Microfinance Institutions in Ghana

According to the John Cullen's Chapter 7 Case, Aregak Microcredit Organization in Armenia, microfinance, as an industry, seeks out to become an economic movement to assist and benefit low-income communities in both the financial and social aspects.“Microfinance is not simply banking, it is a development tool,” says Ledgerwood (1999) from the World Bank. With the goal of financial sustainability and a strong outreach to developing nations, microfinance institutions have served over 66 million people, with a majority of those served are being women.

Analyzing some of the specific significances and benefits microfinance institutions offer developing nations, developing nations are given the opportunity to provide education for their youth, leadership roles for women, and credit for potential investors and or business owners.

Photo Courtesy of CNN.

Ghana can be an example of a country that has benefited from microfinance institutions over the past decade. Researched by Irene Akuamoah Boateng and Albert Agyei (2013), microfinance became one of the fastest growing sectors as well as one of the major contributors to Ghana’s reduction of poverty.

“In the 1990s, [Ghana’s] poverty was reduced by an average of 1.8 percentage points per year, whereas between 2006 and 2013 this had slowed to an average reduction of just 1.1 percentage point per year,” (Cooke, 2016).

The graph above formulated by World Bank shows the poverty headcount ratio at national poverty lines (% of the population) for Ghana from years 2005 to 2012. I apologize that I couldn’t date the year back to 1990 to demonstrate a better comparison. Nevertheless, a reader can still see a decrease in poverty in this particular time margin from 31.9% to 24.2% of the population below the poverty line. Here is the link to the World Bank's official website to see the actual simulation.

Though Ghana has experienced lesser poverty currently than experienced in the 1990s, it still considered as a country with a lot of poverty and inequality. Looking specifically at Madina, Ghana, where 66.7% of microfinance institutions have operated there, the country developed new jobs, sources of capital for microenterprises, and a stronger GDP to better lower the poverty rate. The first Ghana Poverty Reduction Strategy or GPRS I was a microfinance program served as a sense of debt relief for those who were the worst off in a state of emergency. GPRS I, however, received mixed reviews because some argued the funds and debt relief was unevenly distributed. “Instead of giving out microcredit to help establish, sustain and grow microenterprises, operators and managers of the business have greedily diverted their attention to big fish investments,” according to Lartey Stephen Sarpong (2016) from Modern Ghana.

Consequently, GPRS II developed soon afterward “to eliminate the worst manifestation of poverty, social deprivation, and economic injustice, from Ghanaian society,” (Boateng, Boateng, & Bampoe, 2015). The Ghana Shared Growth and Development Agenda or GSGDA then followed GPRS II with the goal to sustain and stabilize Ghana’s macroeconomics.

In studies and reports, there have been mixed reviews on whether or not microfinance was truly successful in the past few decades in reducing Ghana’s poverty rate.

Photo Courtesy of DAI Global Developments.

An article written by Teo Kermeliotis (2011) from CNN points out that the impact microfinance programs have on sub-Saharan Africa in general is rather mixed in hitting its success mark. There is the risk of these programs taking advantage of local and placing them in "a vicious debt cycle," warns Kamal Munir of the UK's Cambridge Judge Business School, who, according to Kermeliotis, has been monitoring the industry as an advisor to various international financial institutions. Further reading Kermeliotis' article, the highlights he makes are as follows.

• "Microcredit has not really proved a panacea," says expert

• Some borrowers are forced to take new loans to repay previous loans

• Institutions should be more careful about who they lend money to, say expert

These analysis are what allow us to make conclusion on whether or not an institution, such as microfinance programs, create a postive impact on a particular community financially.

There is still the consideration of the lowered poverty rate in the past ten years which is reasonably made possible by microfinance institutions; however, based on the many programs trialed in bettering the struggling country, one may argue there could have been more efficient in the process. Trying to consider all perspectives, however, every country has its own unique challenges; thus, it took time for microfinance institutions as well as the Ghanaian government to actually find and make substantial improvements to lowering the poverty rate.

Microfinance institutions still face many challenges in assisting Ghana, consisting of maintaining focus on helping the poor and low-income communities and not redirecting it towards big fish investments in the country. Overall, though microfinance did help Ghana reduce its poverty rate, the institutions still have challenges to address a better focus on the actual low-income communities.

Work Cited

• Boateng, G., Boateng, A., & Bampoe, H. (2015). Microfinance And Poverty Reduction In Ghana: Evidence From Policy Beneficiaries, by Gilbert O. Boateng; Akwasi A. Boateng; Harry S. Bampoe. Retrieved February 28, 2018, from ftp://ftp.repec.org/opt/ReDIF/RePEc/ibf/rbfstu/rbfs-v6n1-2015/RBFS-V6N1-2015-8.pdf

• Cullen, J. B., Parboteeah, P., & Cui, X. (2017). Multinational management: a strategic approach, sixth edition (6th ed.). Beijing: Zhongguo ren min da xue chu ban she.

• Edgar Cooke (Ashesi University College, Ghana); Sarah Hague (Chief of Policy, UNICEF Ghana); Andy McKay (Professor of Development Economics, University of Sussex, UK). Retrieved 2016, fromhttps://www.unicef.org/ghana/Ghana_Poverty_and_Inequality_Analysis_FINAL_Match_2016(1).pdf

• Ledgerwood, J. 1999. Microfinance Handbook: An Institutional and Financial Perspective. Washington, D.C.: World Bank.

• World Bank, Global Poverty Working Group. Data are compiled from official government sources or are computed by World Bank staff using national ( i.e. country-specific ) poverty lines.