JOHN KOFI DORGBEFU
IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF A
BACHELOR’S DEGREE (B. Sc. HONS) IN BUSINESS ADMINISTRATION OF THE UNIVERSITY OF GHANA BUSINESS SCHOOL, UNIVERSITY OF GHANA, LEGON.
1.0BACKGROUND TO THE STUDY
Modern microfinance emerged in the 1970s pioneered by – among others – the Grameen and SEWA banks in Asia and partners of ACCION in Latin America (Helms, 2007). In more than thirty years it has gained a reputation for being one of the most effective instruments in fighting poverty globally. Ghana’s financial sector in the past two decades has undergone a significant transformation especially with the promulgation of PNDC Law 328 of 1993, that allowed the establishment of different types of non-bank financial institutions, including savings and loans companies, finance houses, credit unions, as well as rural and community banks (RCBs). This policy transformation has given rise to a number of microfinance programmes and activities ranging from Government, Donors and NGOs. The microfinance industry in the early 1980s, was dominated by non-governmental organizations (NGOs) and experimented with innovative programmes in an attempt to address what they perceived as the failure of markets and governments to provide financial services to the poor. These organizations were heavily dependent on external grant funding. Generally, global perspective on microfinance is changing with even the meaning of the term “microfinance” altered. According to Consultative Group to Assist the Poor (CGAP) as recently as a few years ago, it meant, “… a credit methodology that employs effective collateral substitutes to deliver and recover short-term, working capital loans to micro-entrepreneurs”. Today, the term encompasses a broad spectrum of financial services that includes not only microcredit but also savings, insurance, and money transfers. Perspectives on the target group for microfinance have also expanded in recent years to include low-income men, women and poorest of the poor. Another significant change is that microfinance services are no longer considered a niche market activity that should be confined largely to the development community and carried out solely by specialized microfinance institutions. Today, it is believed that if microfinance is to achieve its full potential, it must be fully integrated into a developing country’s financial system with access to vast amounts of human, physical, and financial resources and management know-how. A paradigm shift toward market-based approaches to poverty reduction is also taking place. In the larger business world, a growing number of established companies including some multinational corporations have achieved impressive results in reaching the poor in innovative ways with their products and services. This reaffirms the feasibility of large-scale commercial microfinance and strengthens private sector interest. Hence the acceleration in the creation of commercial microfinance institutions which is demonstration effect of the profitability of the sector, combined with market forces in the newly-liberalized financial markets.
1.1STATEMENT OF THE PROBLEM
The main objective of Ghana’s Growth and Poverty Reduction Strategy (GPRS II) is to ensure “…sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment”. The main objective is to eliminate widespread poverty and growing income inequality, especially among the productive poor who constitute the majority of the working population. This group is however characterized by lack of access to credit. Littlefield and Rosenberg (2004) argue that the poor are generally excluded from the financial services sector of the economy. The liberalization of...