Abstract
Microfinance has become crucial to Ghana's financial system over the last three decades. They target the financially excluded and poverty stricken population with micro financial products, empowering the poor to create livelihoods for themselves and by so doing contributing towards the economic growth of the country. In recent years, there have been reported cases of the collapse of several microfinance institutions and others facing serious challenges. These series of events signal an ominous situation for the microfinance subsector and the entire financial system for that matter. This study therefore aims at examining the performance of microfinance institutions in Ghana, focusing on three key performance indicators; profitability, liquidity and credit advanced. The study revealed that loan default and interest expenses are the major variables which negatively affect the performance of the MFIs. In ensuring the sustenance of the microfinance subsector of the financial system, the study recommends that, the MFIs should adopt lending methodologies which minimize loan defaults and the Bank of Ghana should be encouraged to strength its regulatory oversight and power to rein in MFIs which offer outrageous rates of return on customers' deposits.
Highlights
The importance of the financial intermediation system in the economy of every nation is something that cannot be underestimated
Average credit advanced is very low signaling that the microfinance institutions (MFIs) are not doing well in relation to loan advances to clients
Recommendations In Ghana, the role of the MFIs has gained far more importance than it used to because the operations of MFIs in the last twenty-five years, have widened the scope of financial inclusion in the economy by reaching people especially the very poor who were previously financially excluded with some financial products
Summary
The importance of the financial intermediation system in the economy of every nation is something that cannot be underestimated. The role of the microfinance institutions (MFIs) is even more critical because they serve a unique purpose in the sense that they are the institutions which normally provide credit to micro and small scale business/ enterprises especially when it is very difficult or nearly impossible for these concerns to leverage funds from the traditional formal banking channels/ institutions. The significance of the MFIs is amplified in the context of the developing countries in the sense that in this part of the world, a huge chunk of the population does not have access to formal banking services and rely heavily on these small loans institutions for variety of services. To the extent that MFIs are crucial in dealing with issues of poverty especially in the developing world, their financial performance and sustainability continues to engage the attention of economists/academics as well as policy makers
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