The Role and Impact of Microfinance Institutions on Ghana’s Economy.

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  • Topic: Poverty, Bank, Microfinance
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  • Published : January 17, 2012
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(a)   Using the 8 questions in page 75 of your text book but start reading from page 71 under the heading of - Determining what to research, and stop at the 8 questions. , propose a research topic and Justify it choice.

Proposed Research Topic: The Role and Impact of Microfinance Institutions on Ghana’s Economy.

Topic Area: The topic is on Microfinance and the Impact It has on Ghana’s Economy.

Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers.

Microfinance encompasses the provision of financial services and the management of small amounts of money through a range of products and a system of intermediary functions that are targeted at low income clients. 

It includes loans, savings, insurance, transfer services and other financial products and services.

The concept of microfinance is not new in Ghana. There has always been the tradition of people saving and/or taking small loans from individuals and groups within the context of self-help to start businesses or farming ventures. 

For example, available evidence suggests that the first credit union in Africa was established in Northern Ghana in 1955 by Canadian Catholic Missionaries. However, ‘Susu’, which is one of the microfinance schemes in Ghana, is thought to have originated from Nigeria and spread to Ghana in the early twentieth century.

Over the years, the microfinance sector has thrived and evolved into its current state thanks to various financial sector policies and programmes undertaken by different governments since independence, 1957. Among these are:

• Provision of subsidized credits in the 1950s;

• Establishment of the Agricultural Development Bank in 1965 specifically to address the financial needs of the fisheries and agricultural sector;

• 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;

• Shifting from a restrictive financial sector regime to a liberalized regime in 1986;

• 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 policies have led to the emergence of three broad categories of microfinance institutions. These are:

• Formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks;

• Semi-formal suppliers such as credit unions, financial non-governmental organizations (FNGOs), and cooperatives;

• Informal suppliers such as susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals. Microfinance is 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; • The observation that the formal financial sector has provided very little or no services to low-income people, creating a high demand for credit and savings services amongst the poor; • The view that microfinance is viable and can become sustainable and achieve full cost recovery; • The...
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