Microfinance in Ghana: administration of credit to the rural poor; a case study of the banks in the IFAD-Rural Enterprises Project

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The alleviation of rural poverty is a major concern to the government. In view of this, the MEST/IFAD-REP was designed to benefit some selected districts in the Brong Ahafo and Ashanti Regions. This study looked at the administration of the credit component of the scheme. The main objective was to assess the efficiency of the administration of financial services to the rural micro enterprises by the participating formal financial institutions. The specific objectives were: - To assess the performance of the banks contracted by the project based on Bank of Ghana criteria. - To assess the sustainability of the contracted banks in carrying out the REP’s credit component of their activities. - To assess the efficiency of the outreach programme of the contracted banks and - To make appropriate recommendations. The data for the study were collected from both primary and secondary sources. The stratified random sampling technique was basically used in selecting the districts as they were from two different regional administrations. A purposeful selection was used to include the pioneering districts. The “CAR” of the “CAMELI” model was used to assess the performance of the banks. The sustainability of the banks was measured by the breakeven analysis: here the prudence and accrual concepts were assumed. Descriptive statistics were used in the assessment of the outreach intensity. The results indicated that two of the banks studied had “CARs” of less than the 6% required by the Bank of Ghana. The overall repayment rate averaged 89%. The overall savings per person in 1999 averaged 01 84,863. Transaction cost was found to be high due to other charges apart from the interest on the loans and the delay in securing loans. Based on the breakeven analysis, two banks, Wamfie Rural Bank at Berekum and Ghana Commercial Bank at Offinso were found to have reached sustainable levels in administering the credit component of REP activities. The “extent” of outreach was better than the “depth” of outreach as more women, illiterates, the rural poor and first timers benefited from the scheme. The outreach performance of the rural banks was better than the others banks. It was recommended that the repayment schedule should be basically monthly but must be adjusted to suit vocational peculiarities. Gawky requirements of banks should be streamlined. Medium-term loans should be provided for those who have proven to be credit-worthy. Equipment support, where equipment is issued to the clients, should be encouraged and must be backed by a “deed of assignment”. The amount of loan given per person should also be increased to have a meaningful impact. The programme should be evaluated at the end of the project with specific emphasis on issues such as debt capacity, sustainability, outreach and expansion possibilities.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the award of Master of Science degree in Agricultural Economics, 2002