The impact of microfinance institutions on the development of Micro and Small Scale Enterprises in Ghana

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This research investigates the impact of microfinance on the development of micro and small scale enterprises in Ghana. The study was undertaken in the Kumasi Metropolis in the Ashanti Region. First Allied Savings and Loans Limited and Multi Credit Savings and Loans Limited were purposively chosen for this study due to their proximity and contributions to development of Micro and Small Scale Enterprises (MSEs). In all, 400 SMEs beneficiaries of First Allied Savings and Loans Limited and Multi Credit Savings and Loans Limited were respondents in this study. The researcher used questionnaire as an instrument of primary data collection. Tables and simple percentages were used in data presentation. For impact analysis, simple regression was used to estimate the impact of Microfinance Institutions (MFIs) on development of micro and small scale enterprises in Ghana using two variables; sales or level of turnover (the dependent variable) and loans (the independent variable). From the survey, as many as 41.5% of the operators in MSEs were illiterate and ignorant about activities of MSEs and this poses managerial difficulty for the operators in the sector but the MFIs have done little to improve the managerial skills of the operators in MSEs. However, 1 per cent increase in quantum of loans from First Allied Savings and Loans Limited and Multi Credit Savings and Loans increases turnover (sales) by 4.621% and 1.153% respectively and this suggests that loans from MFIs increases sales of MSEs more than percentage increase in loans. Moreover, loans from MFIs improve working environment, quantity and quality of inputs. To increase the impact of MFIs on the development of MSEs in Ghana, the researcher recommends frequent entrepreneurial training programmes for operators of MSEs. The MSEs should be encouraged to form associations in their respective industry so as to see to the regulation and training of operators in the industry. Also, the micro finance institutions should organise training seminars for their clients in the area of entrepreneurship skills (managerial and marketing skills). Moreover, the government of Ghana through the Central Bank of Ghana should establish National Credit Guarantee Scheme for MSEs, which should guarantee at least 80% of loans needed by small and medium enterprises in Ghana. Moreover, the Micro finance firms should be ready to grant large loan to the deserving MSEs and monitor such clients to ensure smooth repayment of loans. Also, the Micro finance institutions should diversify their iv credit portfolio to include supply of inputs on credit to clients. This should target the clients into manufacturing and agro – processing industries since they need large and costly capital equipment than the clients into trading and services. The researcher concludes that microfinance institutions in Ghana are identified to be one of the key players in the financial industry that have positively affected MSEs and the economy at large through the services they offer and the functions they perform in the economy.
A thesis Submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of MASTER OF SCIENCE IN DEVELOPMENT POLICY AND PLANNING. 2012