The role of micro financial institutions in financing small and medium enterprises in Ghana
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Date
2008-08-19
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Abstract
This study seeks to investigate into the roles being played by MFIs in financing the operations of SMEs. The study examined the operations of two MFIs and their beneficiaries. The researcher used questionnaires and interviews and combined both qualitative and quantitative techniques to collect data from 66 respondents. A purposive sampling technique was used in the selection of the MFIs. From the' research it was revealed that during the 2007 fiscal year alone, FASL and GCSL paid over millions of cedis as loans to SMEs. In other to reach out to more customers, additional branches have been opened within the Kumasi Metropolis. The research also revealed that these MFIs have an effective way of recovering
loans with an appreciable rate varying between 90.2% - 96.6%. Though this is
encouraging, it has been argued that these rates fall below the international standard of measuring micro finance recovery rate which is 98%. This has accounted for the increasingly falling rate of total loan grants. On the impact of MFIs on poverty reduction, it was established that there has been a positive impact with about 85% of those interviewed admitting they are able to access certain facilities that hitherto they found difficult. The income earnings has considerable increased per week as against the standard of measurement set in the GPRS I (2000), which recognises all earners of income less than GH90.00 per annum to be poor. Aside the monetary indicators, respondents are also able to meet some of the social indicators of poverty. These improvements were attainable through the additional services provided by these MFIs. According to the research, aside its lending role, it also act in an advisory capacity teaching clients basic accounting book keeping and sound financial management. This has helped in expanding the operations of SMEs and discovery of auxiliary ventures. Additionally, the frequent visit of field officers and the daily claim of "Susu" have overwhelmingly inculcated in these SMEs the habit of savings. However, respondents expressed discomfort with the sky-rocketing interest rate of about 33%. The research also unearths some of the challenges faced by management of these MFIs. The inability of these MFIs to meet the stipulated standard of 98% recovery rate set by the International micro finance institution has become a problem.
Description
A Long Essay submitted to The Department of Accounting and Finance
Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements for the degree of Executive Master Of Business Administration, 2008