An evaluation of industry attractiveness and competitive position of the micro finance institutions in Ashanti Region of Ghana

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It is recognized that provision of financial services to the micro, small- and medium scale entrepreneurs (SMEs) now represents an important growth opportunity and commercially viable service for financial institutions. An attempt has been made to identify the industry attractiveness and competitive position of MFIs in Ashanti region, their constraints adversely affecting their productivity and recommend strategies to enhance their operational efficiency and competitiveness. This has been achieved through administration of questionnaire and interviews of 5 MFIs and 300 of their clients. The study revealed that MFIs providing financial services to micro entrepreneurs who have been excluded traditionally from the banking services are diverse covering rural banks, savings and loans companies as well as NGOs. Eighty percent of the MFIs sampled provide savings and credit products as well as susu mobilizations scheme to their clients whereas, only SAT, provides credit facility to enhance and empower the poor and disadvantaged clients socially, economically and spiritually. The study identified that lack of competition among the MFIs is due to the large market size and diverse target clients’ needs reflected in large number of clients yet to be served. This has resulted in the sampled MFIs devoting less time, energy and resources to study their competitor’s objectives, strategies and strengths. The absence of competitor studies shows that the sampled MFIs are not identifying business opportunities to develop market-led products to satisfy clients’ needs. Besides, the micro finance industry is devoid of benchmark (industry standards) to evaluate the MFIs’ performance relative to their competitors. The study noted that 65% of the MFIs’ clients interviewed reported that they are totally satisfied with MFIs’ services because their systems are efficient and convenient to them including illiterate ones and they value the MFIs’ services since they are willing to pay fairly high interest rates for loans and, in most cases, receive no interest on savings (susu mobilization scheme). This shows that clients have become disillusioned about surveyed MFIs’ services as shown in significant increase in clients’ patronage of the services estimated at 12% in 1998, rising up to 22% in 1999, 29% in 2000 and 37% in 2001. The findings of the study further revealed that micro finance industry is very attractive to the sampled MFIs due to overall market size of huge credit demand gap estimated at 0950 billion in 2001, only 7 % of the target client have access to MFIs’ services, 8% annual market growth rate of the financial sector, MFIs’ total assets increased by 63% from 2000 to 2001, as well as high historical pre-tax profit margin of rural banks and savings and loans companies increasing between 8.5 % and 582% over the period under review (1998 — 2001). Again, MFI NGO, SAT’s operational sustainability and financial sustainability stood at 139% and 103% respectively in 2001. To succeed in this high micro finance industry attractiveness, MFIs studied are competing with their key rivals based on their competitive strategies/business strengths. Even though there are similarities among the MFIs studied in the susu savings mobilization strategies, each has differentiated its susu savings product features from its key rivals to satisfy the needs of identified target clients. AKRBL targets women groups in churches, church development projects and food crop processors association; SRBL developed lending products for bereaved family and salaried workers, GCSLL targets second-hand car retailers, FASLL deals with kente exporters association and uses mobile vans to collect susu savings scheme from micro entrepreneurs with high business turnover. The study further identified that marketing has emerged as an important managerial tool among the MFIs resulting in 60% of the MFIs surveyed (AKRBL, GSCLL and FASLL) creating marketing departments to handle the Susu mobilizations scheme. This and other strategic marketing decisions have influenced the sampled MEIs to advertise their products on the media to increase their relative market share between 1998 and 2001, with GCSLL leading with 643%, followed by SAT 174.7 %, SRBL 113.6 %, FASLL 112.6 % and AKRBL 65%. Eighty percent of the sampled MFIs (AKRBL, SRBL, GSCLL and FASLL) use mobile bankers, 60% through churches and 40% (GSCLL and FASLL) use local radio (FMs) stations. Major issues on weaknesses, threats and constraints that need critical attention to enhance efficiency and competitiveness of sampled MFIs in Ghana are as follows: inadequate training of staff and/or lack of technical knowledge in micro finance, weak management and governance structure characterized by about 50% of BoD who have very limited knowledge in managerial skills and experience, poor research and development studies in competitor analysis, consumer behaviour and product development strategies; poor segmentation of target market by the MEIs, low coverage and market penetration of MFIs in the study area, poor METs’ monitoring system and laxity on the part of loan officers as well as poor entrepreneurial skills of clients. Strategy recommendations to enhance the effectiveness of the surveyed MFIs include improve training and capacity building opportunities for METs’ BoD, staff and clients on best micro finance practices, organizational development of MFIs, strengthen the marketing departments to improve upon market segmentation and product development strategies, increase client outreach, integrate market research and extension services into MFIs industry, improve management information system (MIS), and enhance regulatory framework governing MFIs services in Ghana. Finally, the study identified immense growth-related opportunities for the MFIs and these recommendations when implemented will go a long way to enhance the competitiveness of these institutions to enable micro entrepreneurs access financial resources and create wealth among themselves.
A thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the award of Master of Arts degree in Industrial Management, 2002