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Ghana is still among the poorest countries in the world. Currently, nearly 40% of the population cannot afford the minimum consumption for survival (the 2200 calories, recommended by the World Health Organisation). There are variations in the poverty rate between regions; some have a substantially higher rate than indicated by this average figure.
The past and present Governments have adopted several economic reforms to address poverty in its every aspect. Thus, while on the one hand trying to fulfil the basic needs of the population, they also embarked upon economic measures conducive to free market competition and employment creation. They include the promotion of policies that will encourage savings, private investment, increasing income generating opportunities and promotion of small-scale industries in the informal sector, among others. The Government’s Rural Development Strategy, the Poverty Reduction Strategy Paper (PRSP), including the most recent Livelihood Empowerment Against Poverty (LEAP), “Plan for Accelerated and Sustainable Development Programme (PASDEP) and other documents emphasise, among other things, microfinance as a good entry point in achieving development objectives in the region as well as curbing the dangerous trend in poverty and meeting the United Nation’s Millennium Development Goals (MDGs).
Currently, there are three broad types of microfinance institutions operating in Ghana. These include: • • • Formal suppliers of microfinance (i.e. rural and community banks, savings and loans companies, commercial banks) Semi-formal suppliers of microfinance (i.e. credit unions, financial nongovernmental organizations (FNGOs), and cooperatives; Informal suppliers of microfinance (e.g. Susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals).
The microfinance sector has thrived and evolved into its current state resulting from financial sector policies and programmes such as the provision of subsidized credits, establishment of rural and community banks (RCBs), the liberalization of the financial sector and the promulgation of PNDC Law 328 of 1991, that allowed the establishment of different types of non-bank financial institutions, 1
including savings and loans companies, finance houses, and credit unions and others, while the rural and community banking institutions are regulated by Banking Act 2004(Act 673). The establishment of these microfinance institutions raises question such as; “why there is still low financial intermediation in Ghana? Is the microfinance panacea for poverty-alleviation? What are the prospects, challenges and their implications? Is there any correlation between monetary depth and poverty? Hence, the following proposed research hypothesis will be assessed in the study; “…..micro credit is not a panacea for poverty alleviation and that in some cases the poorest people have been made worse-off, Hulme and Molsey (1996)”
2.1 Brief Literature Review
According to the 2000 Population and Housing Census, 80% of the working population is found in the private informal sector. This group is characterized by lack of access to credit, which constrains the development and growth of that sector of the economy. Clearly, access to financial services is imperative for the development of the informal sector and also helps to mop up excess liquidity through savings that can be made available as investment capital for national development.
The former UN Secretary General Kofi Annan during the launch of the International Year of Micro Credit (2005), “…Sustainable access to microfinance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care, and empowering people to make the choices that best serve their needs.” (Kofi Annan, December 2003).
Micro credit is thus one of the critical dimensions of the broad range of financial tools for the poor, and its increasing role in development has emanated from a number of key factors that include; The fact that the poor need access to productive resources, with financial services being a key resource, if they are to be able to improve their conditions of life; The realization that the poor have the capacity to use loans effectively for income-generation, to save and re-pay loans.
According to Simanowitz and Brody (2004, p.1), micro-credit is a key strategy in reaching the MDGs and in building global financial systems that meet the needs of the most poor people.” Littlefield, Murduch and Hashemi (2003) state, “…micro-credit is a critical contextual factor with strong impact on the
achievements of the MDGs. Micro-credit is unique among development interventions: it can deliver social benefits on an ongoing, permanent basis and on a large scale”.
However, some schools of thought remain sceptical about the role of micro-credit in development. For example, while acknowledging the role micro-credit can play in helping to reduce poverty, Hulme and Mosley (1996) concluded from their research on micro-credit that “…most contemporary schemes are less effective than they might be” (1996, p.134). The authors contended that micro-credit is not a panacea for poverty-alleviation and that in some cases the poorest people have been made worse-off.
This notwithstanding, microfinance has emerged globally as a leading and effective strategy for poverty reduction with the potential for far-reaching impact in transforming the lives of poor people. It is argued that microfinance can facilitate the achievement of the Millennium Development Goals (MDGs) as well as National Policies that target poverty reduction, empowering women, assisting vulnerable groups, and improving standards of living as could be infer from Kofi Annan’s speech above.
The researcher with the information from the above contentions and postulations of the various researchers will explore the gaps in their submission as he investigates the correlation between monetary depth and poverty and moreover find out the impact and the essence of these MFIs vis-à-vis poverty alleviation in the country.
The propose research area is the MFIs in Kumasi. The length of time within which to finish this project, the financial constraints and finally Kumasi as characterised by lots of these MFIs are the basic rationale for the choice. The researcher proposes to choose at least three institutions that can capture the three broad types of microfinance institutions operating in the country as indicated in the introduction. The MFIs should have at least 7 networks outside Kumasi. Other considerations will also be looked at. Hopefully the research may capture a sample size of 100 both from the formal sector (the MFIs) and the informal sector (beneficiaries).
As a mean of testing the hypothesis of the study and examine the main questions raised, below methodology will be employed;
To judge the success of one group (with access to micro credit) versus another (no access to micro credit), the study will observe how their characteristics change over time. I hope to find out how one’s access to microfinance can impact either positively or negatively in the livelihood. I propose to use time-series method to judge the observation. The observation will assist me to ascertain that the formal financial sector has provided very little or no service to low-income people, creating a high demand for credit and savings services among the poor.
This will be conducted individually. Structured and unstructured questions will be used to collect information on the subject under investigation. This is to help the researcher obtain responses to questions like; in your view is microfinance viable? How best can it be sustained? and others. I propose to conduct the interview in such a manner that each sector will have equal probability of being selected. Interviews will enable me to do most of the qualitative part of my research, and the information gained here is usually more realistic.
I will prepare systematic and well organized questions that will enable me; have responses to the questions raised in the introduction and moreover test the hypothesis of the research. .
4.0 Data Analysis
I will not only rely solely on the information from the various responses from the varied sectors but, also the statistical publications from international organizations and Ghana Microfinance Institutions (GHAMFIN). I propose to make a thorough analysis of the official and unofficial data received. To this end, I will use the SPSS software to do the quantitative and the qualitative analysis.
5.0 Timescale • • • • June 2008---August 2008 August----October 2008 October Sept 2008 Review of literature Draft literature review Review research methods literatures and agreed Research strategy. Sept-----Dec 2008 conducting of observation, interviews, surveys and administration of questionnaires. 4
• • •
final collection of questionnaire and analysis of Data.
February 2009 Feb. Jan. 2009
Compilation of first draft of project report. Final writing of research report.
The researcher has the following resources for the proposed research; (1) the researcher has assurance of information from; Garden-city loans and savings Limited, Opportunity International Savings and Loans Limited ECOBANK Ghana Limited and they are ever prepared to provide if available any information (2) the researcher has a complete set of a personal computer and a printer for the project work. (3) Funding will be borne solely by the researcher and the wife.
1 2 3 4 5 6 7 Entrepreneurs in the Informal Sector of Ghana. World Bank, New York, (1999) Ghana Microfinance Policy Document Ghana poverty reduction strategy, Government of Ghana 2008. Ghana poverty past present and future World Bank. Accra, June 1995. Hulme, D. and Mosley, P., (1996), Finance against poverty, Vols. 2. London; Routledge. http://www.id21.org/insights/insights51/insights51microfinance. Littlefield, Elizabeth, Jonathan Murdoch and Syed Hashemi (2003), Is Microfinance an Effective Strategy to Reach the Millennium Development Goals? Focus Note 24, CGAP Series, World Bank, Washington, DC (January). 8 United Nations, Concept Paper: Building Inclusive Financial Sectors to Achieve the Millennium Development Goals (International Year of Microcredit, United Nations, 2005) 9 United Nations, Microfinance and Poverty Eradication: Strengthening Africa’s Microfinance Institutions (New York, United Nations, 2000) 10 World Bank-Africa Region, Studies in Rural and Micro Finance: Financial Services for Women