FINANCING FOR DEVELOPMENT-THE ROLE OF MICROFINANCE IN

GHANA

WHAT IS MICROFINANCE:

• Microfinance, according to Otero (1999, p.8) is “the provision of financial services to low-income poor and very poor self-employed people”.

• 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.”

BRIEF HISTORY OF MICROFINANCE

• Microcredit and microfinance are relatively new terms in the field of development, first coming to prominence in the 1970s, according to Robinson (2001) and Otero (1999). Prior to then, from the 1950s through to the 1970s, the provision of financial services by donors or governments was mainly inthe form of subsidised rural credit programmes. These often resulted in high loan defaults, high loses and an inability to reach poor rural households (Robinson, 2001).

Microfinance and its impact in development

• Microfinance has a very important role to play in development according to proponents of microfinance. UNCDF (2004) states that studies have shown that microfinance plays three key roles in development.

• It: helps very poor households meet basic needs and protects against risks,

• is associated with improvements in household economic welfare, • helps to empower women by supporting women’s economic

participation and so promotes gender equity.

Microfinance and its impact in development cont’d

Otero (1999, p.10) illustrates the various ways in which “microfinance, at its core combats poverty 8”. She states that microfinance creates access to

productive capital for the poor, which together with human capital, addressed through education and

Microfinance and its impact in development cont’d

training, and social capital, achieved through local organisation building, enables people to move out of

poverty (1999). 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)).

CHALLENGES OF MICROFINANCE IN GHANA

Institutional Arrangement  

• Capacity Building

To promote the sub-sector, the various stakeholders organize training programmes and activities with the view

to upgrading the human capital in the industry. Though helpful, the competency level desired to be achieved with these training programmes is still below the expected.

CHALLENGES CONT’DThus, the human capacity of some key stakeholders and

institutions including MASLOC, GHAMFIN, Bank of Ghana, MFIs, and relevant Ministries such as

the Finance and Economic Planning and Technical Service

Providers is currently inadequate.

CHALLENGES CONT’DThe random and incoherent nature of training programmes has also hampered the achievements of the projected gains for the sub-sector. The flaw in the human capacity of all the

stakeholders has had a rippling effect on the governance and structure of the industry.

CHALLENGES CONT’DFurthermore, the current Microfinance Apex

bodies lack 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 overtime.

CHALLENGES CONT’DInfrastructure

Infrastructural capacity in the sub-sector is yet to be developed around an integrated and

holistic logistical support and internal operating systems.

 

CHALLENGES CONT’DFunding

Funding for the sub-sector has been from three sources: the institutions themselves, government and development partners.

Firstly, available funds do not seem to be adequate to meet demand and secondly, the varying sources come with their conditions,

distorting the market in some cases. There is also no microfinance fund to which MFIs can apply for on-lending and capacity building

support. 

Credit Delivery and Management

Credit Delivery MechanismsThe current strategies for

credit delivery are not adequately diversified and inefficient, and therefore, unable to meet the varying demands of the market.  

Classifying target groups

The objective of the microfinance is to provide resources for the poor. Nonetheless, there is yet to be adequate, reliable and acceptable methods for classifying varied poverty levels to enhance the categorization of potential and actual MFI clients.

Credit Delivery and Management Cont’d

• People with disabilities People with disabilities and differently-abled do not have designed products to meet their needs and are also not adequately served by existing microfinance funds and services. The necessary skills training for this target group is currently non-existent.

• WomenThe 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 are inadequate and incoherent.

Way Forward

• Relationships and roles must be clearly defined to enhance effective implementation and delivery of services

• Central Microfinance Fund could be established to provide on-lending and/or capacity building support. The experience of the RFSP Training Fund should be built upon

LIST OF SOME REGISTERED MICROFINANCE IN GHANA

There about 468 registered microfinance companies in Ghana.

• Allot Microfinance Company Limited• Alphamaga Microfinance Ltd• Amisgold Microfinance Services

Limited• A-N Microfinance Services Limited• A-One Trust Microfinance Services

Limited

• Apa Microfinance Limited• Appiaduman Microfinance

Limited• Arhinpa Microfinance Limited• Asankraman Microfinance

Limited• A-Star Microfinance Limited

LIST OF SOME REGISTERED MICROFINANCE IN GHANA cont’d

• Attention Microfinance Limited• AV Global Microfinance Limited• Axis Direct Microfinance Company

Limited• BAF Microfinance Ltd• Baobab Microfinance Company Limited

• Beaconcity Microfinance Company• Bedel Microfinance Limited• Beneficial Microfinance Company

Limited• Bengay Microfinance Limited• Benkoson Microfinance Limited• Best Microfinance Services Limited

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