 employees – micro enterprises; 220 International Research Journal of Finance and Economics – Issue 39 (2010) †¢ 10 to 99 employees – small enterprises; †¢ 100 to 499 employees – medium enterprises. Thus, the SME sector is comprised of enterprises (except agriculture, hunting, forestry and fishing) which employ less than 500 workers. In effect, the EC definitions are based solely on employment rather than a multiplicity of criteria. Secondly, the use of 100 employees as the small firm’s upper limit is more appropriate, given the increase in productivity over the last two decades (Storey, 1994). Finally, the EC definition did not assume the SME group is homogenous; that is, the definition makes a distinction between micro, small, and medium-sized enterprises. However, the EC definition is too all-embracing to be applied to a number of countries. Researchers would have to use definitions for small firms which are more appropriate to their particular â€Å"target† group (an operational definition). It must be emphasized that debates on definitions turn out to be sterile, unless size is a factor which influences performance. For instance, the relationship between size and performance matters when assessing the impact of a credit programme on a target group (Storey, 1994). Weston and Copeland (1998) hold that definitions of size of enterprises suffer from a lack of universal applicability. In their view, this is because enterprises may be conceived of in varying terms. Size has been defined in different contexts, in terms of the number of employees, annual turnover, industry of enterprise, ownership of enterprise, and value of fixed assets. Van der Wijst (1989) considers small and medium businesses as privately held firms with 1 – 9 and 10 – 99 people employed, respectively. Jordan et al (1998) define SMEs as firms with fewer than 100 employees and less than â‚ ¬15 million turnover. Michaelas et al (1999) consider small independent private limited companies with fewer than 200 employees and Lopez and Aybar (2000) considered companies with sales below â‚ ¬15 million as small. According to the British Department of Trade and Industry, the best description of a small firm remains that used by the Bolton Committee in its 1971 Report on Small Firms. This stated that a small firm is an independent business, managed by its owner or part-owners and having a small market share (Department of Trade and Industry, 2001). The UNIDO also defines SMEs in terms of number of employees by giving different classifications for industrialized and developing countries (see Elaian, 1996). The definition for industrialized countries is given as follows: †¢ Large – firms with 500 or more workers; †¢ Medium – firms with 100-499 workers; †¢ Small – firms with 99 or less workers. The classification given for developing countries is as follows: †¢ Large – firms with 100 or more workers; †¢ Medium – firms with 20-99 workers; †¢ Small – firms with 5-19 workers; †¢ Micro – firms with less than 5 workers. It is clear from the various definitions that there is not a general consensus over what constitutes an SME. Definitions vary across industries and also across countries. It is important now to examine definitions of SMEs given in the context of Ghana and South Africa. 2. 1. The Ghanaian Situation There have been various definitions given for small-scale enterprises in Ghana but the most commonly used criterion is the number of employees of the enterprise (Kayanula and Quartey, 2000). In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources. In its Industrial Statistics, the Ghana Statistical Service (GSS) considers firms with fewer than 10 employees as small-scale enterprises and their counterparts with more than 10 employees as medium and large-sized enterprises. Ironically, the GSS in its national accounts considered companies with up to 9 employees as SMEs (Kayanula and Quartey, 2000). The value of fixed assets in the firm has also been used as an alternative criterion for defining SMEs. However, the National Board for Small Scale Industries (NBSSI) in Ghana applies both the International Research Journal of Finance and Economics – Issue 39 (2010) 221 â€Å"fixed asset and number of employees† criteria. It defines a small-scale enterprise as a firm with not more than 9 workers, and has plant and machinery (excluding land, buildings and vehicles) not exceeding 10 million Ghanaian cedis. The Ghana Enterprise Development Commission (GEDC), on the other hand, uses a 10 million Ghanaian cedis upper limit definition for plant and machinery. It is important to caution that the process of valuing fixed assets poses a problem. Secondly, the continuous depreciation of the local currency as against major trading currencies often makes such definitions outdated (Kayanula and Quartey, 2000). In defining small-scale enterprises in Ghana, Steel and Webster (1991), and Osei et al (1993) used an employment cut-off point of 30 employees. Osei et al (1993), however, classified small-scale enterprises into three categories. These are: (i) micro – employing less than 6 people; (ii) very small employing 6-9 people; (iii) small – between 10 and 29 employees. A more recent definition is the one given by the Regional Project on Enterprise Development Ghana manufacturing survey paper. The survey report classified firms into: (i) micro enterprise, less than 5 employees; (ii) small enterprise, 5 29 employees; (iii) medium enterprise, 30 – 99 employees; (iv) large enterprise, 100 and more employees (see Teal, 2002). 2. 2. The South African Situation The most widely used framework in South Africa is the definition of the National Small Business Act 102 of 1996, which defines five categories of businesses in South Africa. The definition uses the number of employees (the most common mode of definition) per enterprise size category combined with the annual turnover categories, the gross assets excluding fixed property. The definitions for the various enterprise categories are given as follows: †¢ Survivalist enterprise: The income generated is less than the minimum income standard or the poverty line. This category is considered pre-entrepreneurial, and includes hawkers, vendors and subsistence farmers. (In practice, survivalist enterprises are often categorised as part of the micro-enterprise sector). Micro enterprise: The turnover is less than the VAT registration limit (that is, R150 000 per year). These enterprises usually lack formality in terms of registration. They include, for example, spaza shops, minibus taxis and household industries. They employ no more than 5 people. †¢ Very small enterprise: These are enterprises employing fewer than 10 paid employees, except mining, electricity, manufacturing and construction sectors, in which the figure is 20 employees. These enterprises operate in the formal market and have access to technology. Small enterprise: The upper limit is 50 employees. Small enterprises are generally more established than very small enterprises and exhibit more complex business practices. †¢ Medium enterprise: The maximum number of employees is 100, or 200 for the mining, electricity, manufacturing and construction sectors. These enterprises are often characterised by the decentralisation of power to an additional management layer. The National Small Business Act’s definitions of the different categories of business may be summarised as set out in Table 1 below. 222 Table 1: International Research Journal of Finance and Economics – Issue 39 (2010) Definitions of SMMEs given in the National Small Business Act Number of Employees Fewer than 100 to 200, depending on industry Fewer than 50 Annual Turnover (in South African rand) Less than R4 million to R50 million, depending upon industry Less than R2 million to R25 million, depending on industry Less than R200 000 to R500 000, depending on industry Less than R150 000 Gross Assets, Excluding Fixed Property Less than R2 million to R18 million, depending on industry Less than R2 million to R4. million, depending on industry Less than R150 000 to R500 000, depending on Industry Less than R100 000 Enterprise Size Medium Small Fewer than 10 to 20, depending on industry Micro Fewer than 5 Source: Falkena et al. (2001) Very Small From the above, two key contrast can be drawn between the definitions of SMEs in Ghana and their counterparts in South Africa. First, Act 102 of 1996 defines SMEs in South Africa wh ereas there is no such legislation in Ghana. Secondly, the cut off points for the various SME size categories in South Africa are much higher than that of Ghana. This may be a result of the fact that South Africa has a much higher income levels than Ghana. 3. 0. Characteristics of SMEs in Developing Countries Fisher and Reuber (2000) enumerate a number of characteristics of SMEs in developing countries under the broad headings: labour characteristics, sectors of activity, gender of owner and efficiency. Given that most SMEs are one-person businesses, the largest employment category is working proprietors. This group makes up more than half the SME workforce in most developing countries; their families, who tend to be unpaid but active in the enterprise, make up roughly another quarter. The remaining portion of the workforce is split between hired workers and trainees or apprentices. SMEs are more labour intensive than larger firms and therefore have lower capital costs associated with job creation (Anheier and Seibel, 1987; Liedholm and Mead, 1987; Schmitz, 1995). In terms of activity, they are mostly engaged in retailing, trading, or manufacturing (Fisher and Reuber, 2000). While it is a common perception that the majority of SMEs will fall into the first category, the proportion of SME activity that takes place in the retail sector varies considerably between countries, and between rural and urban regions within countries. Retailing is mostly found in urban regions, while manufacturing can be found in either rural or urban centres. However, the extent of involvement of a country in manufacturing will depend on a number of factors, including, availability of raw materials, taste and consumption patterns of domestic consumers, and the level of development of the export markets. In Ghana, SMEs can be categorized into urban and rural enterprises. The former can be subdivided into â€Å"organized† and â€Å"unorganized† enterprises. The organized ones mostly have paid employees with a registered office, whereas the unorganized category is mainly made up of artisans who work in open spaces, temporary wooden structures, or at home, and employ few or in some cases no salaried workers (Kayanula and Quartey, 2000). They rely mostly on family members or apprentices. Rural enterprises are largely made up of family groups, individual artisans, women engaged in food production from local crops. The major activities within this sector include:- soap and detergents, fabrics, clothing and tailoring, textile and leather, village blacksmiths, tin-smithing, ceramics, timber and mining, bricks and cement, beverages, food processing, bakeries, wood furniture, electronic assembly, agro processing, chemical-based products and mechanics (Osei et al. , 1993; Kayanula and Quartey, 2000). Majority of SMEs are female-owned businesses, which more often than not are home-based compared to those owned by males; they are operated from home and are mostly not considered in official statistics. This clearly affects their chances of gaining access to financing schemes, since such International Research Journal of Finance and Economics – Issue 39 (2010) 223 programmes are designed without sufficient consideration of the needs of businesses owned by females. These female entrepreneurs often get the impression that they are not capable of taking advantage of these credit schemes, because the administrative costs associated with the schemes often outweigh the benefits. Prior empirical studies in Ghana have shown that female-owned SMEs often have difficulty accessing finance. Females are mostly involved in sole-proprietorship businesses which are mainly microenterprises and as such may lack the necessary collateral to qualify for loans (Aryeetey et al, 1994; Abor and Biekpe, 2006). Measures of enterprise efficiency (e. g. labour productivity or total factor productivity) vary greatly both within and across industries. Firm size may be associated with some other factors that are correlated with efficiency, such as managerial skill and technology, and the effects of the policy environment. Most studies in developing countries indicate that the smallest firms are the least efficient, and there is some evidence that both small and large firms are relatively inefficient compared to medium-scale enterprises (Little et al. , 1987). It is often argued that SMEs are more innovative than larger firms. Many small firms bring innovations to the market place, but the contribution of innovations to productivity often takes time, and larger firms may have more resources to adopt and implement them (Acs et al. , 1999). 4. 0. Contributions of SMEs to Economic Development There is a general consensus that the performance of SMEs is important for both economic and social development of developing countries. From the economic perspective, SMEs provide a number of benefits (Advani, 1997). SMEs have been noted to be one of the major areas of concern to many policy makers in an attempt to accelerate the rate of growth in low-income countries. These enterprises have been recognized as the engines through which the growth objectives of developing countries can be achieved. They are potential sources of employment and income in many developing countries. SMEs seem to have advantages over their large-scale competitors in that they are able to adapt more easily to market conditions, given their broadly skilled technologies. They are able to withstand adverse economic conditions because of their flexible nature (Kayanula and Quartey, 2000). SMEs are more labour intensive than larger firms and therefore have lower capital costs associated with job creation (Anheier and Seibel, 1987; Liedholm and Mead, 1987; Schmitz, 1995). They perform useful roles in ensuring income stability, growth and employment. Since SMEs are labour intensive, they are more likely to succeed in smaller urban centres and rural areas, where they can contribute to a more even distribution of economic activity in a region and can help to slow the flow of migration to large cities. Due to their regional dispersion and their labour intensity, it is argued, small-scale production units can promote a more equitable distribution of income than large firms. They also improve the efficiency of domestic markets and make productive use of scarce resources, thus facilitating long-term economic growth (Kayanula and Quartey, 2000). SMEs contribute to a country’s national product by either manufacturing goods of value, or through the provision of services to both consumers and/or other enterprises. This encompasses the provision of products and, to a lesser extent, services to foreign clients, thereby contributing to overall export performance. In Ghana and South Africa, SMEs represent a vast portion of businesses. They represent about 92% of Ghanaian businesses and contribute about 70% to Ghana’s GDP and over 80% to employment. SMEs also account for about 91% of the formal business entities in South Africa, contributing between 52% and 57% of GDP and providing about 61% of employment (CSS, 1998; Ntsika, 1999; Gumede, 2000; Berry et al. , 2002). From an economic perspective, however, enterprises are not just suppliers, but also consumers; this plays an important role if they are able to position themselves in a market with purchasing power: their demand for industrial or consumer goods will stimulate the activity of their suppliers, just as their own activity is stimulated by the demands of their clients. Demand in the form of investment plays a dual role, both from a demand-side (with regard to the suppliers of industrial goods) and on the supplyside (through the potential for new production arising from upgraded equipment). In addition, demand 224 International Research Journal of Finance and Economics – Issue 39 (2010) is important to the income-generation potential of SMEs and their ability to stimulate the demand for both consumer and capital goods (Berry et al. , 2002). 5. 0. General Constraints to SME Development Despite the potential role of SMEs to accelerated growth and job creation in developing countries, a number of bottlenecks affect their ability to realize their full potential. SME development is hampered by a number of factors, including finance, lack of managerial skills, equipment and technology, regulatory issues, and access to international markets (Anheier and Seibel, 1987; Steel and Webster, 1991; Aryeetey et al, 1994; Gockel and Akoena, 2002). The lack of managerial know-how places significant constraints on SME development. Even though SMEs tend to attract motivated managers, they can hardly compete with larger firms. The scarcity of management talent, prevalent in most countries in the region, has a magnified impact on SMEs. The lack of support services or their relatively higher unit cost can hamper SMEs’ efforts to improve their management, because consulting firms are often not equipped with appropriate cost-effective management solutions for SMEs. Besides, despite the numerous institutions providing training and advisory services, there is still a skills gap in the SME sector as a whole (Kayanula and Quartey, 2000). This is because entrepreneurs cannot afford the high cost of training and advisory services while others do not see the need to upgrade their skills due to complacency. In terms of technology, SMEs often have difficulties in gaining access to appropriate technologies and information on available techniques (Aryeetey et al. , 1994). In most cases, SMEs utilize foreign technology with a scarce percentage of shared ownership or leasing. They usually acquire foreign licenses, because local patents are difficult to obtain. Regulatory constraints also pose serious challenges to SME development and although wideranging structural reforms have led to some improvements, prospects for enterprise development remain to be addressed at the firm-level. The high start-up costs for firms, including licensing and registration requirements, can impose excessive and unnecessary burdens on SMEs. The high cost of settling legal claims, and excessive delays in court proceedings adversely affect SME operations. In the case of Ghana, the cumbersome procedure for registering and commencing business are key issues often cited. The World Bank Doing Business Report (2006) indicated that it takes 127 days to deal with licensing issues and there are 16 procedures involved in licensing a business in Ghana. It takes longer (176 days) in South Africa and there were 18 procedures involved in dealing with licensing issues. Meanwhile, the absence of antitrust legislation favours larger firms, while the lack of protection for property rights limits SMEs’ access to foreign technologies (Kayanula and Quartey, 2000). Previously insulated from international competition, many SMEs are now faced with greater external competition and the need to expand market share. However, their limited international marketing experience, poor quality control and product standardisation, and little access to international partners, continue to impede SMEs’ expansion into international markets (Aryeetey et al. , 1994). They also lack the necessary information about foreign markets. One important problem that SMEs often face is access to capital (Lader, 1996). Lack of adequate financial resources places significant constraints on SME development. Cook and Nixson (2000) observe that, notwithstanding the recognition of the role of SMEs in the development process in many developing countries, SMEs development is always constrained by the limited availability of financial resources to meet a variety of operational and investment needs. A World Bank study found that about 90% of small enterprises surveyed stated that credit was a major constraint to new investment (Parker et al. , 1995). Levy (1993) also found that there is limited access to financial resources available to smaller enterprises compared to larger organisations and the consequences for their growth and development. The role of finance has been viewed as a critical element for the development of SMEs (Cook and Nixson, 2000). A large portion of the SME sector does not have access to adequate and appropriate forms of credit and equity, or indeed to financial services more generally (Parker et al. , 1995). In competing for the corporate market, formal financial institutions have structured their products to serve the needs of large corporates. International Research Journal of Finance and Economics – Issue 39 (2010) 225 A cursory analysis of survey and research results of SMEs in South Africa, for instance, reveals common reactions from SME owners interviewed. When asked what they perceive as constraints in their businesses and especially in establishing or expanding their businesses, they answered that access to funds is a major constraint. This is reflected in perception questions answered by SME owners in many surveys (see BEES, 1995; Graham and Quattara, 1996; Rwingema and Karungu, 1999). This situation is not different in the case of Ghana (see Sowa et al. , 1992; Aryeetey, 1998; Bigsten et al. , 2000, Abor and Biekpe 2006, 2007; Quartey, 2002). A priori, it might seem surprising that finance should be so important. Requirements such as identifying a product and a market, acquiring any necessary property rights or licenses, and keeping proper records are all in some sense more fundamental to running a small enterprise than is finance (Green et al. , 2002). Some studies have consequently shown that a large number of small enterprises fail because of non-financial reasons. Other constraints SMEs face include: lack of access to appropriate technology; the existence of laws, regulations and rules that impede the development of the sector; weak institutional capacity and lack of management skills and training (see Sowa et al. , 1992; Aryeetey et al. , 1994; Parker et al. , 1995; Kayanula and Quartey, 2000). However, potential providers of finance, whether formal or informal, are unlikely to commit funds to a business which they view as not being on a sound footing, irrespective of the exact nature of the unsoundness. Lack of funds may be the immediate reason for a business failing to start or to progress, even when the more fundamental reason lies elsewhere. Finance is said to be the â€Å"glue† that holds together all the diverse aspects involved in small business start-up and development (Green et al. , 2002). 6. 0. Conclusion This paper has reviewed various definitions of SMEs and also discussed the characteristics, contributions of SMEs to economic development, and the constraints to SME development. In reviewing the definitions of SMEs, it was concluded that there is no single, universal, uniformly acceptable definition of SMEs. Several measures or indicators have been used to define the SME sector. The most commonly used is the number of employees of the enterprise. However, in applying this definition, confusion often arises in respect of the arbitrariness and cut-off points used by various official sources. The definitions of SMEs within the context of Ghana and South Africa were also examined, given that this paper focuses on these two countries. SMEs often fall into two categories, that is, urban and rural enterprises. The former can be sub-divided into â€Å"organized† and â€Å"unorganized† enterprises. The organized groups have registered offices and paid workers, whilst the unorganized ones are mainly made up of artisans. Rural enterprises are largely made up of family groups and individual artisans. The activities in the SME sector range from pottery and ceramics to manufacturing of spare parts and electronic assembly. SMEs in Ghana and South Africa have a lot of similarities in terms of their characteristics as well as the vital role they play in the two economies. However, they differ in terms of size and regulation. For instance, the cut off point for the various categories of SMEs in Ghana are much lower than they pertain in South Africa. Secondly, whereas a national legislation defines an SME in South Africa, no such Act exist in Ghana. The study also observed that SMEs constitute a vital element of the development process, and their contributions in terms of production, employment and income in developing countries is widely recognized. Hence, interest in the role of SMEs in the development process continues to be high on the agenda of policy makers in the two countries. Notwithstanding the recognition, the development of SMEs is always constrained by a number of factors such as, lack of access to appropriate technology, limited access to international markets, the existence of laws, regulations and rules that impede the development of the sector; weak institutional capacity and lack of management skills and training. However, access to finance remains the greatest concern for the majority of SMEs. This study suggests that, to improve access to credit to SMEs, entrepreneurs should be encouraged to form cooperatives since financial institutions believe peer pressure often reduces the risk 26 International Research Journal of Finance and Economics – Issue 39 (2010) of default, Secondly, the government through tax incentives can encourage certain training institutions and NGOs to provide training to entrepreneurs on simple record keeping and managerial know-how. Also, a national legislation in Ghana to define what constitutes an SME and their leg al as well as tax obligations will help to integrate a number of informal enterprises into the formal framework. This should be complemented with steps to minimize the legal procedures involved in doing business in both countries. It is also suggested that technology transfer through simple, inexpensive and adaptable technology should be promoted to enhance the productivity of SMEs. References [1] [2] Abor, J. and N. Biekpe, 2006. â€Å"Small Business Financing Initiatives in Ghana†, Problems and Perspectives in Management, 4(3), pp. 69-77. Abor, J. and N. Biekpe, 2006. â€Å"SMEs’ Access to Debt Finance: A Comparison of Male-Owned and Female-Owned Businesses in Ghana†, International Journal of Entrepreneurship and Innovation, 7(2), pp. 105-112. Abor, J. and N. Biekpe, 2007. Small Business Reliance on Bank Financing in Ghana†, Emerging Market Finance & Trade, 43(4), pp. 93 – 102. Acs, Z. , R. Morck, and B. Young, 1999. â€Å"Productivity Growth and Size Distribution†, in Acs, Z. , Carlsson, B. and Karlsson, C. (eds. ), Entrepreneurship, Small and Medium-Sized Enterprises and the Macroeconomy, Cambridge University Press. Advani, A. 1997. â€Å"Industrial Clusters: A Sup port System for Small and Medium-Sized Enterprises†, Private Sector Development, World Bank Occasional Paper No. 32, World Bank, Washigton, DC. Anheier, H. K. and H. D. Seibel, 1987. Small Scale Industries and Economic Development in Ghana†, Business Behaviour and Strategies in Informal Sector Economies, Verlag Breitenbech, Saarbruckh, Germany. Aryeetey, E. 1998. â€Å"Informal Finance for Private Sector Development in Africa†, Economic Research Papers No. 41, The African Development Bank, Abidjan. Aryeetey, E. 2001. â€Å"Priority Research Issues Relating to Regulation and Competition in Ghana†, Centre on Regulation and Competition Working Paper Series, University of Manchester, Manchester. Aryeetey, E. , A. Baah-Nuakoh, T. Duggleby, H. Hettige, and W. F. Steel, 1994. â€Å"Supply and Demand for Finance of Small Scale Enterprises in Ghana†, Discussion Paper No. 251, World Bank, Washington, DC. BEES, 1995. Guide to the Preliminary Results of the ERU / BEES SME Survey. Berry, A. , M. von Blottnitz, R. Cassim, A. Kesper, B. Rajaratnam, and D. E. van Seventer, 2002. â€Å"The Economics of SMMEs in South Africa†, Trade and Industrial Policy Strategies, Johannesburg, South Africa. Bigsten, A. , P. Collier, S. Dercon, M. Fafchamps, B. Guthier, J. W. Gunning, M. Soderbom, A. Oduro, R. Oostendorp, C. Patillo, F. Teal, A. Zeufack, 2000. Credit Constraints in Manufacturing Enterprises in Africa†, Working Paper WPS/2000. Centre for the study of African Economies, Oxford University, Oxford. Bolton, J. E. 1971. â€Å"Report of the Committee of Inquiry on Small Firms†, HMSO, London. Cook, P. and F. Nixson, 2000. â€Å"Finance and Small and Medium-Sized Enterprise Development†, IDPM, University of Manchester, Finance and Development Research Programme Working Paper Series, Paper No 14. CSS, 1998. â€Å"Employment and Unemployment in South Africa 1994-1997†, South Africa. Department of Trade and Industry, 2001. Small and Medium Enterprise (SME) – Definitions, http://www. dti. gov. uk/SME4/define. htm. Elaian, K. 1996. Employment Implications of Small Scale Industries in Developing Countries: Evidence from Jordan, Science, Technology and Development, 14(1), pp. 80-101. [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] International Research Journal of Finance and Economics – Issue 39 (2010) [18] 227 [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] Falkena, H. , I. Abedian, M. Blottnitz, C. Coovadia, G. Davel, J. Madungandaba, E. Masilela, and S. Rees, S. , 2001. â€Å"SMEs’ Access to Finance in South Africa, A Supply-Side Regulatory Review†, The Task Group of the policy Board for Financial Services and Regulation, www. finance. gov. za/documents/smes. Feeney, L. S. and A. L. Riding, 1997. Business Owners’ Fundamental Tradeoff: Finance and the Vicious Circle of Growth and Control, Canadian Business Owner, November. Fisher, E. and R. Reuber, 2000. â€Å"Industrial Clusters and SME Promotion in Developing Countries†, Commonwealth Trade and Enterprise Paper No. 3. Gockel, A. G. and S. K. Akoena, 2002. Financial Intermediation for the Poor: Credit Demand by Micro, Small and Medium Scale Enterprises in Ghana. A Further Assignment for Financial Sector Policy? †, IFLIP Research Paper 02-6, International Labour Organisation. Graham, D. and K. Quattara, 1996. Report on Rural Finance in Two Provinces in South Africa, Prepared for the Development Bank of Southern Africa . Green, C. J. , P. Kimuyu, R. Manos, and V. Murinde, 2002. â€Å"How do Small Firms in Developing Countries Raise Capital? Evidence from a Large-Scale Survey of Kenyan Micro and Small Scale Enterprises†, Economic Research Paper No. 2/6, Centre for International, Financial and Economics Research, Department of Economics, Loughborough University. Gumede, V. 2000. â€Å"Growth and Exporting of Small and Medium Enterprises in South Africa, Some Thoughts on Policy and Scope for Further Research†, Trade and Industrial Policy Strategies, South Africa. Hassbroeck, D. 1996. â€Å"Entrepreneurship Training for the Informal Sector in South Africa, in Educating Entrepreneurs in Modernising Economies†, Aldershot, Hants: Avebury. Jordan, J. , J. Lowe, and P. Taylor, 1998. â€Å"Strategy and Financial Policy in U. K. Small Firms†, Journal of Business Finance and Accounting, 25(1/2), pp. –27. Kayanula, D. and P. Quartey, 2000. â€Å"The Policy Environment for Pr omoting Small and Medium-Sized Enterprises in Ghana and Malawi†, Finance and Development Research Programme, Working Paper Series, Paper No 15, IDPM, University of Manchester. Lader, P. 1996. â€Å"The Public/Private Partnership†, Springs Spring, 35(2), pp. 41-44. Levy, B. , A. Berry, and J. Nugent, 1999. â€Å"Supporting the Export Activities of Small and Medium Enterprise (SME)†, in Levy, B. , Berry, A. and Nugent, J. B. (eds. ), Fulfilling the Export Potential of Small and medium Firms, Boston, MA, Kluwer Academic Publishers. Liedholm, C. and D. Mead, 1987. Small Scale Industries in Developing Countries: Empirical Evidence and Policy Implications†, International Development Paper No. 9, Department of Agricultural Economics, Michigan State University, East Lansing, MI, USA. Little, I. M. , D. Mazumdar, and J. M. Page, 1987. â€Å"Small Manufacturing Enterprises: A Comparative Analysis of India and Other Economies†, New York, Oxford University Press . Lopez, G. J. and A. C. Aybar, 2000. â€Å"An Empirical Approach to the Financial Behaviour of Small and Medium Sized Companies†, Small Business Economics, 14, pp. 55-63. Michaelas, N. , F. Chittenden, and P. Poutziouris, 1999. Financial Policy and Capital Structure Choice in U. K. SMEs: Empirical Evidence from Company Panel Data†, Small Business Economics, 12, 113-130. Millinuex, A. W. 1997. â€Å"The Funding of Non-Financial Corporations (NFCs) in the EU (19711993): Evidence of Convergence†, Mimeo, Department of Economics, University of Birmingham. Ntsika, 1999. â€Å"State of Small Business in South Africa†, SARB Quarterly Bulletins; and Stats SA Releases, South Africa. OECD, 1997. Globalisation and Small and Medium Enterprises, Synthesis Report, Organisation for Economic Cooperation and Development. Osei, B. , A. Baah-Nuakoh, K. A. Tutu, and N. K. Sowa, 1993. Impact of Structural Adjustment on Small-Scale Enterprises in Ghana†, in Helmsing, A. H . J. and Kolstee, T. H. 228 International Research Journal of Finance and Economics – Issue 39 (2010) (eds. ), Structural Adjustment, Financial Policy and Assistance Programmes in Africa, IT Publications, London. Parker, R. , R. Riopelle, and W. Steel, 1995. â€Å"Small Enterprises Adjusting to Liberalisation in Five African Countries†, World Bank Discussion Paper, No 271, African Technical Department Series, The World Bank, Washington DC. Quartey, P. 2002. â€Å"Financing Small and Medium-sized Enterprises in Ghana†, Journal of African Business, 4, pp. 7-56. Rwingema, H. and P. Karungu, 1999. â€Å"SMME Development in Johannesburg’s Southern Metropolitan Local Council: An Assessment† Development Southern Africa 16(1). Schmitz, H. 1995. â€Å"Collective Efficiency: Growth Path for Small Scale Industry†, The Journal of Development Studies, 31(4), pp. 529-566. Sowa, N. K. , A. Baah-Nuakoh, K. A. Tutu, and B. Osei, 1992. â€Å"Small Enterprise and Adjustment, The Impact of Ghana’s Economic Recovery Programme on Small-Scale Industrial Enterprises†, Research Reports, Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD. Steel, W. F. and L. M. Webster, 1991. â€Å"Small Enterprises in Ghana: Responses to Adjustment Industry†, Series Paper, No. 33, The World Bank Industry and Energy Department, Washington DC. Storey, D. , 1994. â€Å"Understanding the Small Business Sector†, Routledge, London. Teal, F. , 2002. â€Å"Background Information On Use Of Dataset: Regional Project On Enterprise Development (RPED) Ghana Manufacturing Sector Survey Waves I-V (1992-98)†, Centre for the Study of African Economies, Institute of Economics and Statistics, University of Oxford, St. Cross Building, Manor Road, Oxford, OX1 3UL. UNIDO, 1983. The Potential for Resource-based Industrial Development in the Least Developed Countries’, No. 5 – Malawi. UNIDO, 1999. SMEs in Africa Survive against all Odds, http://www. unido. org/doc/view? document_id=3927&language_code=en. Van der Wijst, D. , 1989. â€Å"Financial Structure in Small Business. Theory, Tests and Applications†, Lecture Notes in Economics and Mathematical Systems, Vol. 320, New York: Springer-Verlag. Weston, J. F. and Copeland, T. E. , 1998. â€Å"Managerial Finance†, CBS College Publishing, New York. [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49]