An Empirical Review of Risks and Critical Causes of Failure of Credit Unions and Other Microfinance Organisations in Ghana – a Case Study of ‘Home at Last’ Credit Union, Kumasi.

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As governments in Ghana attempt to improve upon the creation of wealth, employment and hence reduce poverty among the people, they have continually improved upon the regulatory policies and liberalised the financial services sector. The small scale financial services sector, often referred to as, the microfinance sector, has grown vigorously, though not without many debilitating challenges. Failures are not uncommon in this sector. However, these failures are as factors of ineptitude, inability to pre-empt significant risks that threaten their survival. Ensuring that an effective framework is designed for managing those internal control failures systematically is critical. This study is a piece of qualitative research and the methodology is a reviews literature for theoretical framework in order to apply an empirical viewpoint of the case of ‘Home at Last’ Credit Union - a typical Microfinance organisation that began with huge enthusiasm but failed with the first four years of its start. Key words: Microfinance, Credit Unions, Experience, Risks, Failure, Pre-emptive, Controls. 1.Introduction

Small scale financial services institution have played vital role in the progress of the Ghanaian economy particularly, quite much actively, over the past fifteen years. Many of these firms sprang up with a lot of enthusiasm among many stakeholders only to witness their untimely and unexpected demise in a matter of couple of years from the start of their operation. This actually has resulted in the many poor persons whose lots the financial services organisations were supposed to help change for the better, bear the blunt of the fraud, the complicity and the irresponsibility that lead to the collapse of those firms by losing their own meagre savings they have lodged with those institutions to the sheer porous governance and controls.

1.1.Background Study
In Ghana, today, financial reforms and financial services liberalisation have come a long way evolving over the years. The small scale financial services sector, often referred to as, the microfinance sector, has grown vigorously, though not without many debilitating challenges, into its current state as a result of various financial sector policies and programmes undertaken by different governments since independence. According to Mensah (2007), notably among those programmes and policies are: “ i.Provision of subsidized credits in the 1950s;

ii.Establishment of the Agricultural Development Bank in 1965 specifically to address the financial needs of the fisheries and agricultural sector; iii.Establishment of Rural and Community Banks (RCBs), and the introduction of regulations such as commercial banks being required to set aside 20% of total portfolio, to promote lending to agriculture and small scale industries in the 1970s and early 1980s; iv.Shifting from a restrictive financial sector regime to a liberalized regime in 1986; v.Promulgation of PNDC Law 328 in 1991 to allow the establishment of different categories of non-bank financial institutions, including savings and loans companies, and credit unions.” The above programmes and policies have culminated into the “emergence of three broad categories of microfinance institutions. These are: i.Formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks; ii.Semi-formal suppliers such as credit unions, financial non-governmental organizations (FNGOs), and Cooperatives Credit Unions (CUA); iii.Informal suppliers such as susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals”. It should be noted that Credit Unions (CUs), by the nature of the law establishing them, are non-profit making organisation. As a business organisation it should therefore, be able to ensure that it can make some revenues anyway that will enable it to run itself...
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