WAEC Economics 2011 Theory — Question 19

Model answer

Problems firms face in raising capital: (i) lack of collateral security required by banks before they can grant loans, (ii) high interest rates - interest is the cost of borrowing and when they are high, borrowing becomes difficult, (iii) low savings which reduce the size of loanable funds, (iv) underdeveloped financial markets which reduce firms' ability to raise capital, (v) lack of trust, poor business experiences and practices, (vi) rules and regulations of the central bank such as credit ceiling and special directives to commercial banks (any two).