Abstract
In view of the recent evidence that the impact of microfinance is being overstated, this study assesses the causal link between receiving credit from a microfinance institution and poverty reduction among rural households in the Upper East Region of Ghana. Using consumption expenditure as the outcome variable, we test the hypothesis that receiving credit has a poverty reducing effect. Treatment effect estimation technique is used to examine data on 250 beneficiaries and 250 non-beneficiaries from five Districts in the Region. Although the method of study is based on a quasi-experimental approach, the process of selecting the beneficiary and non-beneficiary sample cautiously made an attempt to minimize the potential problems that will arise from contamination, spill-over effects and programme and self-exclusion selection biases. The results support the hypothesis that microfinance has 0.12% poverty reducing effect. Premised on this, we conclude that even in very poor areas microfinance is capable of reducing poverty. Therefore microfinance investment is recommended to broaden the scale and scope of beneficiaries reached and improve delivery strategies to suite context specific characteristics.
Highlights
The revolution in the Microfinance (MF) industry has created a development paradigm shift
This is preceded by a presentation of the descriptive statistics of the variables used for the empirical estimation
The study sought to evaluate the impact of access to microfinance on poverty reduction proxied by consumption expenditure on basic needs
Summary
The revolution in the Microfinance (MF) industry has created a development paradigm shift This paradigm shift favours the use of MF as an important ingredient in improving the welfare of the poor in developing countries. The poor has no access to loans from the banking system, because they cannot put up acceptable collateral and/or because the costs for banks in screening and monitoring the activities of the poor, and enforcing their contracts, are too high to make lending to this group profitable. This situation has serious negative impact on poor households struggling to reduce poverty, vulnerability, and attain food security. Access to credit enables poor people to smooth consumption in times of income variability and engage in microenterprises which lead to value creation and move the poor out of poverty
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