Exploring the Contributions of Microfinance Institutions to the Ghanaian Economy: A Study at Takoradi

Daniel Odoom ,Kennedy Oppong Fosu ,Kwadwo Ankomah ,Marian Birago Amofa

doi:10.7176/jesd/10-1-09

Abstract

Micro-Finance Institutions (MFIs) play an important role in making services available to the financially excluded masses, especially the needy and the informal sector. MFIs do not only have a considerable influence in reducing poverty but also the ability to do that sustainably. These institutions predominantly are regarded to be critical tools for growth in battling poverty and over-reliance on central and local governments, in several developing nations including Ghana. In spite of the above, MFIs face a number of challenges in Ghana, with the news of collapse of some MFIs which has become a cause for concern to various stakeholders. This tends to create some doubts regarding the role MFIs play in the Ghanaian economy. Using Takoradi as a case, this study sought to examine the views of operators and employees of MFIs with regard to the contributions of the institutions to the economy of Ghana through descriptive survey design in a quantitative research approach. The researchers adopted the purposive and simple random sampling techniques in selecting 114 respondents for the study, with q uestionnaire as the research instrument. Analytical tools used for the study were frequencies, percentages and an independent sample t-test. The study revealed that in terms of their types based on client base, most microfinance institutions operating in the city targeted SME operators. Also, based on their services, MFIs in the city were grouped into individual lending, group lending, compulsory and voluntary savings, among others. Again, the study found that MFIs in Takoradi contribute variously to the local economy including provision of financial capital to the people; income generation; employment creation; engaging the non-formal economy and providing support for SMEs to grow. Other contributions are in the areas of women empowerment; savings culture, credit facilities, asset creation tools and financial literacy. There was no difference in views of male and female respondents in respect of the contributions of MFIs to the local economy. It is recommended that MFIs collaborate with local authorities including the District Assemblies and Business Advisory Centres to come out with measures to ensure penetration into the rural areas in order to improve the conditions of the rural folks. Key words: Microfinance, Financial System, Development, Contributions, Ghanaian Economy DOI: 10.7176/JESD/10-1-09

Highlights

As a concept, microfinance is a way to make available financial services to the poor or clients with low income, since they are usually excluded from any traditional financial system and are often regarded as “unbanked” as a result of lack of collateral, stable employment and a verifiable history of credit (Westover, 2008)
The second objective of this study examined the views of respondents on the contribution of Microfinance Institutions (MFIs) to the economy of Takoradi
People living in cities and towns whose access to banking services are limited have relied on MFIs to access financial services

Summary

Introduction

Microfinance is a way to make available financial services to the poor or clients with low income, since they are usually excluded from any traditional financial system and are often regarded as “unbanked” as a result of lack of collateral, stable employment and a verifiable history of credit (Westover, 2008). Microfinance refers to the incorporation of financial needs of individuals into a national mainstream financial system. This sort of movement often relieves those who find it very challenging to have access to finance from the hustle they have to go through before having access to services that can support the growth of their business (Armendariz and Morduch, 2005; Asiama and Osei, 2007). The World Bank’s definition of microfinance states that it involves in comparably small financial transactions and use different procedures to meet the needs of low-income households, micro enterprises, small-scale farmers, and others who do not have access to traditional banking services. It aims at providing the opportunity to becoming self-sufficient by giving a platform to save or borrow money, insurance and a variety of financial services which includes remittances and payments

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