Short Essay On Microfinance In Ghana

1. Evolution of the Microfinance Sub-Sector in Ghana

Indeed, the concept of microfinance is not new in Ghana. There has always been the tradition of people saving and/or taking small loans from individuals and groups within the context of self-help to start businesses or farming ventures.

For example, available evidence suggests that the first credit union in Africa was established in Northern Ghana in 1955 by Canadian Catholic missionaries. However, Susu, which is one of the microfinance schemes in Ghana, is thought to have originated from Nigeria and spread to Ghana in the early twentieth century.

Over the years, the microfinance sector has thrived and evolved into its current state thanks to various financial sector policies and programmes undertaken by different governments since independence. Among these are:

  • Provision of subsidized credits in the 1950s;
  • Establishment of the Agricultural Development Bank in 1965 specifically to address the financial needs of the fisheries and agricultural sector;
  • Establishment of Rural and Community Banks (RCBs), and the introduction of regulations such as commercial banks being required to set aside 20% of total portfolio, to promote lending to agriculture and small scale industries in the 1970s and early 1980s;
  • Shifting from a restrictive financial sector regime to a liberalized regime in 1986;
  • Promulgation of PNDC Law 328 in 1991 to allow the establishment of different categories of non-bank financial institutions, including savings and loans companies, and credit unions.

The policies have led to the emergence of three broad categories of microfinance institutions. These are:

  • Formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks;
  • Semi-formal suppliers such as credit unions, financial non-governmental organizations (FNGOs), and cooperatives;
  • Informal suppliers such as susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals.

In terms of the regulatory framework, rural and community banks are regulated under the Banking Act 2004 (Act 673), while the Savings and Loans Companies are currently regulated under the Non-Bank Financial Institutions (NBFI) Law 1993 (PNDCL 328)[2].

On the other hand, the regulatory framework for credit unions is now being prepared, and this would recognize their dual nature as cooperatives and financial institutions. The rest of the players such as FNGOs, ROSCAS, and ASCAs do not have legal and regulatory frameworks.

Programmes currently addressing the sub-sector in Ghana include the Financial Sector Improvement Project, Financial Sector Strategic Plan (FINSSP), the Rural Financial Services Project (RFSP), the United Nations Development Programme (UNDP) Microfinance Project, the Social Investment Fund (SIF), the Community Based Rural Development Programme (CBRDP), Rural Enterprise Project (REP), and Agricultural Services Investment Project (ASSIP).

2. Microfinance and Development

Microfinance encompasses the provision of financial services and the management of small amounts of moneythrough a range of products and a system of intermediary functions that are targeted at low income clients[3]. It includes loans, savings, insurance, transfer services and other financial products and services. Microfinance is thus one of the critical dimensions of the broad range of financial tools for the poor, and its increasing role in development has emanated from a number of key factors that include[4]:

  • The fact that the poor need access to productive resources, with financial services being a key resource, if they are to be able to improve their conditions of life;
  • The realization that the poor have the capacity to use loans effectively for income-generation, to save and re-pay loans;
  • The observation that the formal financial sector has provided very little or no services to low-income people, creating a high demand for credit and savings services amongst the poor;
  • The view that microfinance is viable and can become sustainable and achieve full cost recovery;
  • The recognition that microfinance can have significant impact on cross cutting issues such as women's empowerment, reducing the spread of HIV/AIDS and environmental degradation as well as improving social indicators such as education, housing and health.

Studies have shown that micro-finance plays three broad roles in development:

  • It helps very poor households meet basic needs and protects against risks,
  • It is associated with improvements in household economic welfare,
  • It helps to empower women by supporting women's economic participation and so promotes gender equity.

The literature suggests that micro- finance creates access to productive capital for the poor, which together with human capital, addressed through education and training, and social capital, achieved through local organization building, enables people to move out of poverty. By providing material capital to a poor person, their sense of dignity is strengthened and this can help to empower the person to participate in the economy and society (Otero, 1999).

The aim of micro-finance according to Otero (1999) is not just about providing capital to the poor to combat poverty on an individual level, it also has a role at an institutional level. It seeks to create institutions that deliver financial services to the poor, who are continuously ignored by the formal banking sector. Littlefield and Rosenberg (2004) argue that the poor are generally excluded from the financial services sector of the economy so MFIs have emerged to address this market failure. By addressing this gap in the market in a financially sustainable manner, an MFI can become part of the formal financial system of a country and so can access capital markets to fund their lending portfolios, allowing them to dramatically increase the number of poor people they can reach (Otero, 1999). More recently, commentators such as Littlefield, Murduch and Hashemi (2003), Simanowitz and Brody (2004) and the IMF (2005) have commented on the critical role of micro-credit in achieving the Millennium Development Goals.

According to Simanowitz and Brody (2004, p.1), micro-credit is a key strategy in reaching the MDGs and in building global financial systems that meet the needs of the most poor people." Littlefield, Murduch and Hashemi (2003) state "micro-credit is a critical contextual factor with strong impact on the achievements of the MDGs. Micro-credit is unique among development interventions: it can deliver social benefits on an ongoing, permanent basis and on a large scale".

However, some schools of thought remain skeptical about the role of micro-credit in development. For example, while acknowledging the role micro-credit can play in helping to reduce poverty, Hulme and Mosley (1996) concluded from their research on micro-credit that "most contemporary schemes are less effective than they might be" (1996, p.134). The authors argued that micro-credit is not a panacea for poverty-alleviation and that in some cases the poorest people have been made worse-off.

This notwithstanding, microfinance has emerged globally as a leading and effective strategy for poverty reduction with the potential for far-reaching impact in transforming the lives of poor people. It is argued that microfinance can facilitate the achievement of the Millennium Development Goals (MDGs) as well as National Policies that target poverty reduction, empowering women, assisting vulnerable groups, and improving standards of living. As pointed out by the former UN Secretary General Kofi Annan during the launch of the International Year of Micro Credit (2005),

Sustainable access to microfinance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care, and empowering people to make the choices that best serve their needs." (Kofi Annan, December 2003).

Although microfinance is not a panacea for poverty reduction and its related development challenges, when properly harnessed it can make sustainable contributions through financial investment leading to the empowerment of people, which in turn promotes confidence and self-esteem, particularly for women.

3. Microfinance and Poverty Reduction in Ghana

The main goal of Ghana's Growth and Poverty Reduction Strategy (GPRS II) is to ensure "sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment". The intention is to eliminate widespread poverty and growing income inequality, especially among the productive poor who constitute the majority of the working population.

According to the 2000 Population and Housing Census, 80% of the working populations are found in the private informal sector. This group is characterized by lack of access to credit, which constrains the development and growth of that sector of the economy. Clearly, access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development [5]. Unfortunately, in spite of the obvious roles that microfinance institutions have been playing in the economy particularly over the last twenty years, there is lack of data on their operations.

It is known that loans advanced by microfinance institutions are normally for purposes such as housing, petty trade, and as "start up" loans for farmers to buy inputs for farming and this includes rice seeds, fertilizers and other agricultural tools.

Some of the loans are used for a variety of non-crop activities such as: dairy cow raising, cattle fattening, poultry farming, weaving, basket making, leasing farm and other capital machinery and woodworking. Of course, funds may be used for a number of other activities, such as crop and animal trading, cloth trading and pottery manufacture. There are other instances where credit is given to groups consisting of a number of borrowers for collective enterprises, such as: irrigation pumps, building sanitary latrines, power looms, leasing markets or leasing land for cooperative farming.

For example, trends in loans and advances extended to small businesses, individuals and groups by the Non-Bank Financial Institutions(NBFIs) in Ghana amounted to GH¢50.97 million in 2002 as against GH¢39.64 million in 2001, indicating about 28.6 per cent growth.

The amount of loans extended by NBFIs further increased from GH¢70.63 million in 2003 to GH¢72.85 million in 2004, suggesting 3.1 per cent growth. In 2006 alone, total of GH¢160.47 million was extended to clients, which represents 48.8 per cent higher than the previous year's total loans and advances granted by these microfinance institutions(see Chart). The upward- trending NBFI's credit to individuals, small businesses, groups and others indicates marked improvements in level of microfinance in the country.

The Rural and Community banks also play very important role in microfinance in the country. These banks were established specifically to advance loans to small enterprises, farmers, individuals and others within their catchment areas. Total loans advanced to clients by all community and rural banks in Ghana was GH¢20.68 million in 2002 compared to GH¢13.12 million in 2001, suggesting an increase of 28.6 per cent. The amount of loans further increased from GH¢71.63 million in 2005 to GH¢115.10 million in 2006, thus indicating 35.4 per cent respectively (see chart).

 

 

4. Structure and Key Stakeholders of Microfinance in Ghana

The structure and key microfinance stakeholders in Ghana consist of the following:

Microfinance Institutions, including

  • The Rural and Community Banks,
  • Savings and Loans Companies
  • Financial NGOs
  • Primary Societies of CUA
  • Susu Collectors Association of GCSCA
  • Development and commercial banks with microfinance programs and linkages
  • Micro-insurance and micro-leasing services.


Microfinance Apex Bodies, namely:

  • Association of Rural Banks (ARB)
  • ARB Apex Bank
  • Association of Financial NGOs (ASSFIN)
  • Ghana Cooperative Credit Unions Association (CUA)
  • Ghana Cooperative Susu Collectors Association (GCSCA)


End Users
Economically active poor who are clients of microfinance products and services.


Technical Service Providers
Business Development Service Providers to MFIs and their clients.


Supporting Institutions

  • Microfinance and Small Loans Center (MASLOC);
  • The Ghana Microfinance Institutions Network (GHAMFIN);
  • Development partners and international non-governmental organisations
  • Universities, training and research institutions.

Government Institutions

5. The Role of Bank of Ghana and other Government Administered Programs for Micro, Small and Medium Scale Enterprises (MSMEs)

The Bank of Ghana's history of promoting the financing of Micro, Small and Medium Enterprises (MSME) began from the Credit Guarantee for Small Borrowers scheme in 1969 through the Development Finance Department of the Bank. The Bank was further instrumental in administering the IDA-financed Fund for Small and Medium Enterprise Development (FUSMED) Project, and also with the Private Enterprise and Export Development (PEED) Project, as well as other direct projects that were ended after BOG decided to focus on its core areas of operation. Currently, BoG is actively participating in the Rural Financial Services Project (RFSP). This project was supported by donors such as the International Development Agency (IDA) of the World Bank, the International Fund for Agricultural Development (IFAD), and the African Development Bank (AfDB). It is aimed at broadening and deepening financial intermediation in rural areas through measures such as; Capacity Building of the Informal Financial Sector, Capacity Building of Rural and Community Banks, and the establishment of an Apex Bank for Rural Banks in Ghana. Generally, the range of players in providing financing facilities for the MSME sector is shown in Table 1 below.

From 1990, support for micro, small and medium enterprises was intensified with the establishment of the National Board for Small-Scale Industries (NBSSI). In 1991, the NBSSI was merged with the Ghanaian Enterprises Development Commission (GEDC) and this made the NBSSI to take over the functions of the latter - in particular the delivery of credit to small scale entrepreneurs. Its main financing window was a USD30 million Fund for Small and Medium Enterprise Development (FUSMED) - that was provided under the World Bank's small and medium enterprises project and managed at the Bank of Ghana. The fund offered credit to enterprises in all sectors of the economy except primary agriculture, real estate and trading. However the repayment perfomance turned out to be less than satisfactory.

Table 1: Credit Flow to Micro Enterprises and SMEs in Ghana

SourceExamples of Schemes
1.Financial InstitutionsMajor Banks, Rural banks, Community banks, non-bank financial Institutions, etc.
2. Donor/Government Credit SchemesGRATIS. FUSMED, NBSSI schemes
3. Donor-Assisted SME Loan ProjectsIFAD, DANIDA, CIDA, FAO, USAID etc

4. Informal Financial NGOs, Credit Unions
Sinapi Aba Trust, CARE International etc.
5. Government SchemesBAF, SIF (Micro-Finance Capitalisation), Poverty Alleviation Fund (PAF), EDIF, MPSD and PSI schemes, MOTI, MASLOC,

Source: Compiled from various sources

Currently, the projects that are on-going for the MSME sector include the Financial Sector Improvement Project, Financial Sector Strategic Plan (FINSSP), the Rural Financial Services Project (RFSP), the United Nations Development Programme (UNDP) Microfinance Project, the Social Investment Fund (SIF), the Community Based Rural Development Programme (CBRDP), Rural Enterprise Project (REP), and Agricultural Services Investment Project (ASSIP). A recent impact assessment[6] of the plethora of MSME financing programs that have been implemented across the country suggests that significant challenges remain in ensuring the effectiveness of MSME programs. The study found that access to finance was a significant problem for MSMEs, even though other problems such as low cash flow, energy, high cost of non-labour inputs, increasing competition, and high cost of credit were also cited. The next section outlines some of the remaining challenges facing the microfinance sector in Ghana.

Table 2: Examples of facilities for MSMEs administered by the NBSSI
FacilityTarget Beneficiary/SectorClientsInterest rateRepayment Performance
1. PAMSCAD Credit LineSmall Scale Entrepreneurs operating in the rural areas, poor urban areas, women entrepreneus120020% p.a87%
2. Revolving Fund Loans Scheme Small Enterprises in the productive, export and service sectors, but excluding enterprises engaged in trading, primary agric, and real estate 25020% p.a69%
3. NBSSI/
NFED Devt Assistance Programme
Literacy groups of the Non-Formal Education Division of the Ministry of Education.<200 20% p.a <70%
3. UNDP
/ILO/DRHC Micro Concrete Tile Credit Scheme
Micro Concrete Tile Producers under a UNDP/ILO Project arranged for the erstwhile Department of Rural Housing and Cottage Industries.<20020% p.a <70%
4. ENOWID Revolving Loan FundWomen in development. It was operated largely in the Brong Ahafo, Volta and Western Regions for the Department of Community Development (National Commission for Women and Development)3,500 20% p.a 96%
5. NBSSI/DED Credit SchemeMicro and Small enterprises in the Northern, Brong Ahafo and Eastern Regions through the Business Advisory Centres. <200 20% p.a75 %
6. Small and Micro Enterprise Promotion Fund (SMEPF)Micro and small Enterprise sector in general.<200 20% p.a<70%

Source: Compiled from records obtained from the NBSSI

6. Challenges Facing the Microfinance Sector

Generally, since the beginning of government involvement in microfinance in the 1950s, the sub-sector has operated without specific policy guidelines and goals. This partially accounts for the slow growth of the sub-sector, and the apparent lack of direction, fragmentation and lack of coordination. There has so far not been a coherent approach to dealing with the constraints facing the sub-sector. Among the constraints are inappropriate institutional arrangements, poor regulatory environment, inadequate capacities, lack of coordination and collaboration, poor institutional linkages, no specific set of criteria developed to categorize beneficiaries, channeling of funds by MDAs, lack of linkages between formal and informal financial institutions, inadequate skills and professionalism, and inadequate capital. Better coordination and collaboration among key stakeholders including the development partners, government and other agencies, could help to better integrate microfinance with the development of the overall financial sector.

Secondly, traditional commercial banking approaches to microfinance delivery often does not work. According to traditional commercial banking principles, the credit methodology requires documentary evidence, long-standing bank-customer relationship and collateral, which most micro and small businesses do not possess. The commercial banking system, which has about twenty-three (23) major banks, reaches only about 5% of households and captures 40% of money supply[7]. Therefore there is room for expanding the microfinance sector in Ghana.

For example, Barclays Bank of Ghana (BBG) Ltd launched a microbanking scheme in December 2005 which establishes a formal link between modern finance and susu[8] (one of Africa's most ancient forms of banking) collection in an unconventional mobile initiative across the country. The scheme aims to extend microfinance to some of the least affluent in Ghana, like the small trader at the market or the micro-entrepreneur selling from road-side stalls. Though their individual income is apparently too small for 'high street' banking, collectively it estimated at about a $150 million economy thriving below the traditional banking radar. Ghana's 4,000-strong Susu Collectors offer basic banking to the needy. For a small fee they personally gather the income of their clients and return it at the end of each month, providing greater security for their client's money. In addition, with finance from Barclays the Susu Collectors are able to provide their clients with loans, helping them to establish or develop their business. In the words of the CEO of BBG Margaret Mwanakatwe,

…"What we are doing is somewhat unique. Not only are we creating an account for Susu Collectors to deposit their funds, we are also providing them with loans of their own, which they can 'lend-on' to their customers, helping them build their capital. In the process, we are laying the building blocks for a truly financially inclusive society. Currently, over three quarters of Ghanaian society may not have access to high street banking. We are also providing capacity building training to Susu Collectors to make sure that they do their credit risk correctly and any training needs they may need".

It is gratifying to note that the Government of Ghana has adopted microfinance as one of the important strategies for poverty reduction and wealth creation. Recognizing the role various institutions and individuals can play to ensure the achievement of this national vision of achieving the MDGs and also becoming a middle income country by the year 2015, there is the need to quicken the pace of reforms in the microfinance sector in order to unleash its full potential for accelerated growth and poverty reduction.

Finally, while Ghana has a reasonably diversified and supervised regulatory framework for formal financial institutions licensed by BoG, there is concern that appropriate regulation needs to be extended to other institutions operating in the microfinance sub-sector (for example the legal framework for credit unions) in order to improve the outreach, sustainability and efficiency of savings, facilitate credit delivery, and institutional arrangements.

The specific challenges facing the industry are discussed into more detail below.

6.1 Institutional Arrangements
The stakeholders in the sub-sector play various roles which are expected to be complementary. Due to the lack of defined areas of operation, the roles and responsibilities of stakeholders currently overlap in some cases. The overlap is also due partly to the fact that organizational and institutional hierarchy and reporting relationships among all the stakeholders are not clearly defined. Commercial banks could play an increasing role. There is the need therefore to clearly define relationships and roles to enhance effective implementation and delivery of services.

6.2 Capacity Building and Funding for the Sector
In order to promote the sub-sector, the various stakeholders organize training programmes and activities with the view to upgrading the human capital in the industry. Nevertheless, the staffing and competency level being achieved with these training programmes is still below what is desired. Thus, the human capacity of some key stakeholders and institutions including MASLOC, GHAMFIN, MFIs, relevant Ministries, and technical service providers etc needs to be enhanced for microfinance operations. The random and incoherent nature of training programmes has also probably hampered the achievements of the projected gains for the sub-sector, as the flaw in the human capacity of all the stakeholders may have had a rippling effect on the governance and structure of the industry. Furthermore, the current microfinance Apex bodies lack an adequate cadre of in-house trainers and/or facilitators as well as in-house monitoring and evaluation units to continually measure progress of their activities consistently over time. Infrastructural capacity in the sub-sector is yet to be developed around an integrated and holistic logistical support and internal operating systems. Funding for the sub-sector has been from three sources: the institutions themselves, government, and development partners. Firstly, available funds have not fully 'met the needs for developing and expanding the sub-sector; and, secondly, the varying sources come with their conditions, and distort the market in some cases. There is considered to be a need for a central microfinance fund to which MFIs can apply for on-lending and/or capacity building support, building on experience such as the Training Fund under the Rural Financial Services Project.

6.3 Credit Delivery and Management
The current strategies for credit delivery are not adequately diversified or efficient, and therefore are unable to fully meet the varying demands of the market and different categories of end-users. There is no framework for categorizing and upgrading some of the emerging microfinance institutions in the semi-formal and informal sub-sectors in accordance with their operational capacities and capabilities. The objective of microfinance is to provide resources for the poor. Nonetheless, there is yet to be adequate, reliable and acceptable methods for classifying various poverty levels to enhance the categorization of potential and actual MFI clients and other forms of support that may be more appropriate for some groups.

6.4 Targeting the Vulnerable and the Marginalized
People with disabilities and impairments do not have products and services designed to meet their needs and also are not adequately served by existing microfinance funds and services. This target group in particular could benefit from complementary skills training programmes. The existing skills training and funding arrangements for women do not seem to be market-driven. Thus, specific services and products that target women for entrepreneurship development to enable them engage in economic activities and become more self-reliant need to be more coherent. Young people aged 15-24 years account for about a third of the population of Ghana and constitute over half of the unemployed population. There is a need for special microfinance, grant and training programmes that target the youth for entrepreneurial development

6.5 Data/Information Gathering and Dissemination
Generally, there is paucity of information on microfinance institutions, their operations and clients in the country. Approaches to and methodology for data and information gathering at the national level are not uniform, making it difficult to centrally monitor progress of the sub-sector. The current attempt to develop a national data bank on microfinance is yet to be fully realized. There is a lack of well defined reporting system by both the government and development partners with regards to their interventions. The outcome is inadequate data base for decision-making and planning. At the institutional level, data/information gathering and dissemination are weak within and between institutions. The lack of common benchmarks, methods for measuring and information sharing further inhibits the performance of the sub-sector. Lack of adequate and reliable information on outreach in terms of its depth and breadth remains one of the most daunting in the sub-sector. This lack of information has affected targeting of clients and ultimate poverty reduction.


6.6 Regulation and Supervision
There is a need for dialogue on the formulation, implementation and review of regulatory and supervisory policies and procedures to ensure consistency and cost-effective approaches to regulation across different types of microfinance institutions and products. There is a need to balance permitting continued evolution of a variety of institutions providing microfinance products and services with the need to protect depositors' funds, provide adequate information and protection to consumers, and coordinate expansion and regulation of different segments of the market. Microfinance institutions in this category face rigid regulatory and supervisory systems that present some challenges for product innovativeness, outreach and ultimately the performance of the institutions. There is a lack of well specified guidelines for operations among apex bodies namely, CUA, GCSCA, ASSFIN and Cooperative Council. This leads to uncoordinated activities and invariably hampers the performance and outreach of their member institutions.

6.7 Collaboration and Coordination
There is no national body which is responsible for coordinating all activities associated with microfinance, nor is there a forum for dialogue among stakeholders on policy and programme issues. As a result there is lack of coherent approach, fragmentation, duplication and inadequate collaboration between and among MDAs, MMDAs, development partners, service providers, practitioners and end users.

In this regard, the role of GHAMFIN as an umbrella body for microfinance apex institutions, as well as their member institutions, needs to be strengthened to ensure the transfer of best practices and setting of standards for the industry. The existing institutional structure does not include all practitioners and service providers, and needs to be addressed.


7. Conclusion

In all, the potential economic benefits of sustainable microfinance in Ghana are compelling, and its potential effects on the development process cannot be understated. This calls for a holistic approach, as discussed to facilitate the development of the microfinance sub sector and thereby unleash its potential for accelerated growth and development.

GLOSSARY

Poverty
People/households with an income below a certain threshold level irrespective of their standard of living. overty is defined to include low level of income, the absence of medical care, poor sanitation, the absence of good drinking water, illiteracy, the inability to participate effectively in decisions that affect an individual's life directly; and the lack of security and protection from crime.

Microcredit
Microcredit is the provision of cash and in kind loans in smaller amounts to micro, small entrepreneurs meant to improve their business operations.

Microfinance
Microfinance consists primarily of providing financial services including, savings, micro-credit, micro insurance, micro leasing and transfers in relatively small transactions designed to be accessible to micro-enterprises and to low-income households. Microfinance may be complemented by non-financial services, especially training, to improve the ability of clients to utilize the facilities effectively.

Formal Financial Sector
The formal financial sector in Ghana includes the Traditional Commercial Banks, Rural and Community Banks and other financial institutions such as the Savings and Loans Companies whose operations are registered, licensed and regulated by the Bank of Ghana.

Semi-Formal Financial Sector
The sector comprises of informal institutions that are formally registered but not licensed/regulated by Bank of Ghana such as the Credit Unions of Ghana, Ghana Cooperatives Susu Collectors Association, Ghana Cooperative Council and Association of Financial Non-Governmental Organizations. They constitute the key stakeholders of the Microfinance Sub-sector in Ghana.

Informal Financial Sector
The informal financial sector is the components of the financial sector whose service providers are usually not registered and unregulated by the Bank of Ghana and rarely involve legal documentation. The segment includes Money lenders, Susu clubs, Rotating Savings and Credit Associations (ROSCAs).

ABBREVIATIONS AND ACRONYMS

ADRA - Adventist Relief Agency
ARB/Apex - Association of Rural Banks Apex Bank
ASCAs Accumulating Savings and Credit Associations
ASSFIN - Association of Financial Non-Governmental Organizations
ASSIP - Agricultural Services Investment Project
BoG - Bank of Ghana
CBRDP - Community Based Rural Development Programme
CUA - Credit Unions Association
ERP - Economic Recovery Programme
ESRP - Emergency Social Relief Programme
FINSSP - Financial Sector Strategic Plan
FNGO - Financial Non-Governmental Organizations
GCSCA - - Ghana Cooperative Susu Collectors Association
GDP - Gross Domestic Product
GHAMFIN - Ghana Microfinance Institutions Network
GHAMP - Ghana Microfinance Policy
GOG - Government of Ghana
GPRS - Growth and Poverty Reduction Strategy
IFAD - International Fund for Agricultural Development
MASLOC - Microfinance and Small Loans Centre
MDGs - Millennium Development Goals
MDA - Ministries Departments and Agencies
MFI - Microfinance Institutions
MMDA - - Metropolitan, Municipal and District Assemblies
MOFEP - Ministry of Finance and Economic Planning
MOWAC - Ministry of Women and Children's Affairs
MSE - Micro and Small Enterprises
NGOs - Non-Governmental Organizations
NSF - National Strategic Framework
PAF - Poverty Alleviation Fund
PAMSCAD - Programme of Action to Mitigate the Social Cost of Adjustment
RCBs - Rural and Community Banks
REP - Rural Enterprise Project
RFSP - Rural Financial Services Project
RMFIs - - Rural Microfinance Institutions
ROSCAs - Rotating Savings and Credit Associations
SIF - Social Investment Fund
TSPs - Technical Service Providers
UNDP - - United Nations Development Programme
VIP - Village Infrastructure Project

BIBLIOGRAPHY

World Bank, Rural and Micro Finance Regulation in Ghana: Implications for Development of the Industry, World Bank, New York (2004)

Impact Assessment of MSME Programs . Study conducted by Ernst & Young and ISSER for the Bank of Ghana


World Bank-Africa Region, Studies in Rural and Micro Finance: Financial Services for Women Entrepreneurs in the Informal Sector of Ghana. World Bank, New York, (1999)


Littlefield, E., Murduch, J. & Hashemi, S. (2003). Is Microfinance an Effective Strategy to Reach the Millennium Development Goals?, Focus Note Series no. 24. Washington: CGAP -Consultative Group to Assist the Poor.

Hulme, D and Mosley, P (1996) Finance Against Poverty, volumes 1 and 2, London: Routledge

Simanowitz and Brody .2004. Realising the potential of microfinance, id21 insights, December, Issue -51

United Nations, Concept Paper: Building Inclusive Financial Sectors to Achieve the Millennium Development Goals (International Year of Microcredit, United Nations, 2005)

United Nations, Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions (New York, United Nations, 2000)

Rosenberg, M. 2004. "Never the twain shall meet", English Teaching Professional 11(35): 36-37.

NOTES

[1] The authors can be contacted at johnson.asiama@bog.gov.gh or jasiama1@yahoo.com. An earlier version of this paper has been included in the Bank of Ghana publications.
[2] Work on an amendment of this Act is however underway.
[3]United Nations, Concept Paper: Building Inclusive Financial Sectors to Achieve the Millennium Development Goals (International Year of Microcredit, United Nations, 2005)
[4] United Nations, Microfinance and Poverty Eradication: Strengthening Africa's Microfinance Institutions (New York, United Nations, 2000)
[5] World Bank-Africa Region, Studies in Rural and Micro Finance: Financial Services for Women Entrepreneurs in the Informal Sector of Ghana. World Bank, New York, (1999)
[6] FStudy conducted by Ernst & Young and ISSER for the Bank of Ghana
[7] World Bank, Rural and Micro Finance Regulation in Ghana: Implications for Development of the Industry, World Bank, New York (2004)
[8] Susu Collectors in Ghana are recognizable for their distinctive, many pocketed coats. Traditionally, they service a set area or group of families with whom they have developed a long relationship.

TABLE OF CONTENT

CERTIFICATION

ABSTRACT

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

ACKNOWLEDGEMENT

DEDICATION

INTRODUCTION
1.0 BACKGROUND OF THE STUDY
1.1 STATEMENT OF THE PROBLEM
1.2 RESEARCH OBJECTIVES
1.3 JUSTIFICATION OF THE STUDY
1.4 METHODOLOGY
1.5 SCOPE OF STUDY
1.6 LIMITATIONS OF THE STUDY
1.7 ORGANIZATION OF THE STUDY

CHAPTER TWO LITERATURE REVIEW
2.0 INTRODUCTION
2.1 CONCEPTUAL DEFINITIONS
2.1.1 MICROFINANCE
2.1.2 APPROACHES TO MICROFINANCE
2.1.3 MICRO CREDIT
2.1.4 MICRO INSURANCE
2.2 PRODUCT AND SERVICES OF MFIS
2.2.1 FINANCIAL SERVICES
2.2.2 ENTERPRISE DEVELOPMENT SERVICES
2.2.3 SOCIAL INTERMEDIATION
2.2.4 SOCIAL SERVICES
2.3 EVOLUTION OF MICROFINANCE IN GHANA
2.4 MICROFINANCE INSTITUTIONS
2.4.1 OBJECTIVES OF MICROFINANCE INSTITUTIONS
2.4.2 TYPES OF MFIs IN GHANA
2.4.3 REGULATORY FRAMEWORK FOR MFIs OPERATION INGHANA
2.5 WHY MFIs TARGET WOMEN ENTREPRENEURS
2.6 CHALLENGES WOMEN ENTREPRENEUR IN SMEs FACE IN ACCESSING CREDIT FROM MFIs
2.7 GENERAL OVERVIEW OF THE SME SECTOR
2.8.0 IMPACT ASSESSMENT
2.8.1 Cost and Capacity of impact Assessments
2.9 LEVELS OF IMPACT ASSESSMENT

CHAPTER THREE METHODOLOGY
3.0 INTRODUCTION
3.1 RESEARCH DESIGN
3.2 METHODS OF DATA COLLECTION
3.3 SAMPLE AND SAMPLE PROCEDURE FOR DATA COLLECTION
3.4 DATA ANALYSIS
3.5 PROFILE OF THE ORGANIZATION

CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND DISCUSSION
4.0 INTRODUCTION
4.1.0 PRODUCT OFFERED BY SAT
TABLE 4.0: PRODUCT OF SAT ACCESSED
4.2.0 IMPACT ASSESSMENT OF MICROFINANCE AT BUSINESSES LEVEL
Table 4.1: IMPACT OF MICROFINANCE AT BUSINESS LEVEL
4.2.1 IMPACT OF MICROFINANCE AT THE HOUSEHOLD LEVEL
Table 4.2: IMPACT OF MICROFINANCE AT HOUSE HOLD LEVEL
4.2.2 IMPACT OF MICROFINANCE AT SOCIAL AND POLITICAL LEVEL
Table 4.3: IMPACT OF MICROFINANCE AT SOCIAL AND POLITICAL LEVEL
4.3.0 CHALLENGES WOMEN ENTREPRENEUR FACED WHEN ACCESSING THE PRODUCTS OF MFI
4.3.1 PERCENTAGE OF INTEREST RATE CHARGE BY THE MFI
Table 4.4: Percentage of interest rate charge by your MFI
4.3.2 DURATION FOR LOAN PROCESSING
Table 4.5: DURATION FOR LOAN PROCESSING
4.3.3 SATISFACTION WITH THE PERIOD WITHIN WHICH LOAN WAS OBTAIN
4.3.4 MODE OF REPAYMENT
4.3.5 EFFECT OF MODE OF REPAYMENT ON BUSINESS
4.3.6 TYPE OF COLLATERAL SECURITY DEMANDED BY MFI
Table 4.6:
4.3.7 THE EFFECT OF COLLATERAL REQUIREMENT ON THE ABILITY TO ACQUIRE LOAN FROM MFI
TABLE 4.7: THE EFFECT OF COLLATERAL REQUIREMENT ON THE ABILITY TO ACQUIRE LOAN FROM MFI
4.4 CHALLENGES MFI FACES WHEN DEALING WITHWOMEN ENTREPRENEURS
4.5 PERFORMANCE RATING OF MFI BY RESPONDENTS
Table 4.8: PERFORMANCE RATING OF SAT BY RESPONDENTS

CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.0 INTRODUCTION
5.1 SUMMARY OF FINDINGS
5.2 CONCLUSIONS
5.3 RECOMMENDATIONS

REFERENCES

LIST OF TABLES PAGES

TABLE 4.0: PRODUCT OF SAT ACCESSED

TABLE 4.1: IMPACT OF MICROFINANCE AT BUSINES LEVEL

TABLE 4.2: IMPACT OF MICROFINANCE AT HOUSEHOLD LEVEL

TABLE 4.3: IMPACT OF MICROFINANCE AT SOCIAL AND POLITICAL LEVEL

TABLE 4.4: PERCENTAGE OF INTEREST CHARGE BY MFI

TABLE 4.5: DURATION FOR LOAN PROCESSING

TABLE 4.6: TYPE OF COLLATERAL SECURITY DEMANDED BY MFI

TABLE 4.7: THE EFFECT OF COLLATERAL REQUIREMENT ON THE ABILITY TO ACQUIRE LOAN FROM MFI

TABLE 4.8: PERFORMANCE RATING OF SAT BY RESPONDENTS

LIST OF FIGURES PAGES

FIGURE 4.O: PRODUCT ACCESSED BY WOMEN ENTREPRENEURS

FIGURE 4.1: CHALLENGES FACED WHEN ACCESSING THE PRODUCT OF MFI

FIGURE 4.2: INTEREST RATE CHARGE BY MFI

FIGURE 4.3: DURATION FOR LOAN PROCESSING

FIGURE 4.4: SATISFACTION WITH THE LOAN PROCESSING PERIOD

FIGURE 4.5: MODE OF REPAYMENT

FIGURE 4.6: EFFECT OF MODE OF REPAYM.ENT ON BUSINESS

FIGURE 4.7: THE EFFECT OF COLLATERAL REQUIREMENT ON THE ABILITY TO ACQUIRE LOAN FROM MFI

FIGURE 4.8: PERFORMANCE RATING OF SAT BY RESPONDENTS

LIST OF ABBREVIATIONS

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CERTIFICATION

We hereby declare that this submission is our own work towards the Bsc. Degree in Administration ( Banking and Finance option) and to the best of our knowledge it does not contain any material published by another person or material accepted for the award of any other degree of the University except where due acknowledgements has been made in the text

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ABSTRACT

This research study investigates the impact assessment of microfinance on women entrepreneurs in SMEs. The researchers used case study, questionnaire as an instrument of primary data collection and secondary data. Statistical Package for Social Scientist (SPSS) and Microsoft Excel were used in data presentation and analysis. Random sampling of women entrepreneurs were used to select a sample size of sixty (60) respondents. For clear analysis, the study centers on three broad variables for impact assessments which are business, household and socio- political

The study reveals that microfinance has a positive impact on women entrepreneurs in relation to their business, household, socially and politically. The research also found out that the level of interest rate charged is a potential contribution to loan delinquency and the demand of collateral securities is a challenge to women entrepreneurs in their quest to access loan from MFIs Also, the researcher contains recommendations to MFIs and women entrepreneurs in SMEs in the Kumasi Metropolis

ACKNOWLEDGEMENT

First, we would like to thank God Almighty for giving us the grace and the opportunity to offer A Bachelor’s Degree programme. We would also like to appreciate our supervisor Mr. P. K. Oppong-Boakye of KNUST School of Business for all the help, guidance and effort he put at our disposal to help us complete this work. Again, we would like to thank Sinapi Aba Trust and Mr. Edward Akosah head of SMEs at SAT, who through his tireless effort helped us in making this dissertation a success.

We would like to thank the women clients of Sinapi Aba Trust who sacrificed their time to respond to our questionnaires

Also, we thank our parents who have supported us up to this stage, without your support we would not have got this far. God bless you.

Finally, to all authors whose works have been consulted are recognized for their good contributions.

DEDICATION

This dissertation is dedicated to God Almighty who through His love and goodness has brought us to the end of our University education .We also dedicate it to loved ones who has been faithful friends to us throughout our stay on campus.

CHAPTER ONE INTRODUCTION

1.0 BACKGROUND OF THE STUDY

Microfinance is not a new concept. It dates back in the 19th century from an obscure experiment in Bangladesh 30 years ago; microfinance has become a worldwide movement as a development activity, a way of helping poor people out of poverty (Ditcher, 2006). In light of its prominent role in development economics, Buckley (1997) described it as the newest darling of the donor community, while Karnani (2007) portrays it as the newest silver bullet for alleviating poverty and Greer (2008) and Gupta and Aubuchon (2008) claim that microfinance shines as a proven way to improve the lives of the poor. Microfinance is identified as a liberating force and an important instrument in fighting poverty (Nobel Prize committee, 2006). Accordingly, by the late 1990s, microfinance had become the darling boy of most donor agencies and subsequently received a chunk of the budget (Buckley, 1997). This was also boosted by the United Nation’s declaration of 1997-2006 as a decade for the eradication of poverty when money lenders were informally performing the role of now formal financial institutions.

The 2006 Microfinance Summit Campaign Report estimates that there are now more than 3,000 microfinance institutions, serving more than 100 million poor people in developing countries; the total cash turnover of these institutions world-wide is estimated at $2.5 billion and the potential for new growth is outstanding.

In the early years of microfinance, most organizations lending to the poor were funded by private or government grants. In the1990s, it became apparent that microfinance institutions would be unable to sustain their rapid growth rates if they depended solely on grants for funding.

Many microfinance institutions started to restructure their operations to make themselves attractive to investors.

In recent years, many institutional and high net worth investors have begun to invest in microfinance. Attracted by the high growth rates, funds focused on lending to microfinance institutions were created. Today, major banks such as Morgan Stanley, Deutsche Bank and Citigroup have begun to offer products and services that enable investments in microfinance. The creation of SMEs generates employment but these enterprises are short lived and consequently are bound to die after a short while causing those who gained job positions to lose them and even go poorer than how they were. It should be noted that microfinance is not a panacea but it is a main tool that foster development in developing countries. It is known worldwide that the poor cannot borrow from the banks. Banks do not lend to them because they do not have what is required to be granted a loan or to be provided with other bank services. The lack of financial power is a contributing factor to most of the societal problems. These problems emanate from poverty and it is known that with poverty one is bound to suffer so many consequences ranging from lack of good health care system, education and nutrition. Microfinance has proved this bank concept to be wrong. They target the poor who are considered risky but the repayment rate turns to be positive as compared with the regular commercial banks (Zeller and Sharma, 1998). Researchers have viewed microfinance in different dimensions. Microfinance gives people new opportunities by helping them to get and secure finances so as to equalize their chances and make them responsible for their own future. It broadens the horizons and thus plays both economic and social roles by improving the living conditions of the people (Microfinance Radio Netherlands, 2010). These improvements are in a nutshell to alleviate poverty, and according to this project, it will be seen from the point of impact assessment on women in small and medium size enterprises (SMEs) and focusing mostly in the rural and urban areas.

Ghana has a population of 23.5 million, about half of whom live in the rural areas. Poverty has declined from 52 percent in 1992 to 28 percent in 2006, and Ghana is on course to exceed the 2015 Millennium Development Goals (MDGs) of halving poverty (World Bank, 2008). Most of these women live in poor communities both in the rural and urban areas of the country. They engage in mostly micro enterprise and find it difficult accessing credit. The only category of financial institution that largely provides access to credit for the women is the Microfinance Institutions (MFIs). Between December 1997 and December 2005, the number of microfinance institutions increased from 618 to 3,133. The number of people who received credit from these institutions rose from 13.5million to 113.3 million (84% of them being women) during the same period (Daley- Harris, 2006).

The informal sector of our country has great potential to serve as the engines of economic growth since it employs higher percentage of Ghana’s labor. A report by International Monetary Fund shows that the informal sector could contribute to the expansion of businesses in Ghana if the financial system is strong and small and medium enterprises can easily access credit from financial institutions. (IMF Country Report on Ghana, May 2003).

Over the years, Microfinance sector has thrived and evolved into its current states as a result of government financial policies and programs undertaken by different government since independence. Among these policies are:

- The provision of subsidized credits in 1950’s.
- The establishment of Agricultural Development Bank in 1965 to address the problem of Agricultural sector and fisheries
- Establishment of Rural Community banks and the introduction of regulations such as commercial banks being required to set aside 20% of the total portfolio, to promote lending to Agricultural and small scale industries in the 1970’s and 1980’s.
- Shifting from a restrictive financial sector regime to a liberalized regime in 1986.
- Promulgation of PNDC Law 328 in 1991 to allow the establishment of different categories of non-bank financial institutions, including savings and loans companies and credits unions.

Although microfinance is not a panacea for poverty reduction and its related development challenges, when properly harnessed it can make sustainable contributions through financial investment leading to the empowerment of people, which in turn promotes confidence and self-esteem, particularly for women.

The impact of microfinance in Ghana is a subject worthy of serious examination for a number of reasons. Since the inception of MFIs in Ghana their activities have grown from strength to strength although up to date data on MFIs in Ghana are not readily available.

This study therefore focuses on one MFI in the Kumasi metropolis to ascertain the impact their services has have on the growth of women in SMEs.

1.1 STATEMENT OF THE PROBLEM

Ghana has experienced an exponential growth of MFIs whose target markets are the active poor within the society. These individuals do not have easy access to credits from the conventional banks as a result of collateral requirements and high transaction costs. The informal sector is the backbone of Ghana’s development since it constitutes a larger sector of economy. Currently, the market is saturated with MFIs, about 262 credit unions, 135 rural banks as at May, 2009 which are in the business of providing micro loans to the informal sector. This study seeks to know the active role and impact these MFIs are contributing to women in SMEs.

There have been numerous complaints from micro entrepreneurs about insufficient credit facilities. This research looked at what MFIs are doing in the informal sector since MFIs are saturated in the market and their missions have been to help micro entrepreneurs especially women.

Also it is unclear whether the administrative practices of the MFIs support their effort or create additional hurdles for SMEs in need of financing for the development of their businesses since most clients default in repayment of loans.

1.2 RESEARCH OBJECTIVES

The objectives of our study are:

- To identify the products offered by Sinapi Aba Trust and specific products for women entrepreneurs.
- To assess the impact of products and services offered by Sinapi Aba Trust on women entrepreneurs.
- To know the challenges facing women entrepreneurs in accessing the products.
- To find out the challenges SAT faces in providing services to women entrepreneurs.

1.3 JUSTIFICATION OF THE STUDY

In trying to justify why the current study is important, it is vital to mention that researchers have found this area of study very important to the development of the socio-economic activities in developing countries and their contributions to the development of small and medium size businesses in Ghana. Extensive research has been carried out on the role of the Microfinance Institutions. This research will therefore focus on Impact Assessment of MFIs on women entrepreneurs in SMEs which has not been exploited in terms of its contributions to the development of small and medium size businesses and particularly in the informal sector domain. A study of this nature is equally very important because it is going to enlighten the government and the public on the role MFIs are playing in the SMEs sector since it is in partnership with some international donor agencies.

Microfinance as a whole provides the rural population a means to have access to financial services in their localities to boost their living standards in a sustainable manner in line with the millennium development goals of alleviating poverty in developing countries. They can contribute in the fight against poverty by improving the agricultural sector which is the main source of living to the inhabitants of such developing nations. Thus it will pave a way forward for potential MFIs wishing to help in the sustainable development of SMEs to understand the difficulties they may come across and how they can succeed in their endeavors.

1.4 METHODOLOGY

The study used primary data. Quantitative and qualitative methods were used to analyze the collected data. The group also used case study, interviews and administer questionnaires to a predefined sample size of their clients and random sampling was used.

1.5 SCOPE OF STUDY

Microfinance Institutions are scattered in the entire geographical landscape of Ghana. Some MFIs in Kumasi Metropolis were analyzed, looking at its contributions to women entrepreneurs in SMEs and the benefits derived from the product and services of these institutions.

1.6 LIMITATIONS OF THE STUDY

The uncooperative behavior on the part of some of the respondents in relation to answering of questionnaires and adhering to the appointment time given was also a challenge.

There was language barrier between the researchers and the respondents, in that there was difficulty in translating the exact information from Twi to English.

1.7 ORGANIZATION OF THE STUDY

The study is organized in five chapters as follows.

Chapter one provides general background to the study. It also provides the statement of problem in terms of research questions. Again, it sets out the objectives of the study and provides justification for the objectives.

Chapter two reviewed pertinent literature on the impact assessment of microfinance in the context of women in SMEs. Both theoretical and empirical issues are reviewed in the literature.

Chapter three discusses the methodology of the study.

Chapter four looks at data presentation, analysis and discussion of empirical results.

The final chapter, which is chapter five, summarizes the main findings of the study, concludes and provides recommendations.

CHAPTER TWO LITERATURE REVIEW

2.0 INTRODUCTION

Even though there are now perhaps thousands of microfinance programs serving millions of people, impact evaluations are not as common as they ought to be. As a field, we still lack continuing hard information about what works well and what does not, and what impacts microfinance has on micro entrepreneurs in Ghana. This section covers and defines key terms as used in the study. This chapter covers the definitions and the need for impact assessment studies in relation to Microfinance Institutions and women entrepreneurs in small and medium enterprise; current and major authors view on the techniques used in impact assessment. Methodological issues in undertaking Impact Assessment (IA) studies depends on a mixture of research methods chosen and gives the degree of reliability and rigidity to data collection for the study. The design of the impact assessment in relation to triangulation of information from different sources has immense impact on the reliability and credibility of the study.

This section also mentions tools available for Impact Assessment studies and the importance of using these tools as guidance and not as a template. The design of IA study in relation to selection of research method and tools to undertake IA studies is basically due to resources available in terms of cost and capacity. This has been the major limitations in undertaking IA studies especially for MFIs.

In most developing countries microfinance has been used as one of the tools for development, as such most development project has microfinance as one of its components. The impact of these microfinance projects in relation to the partner institutions and their clients, sometimes called beneficiaries has been up for discussions among policy makers, developing partners and the practitioners.

Microfinance is hailed as a tool for poverty alleviation and is one of the major strategies to achieve the Millennium Development Goals (MDGs). This is because access to financial services assists poor households in meeting their basic financial needs, protects them against risks, and reduces their vulnerability to shocks, by building assets. Ultimately, this financial service develops their social and economic empowerment. It is further argued that financial services for the poor can help them turn their savings into sums large enough to satisfy a wide range of businesses, consumption, personal, social, and asset-building needs (Project Parivartan 2006). It also enables them to take advantage of economic opportunities, to build assets, and to reduce their vulnerability to external shocks that adversely affect their living standards, (Mejeha and Nwachukwu 2008, Ramirez 2006, Woroniuk and Schawk 1998).

Some of the main pertinent issues have been the low capacity of the participating microfinance institutions to undertake such exercises which are mostly carried out by their developing partners. There are issues related to the development projects themselves, the question of sustainability and whether these projects have had any positive and meaningful impact on the lives of the clients or it create a dependency and rather reduced their opportunity to come out of their poverty traps. Other school of thought has also questioned the methodologies used by microfinance institutions and microfinance projects in evaluating their impact, which vary greatly, Goldberg (2005).

2.1 CONCEPTUAL DEFINITIONS

2.1.1 MICROFINANCE

Micro finance, according to (Khawari, 2004) is “generally an umbrella term that refers to the provision of a broad range of services such as deposits, loans, payment services, money transfers and insurance to poor and low-income households and their micro-enterprises”.

Schreiner and Colombet (2001, p.339) define microfinance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks.”

Robinson (2001) microfinance refers to small scale financial services for both credits and deposits- that are provided to people who farm or fish or herd; operate small or microenterprise where goods are produced, recycled, repaired, or traded; provide services; work for wages or commissions; gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and local groups in developing countries in both rural and urban areas.

CGAP (2003) defines it as the supply of loans, savings and other financial services to the poor.

Microfinance is the provision of credit and other financial services like savings and insurance to micro, small and medium scale enterprise (UNDP, Microstart Guide, 1997).

2.1.2 APPROACHES TO MICROFINANCE

According to Ledgerwood (1999), there are two approaches to microfinance. The first is what is termed the minimalist approach which looks at financial intermediation only. The second is an integrated approach which considers financial services as well as their interrelationships with social intermediation such as health, education, training and development. Microfinance tend to be economic in nature, such as its effect of facilitating development of businesses, increasing income, and decreasing dependence on outside help, these impacts have close ties to matters of global public agenda of making basic amenities accessible by the poor, in this case bridging the gap between the rich and the poor. Microfinance initiatives can easily go hand in hand with health services and outreach programs which lead to better economic prosperity. Local microfinance institutions can become the source of not only financial services but also a place to get information about basic needs of their clients. MFIs may have its main objective of providing financial services only but may offer limited social intermediation occasionally. In this case, the MFI is using a minimalist approach. On the other hand, an MFI uses an integrated approach when it takes a more holistic view of the clients. It is a combination of both financial and social intermediation, enterprise development and social services. An MFI chooses a minimalist or integrated approach depending on it main objectives and the circumstances (demand and supply) in which it is operating.

2.1.3 MICRO CREDIT

Micro credit is the practice of offering small, collateral free loans to members of co-operatives who otherwise would not have access to the capital necessary to begin small business. (Hobnssain 2002). Microcredit is thus one of the critical dimensions of the broad range of financial tools for the poor. An empirical research and further study show that the poor have the capacity to use loans effectively for income-generation, to save and re-pay loan.

Simanowitz and Brody (2004, p.1) argue that “micro-credit is a key strategy in reaching the MDGs and in building global financial systems that meet the needs of the most poor people”. Littlefield, Murduch and Hashemi (2003) report “micro credit is a critical contextual factor with strong impact on the achievements of the MDGs. Micro credit is unique among development interventions: it can deliver social benefits on an ongoing, permanent basis and on a large scale”.

2.1.4 MICRO INSURANCE

Micro insurance is a component of microfinance. It is defined in terms of client and not insurance furnished by a small institution. Churchill (2006) defines micro insurance as the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved. As with all insurance, risk pooling under micro insurance attempts to allow many individuals or groups to pool risks and redistribute the costs of the risky events within the pool. Microfinance institutions have played an active role in reducing or protecting against this vulnerability through providing credit for increasing income earning opportunities and through providing savings services to build up resources that can be drawn down in cases of emergencies.

2.2 PRODUCT AND SERVICES OF MFIS

2.2.1 FINANCIAL SERVICES

According to Ledgerwood (1999), the financial services generally include savings and credit but can also include other financial services such as insurance and payment services.

Savings products

Micro saving is also a microfinance service that allows impoverished individuals to safeguard money and other valuables items and even earn interest. It allows a lump sum to be enjoyed in future in exchange for a series of savings made now.

Current account: This is a non -interests bearing account for customers who deposit funds and withdraw anytime without notice.

Susu savings: This is a non-interest bearing account for those who do not have time to come to bank. It is a door to door service.

Loans products

Group loan : This is a loan normally given to a group of at least ten members and at most thirty members whose businesses are homogenous or different. The duration for payment is usually between four to six months but with the same interest rates.

Individual loans : This is loan granted to individuals who have savings account with the bank for at least one month. With this type of loan, the applicant needs a collateral security.

Susu loans : This is given to Susu deposit clients’ after three months of saving with the organization. No collateral security is required and repayment is made on daily basis basically with small amount.

Micro insurance

It is a system by which people, business and other financial organizations make a financial payment to share risk. Types of insurance produce include life insurance, Property insurance, Health insurance and Disability insurance.

2.2.2 ENTERPRISE DEVELOPMENT SERVICES

These services are often provided by MFIs adopting the integrated approach. These services are geared towards their clients’ business sustainability in terms of profit and cash flow. These in the long run help them to pay their loans without default. Services include:

Business training: Regular training is given to clients on management principles, pricing, book keeping skills, customer care and development, leadership development, financial management, community development, group solidarity and effective use of credit.

Orientation: Clients are oriented on the purpose of the loan, interest rate, penalty for default and terms of payment by loan officers.

Production training: This area of intervention helps clients to use their resources effectively and efficiently to ensure profitability and business expansion.

2.2.3 SOCIAL INTERMEDIATION

These include workshops for clients to enlighten them on essence of group formation, leadership training, and cooperative learning and also seek the opinion of their clients on the services they provide to them and the way forward.

2.2.4 SOCIAL SERVICES

Loan officers educate clients on social issues such as family planning, health and nutritional needs and adult education to explore opportunities to enhance the literacy and numeracy skills and abilities of clients.

2.3 EVOLUTION OF MICROFINANCE IN GHANA

The Microfinance concept is not new in Ghana. Available evidence also suggests that the first credit union in Africa was established in Northern Ghana in 1955, by a Canadian catholic missionary. Susu which is the current microfinance methodology is thought to have originated in Nigeria and spread to Ghana in the early 1990s.Microfinance has gone through four distinct faces worldwide of which Ghana is no exception. These stages are described below:

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