Investment and Development Impact of Microfinance Institutions : A case study of Ghana

Sammanfattning: This study with its two-fold objectives undertakes a descriptive analysis of how Microfinance Institutions (MFIs) have evolved into its multi-tiered state in Ghana and how their development has impacted other stakeholders in Ghana’s economy especially Micro and Small-Scale Enterprises (MSEs). Additionally, this study undertakes an empirical and exploratory case study to investigate how MFIs in Ghana are influencing access to finance by MSEs. Given that MFIs and MSEs impact large swaths of very poor households, contribute fairly to the GDP of their countries, possess the potential to lift poor household above the poverty line, absorb the ramifications of economic recessions and fiscal adjustments, and provide employment and welfare; they constitute a potent investment and developmental tool for the attainment of the Millennium Development Goals (MDGs) and national development programmes in developing countries. The study shows how Ghana’s MFI sector has evolved through years of regulatory reform into a multi-tiered microfinance framework to fill the financial chasm and disparity. It is also shown that the main financial and banking institutions are extending their depth of coverage to poor households through partnership with MFIs. Semi-structured questionnaires were administered to a random sample of 25 MFIs and 25 MSEs. The questionnaires qualitatively measured and assessed among others the firm characteristics, access and use of capital, the use of savings accounts, the impact of business loans, loan policy and procedures, marketing strategy, customer evaluations, business motivation, business challenges and loan repayment. Deposit Money Banks (DMBs) serve only about 5% of Ghanaian households. 70% of households are reported to have members without a savings account. The main source of household credit and loans is relatives, friends and neighbours. Findings from the study indicate the main source of start-up capital for both MFIs and MSEs are personal savings, followed by the use of business loans. MFIs are the main source of business loans for MSEs. MSEs are confronted with lengthy loan processing and approvals times of up to 3 months and are required to provide collateral for loans. The main types of loan collaterals are physical assets and savings with the MFI. The latter being a contributory factor to the lengthy loan processing and approval time. MFIs offer MSEs very flexible payment terms and are easily accessible to MSEs, which are the key decision factors for MSEs in deciding an institution for loan application. MSEs hold favourable views of MFIs and the kind of financial services MFIs offer them. MSEs used business loans mostly in business growth and expansion. MSEs indicated business loans from MFIs had overall positive impact on their revenues, profits and their overall business activities. MSEs highlighted access to loans as their main business challenge. Loans offered by MFIs are tailored to meet their specific needs – fixed interest rates, short maturity (3-6months) and flexible payment terms. The main business challenges for MFIs are customer loan defaults and competition. The study has shown that MFIs are increasing their momentum to harness the investment and developmental opportunities that limited or lack of access to financial services and products presents, which this study has shown to be the driving force behind the growth and expansion of MSEs and with a culminated impact on Ghana’s economy.