Sustainability and Outreach in the Microfinance Sector of Ghana

Abstract

The recent finance sector clean-up in Ghana led to the collapse of a number of microfinance institutions (MFIs), which reignited the discussion of whether MFIs can achieve much-needed financial sustainability while also meeting the goal of reaching out to the poor. In that regard, this paper explores the potential for MFIs to improve the breadth of outreach by fostering financial inclusion and to deepen the depth of outreach by targeting the poor while simultaneously pursuing self-sufficiency and profitability. Using data from the MIX database for 89 MFIs over a 20-year period, we employed fixed and random effects models to show that among other results, outreach is improved when MFIs are financed more by debt than equity and that the pursuit of profitability is a disincentive to outreach. Overall, the results suggest that with improved efficiency in the pursuit of sustainability, MFIs in Ghana stand better chances of achieving outreach both in depth and breadth.

The role of sharia microfinance institutions in developing MSMEs

“…Microfinance has experienced very rapid development in the last two decades. Since the success of the Grameen Bank program introduced by Muhammad Yunus (Nobel Peace Prize winner in 2006) in Bangladesh in the early 1980s, world financial institutions have begun to pay great attention to microfinance to alleviate poverty and also make a profit (Rahim Abdul Rahman, 2010;Awaworyi Churchill & Marr, 2016;Mushtaq & Bruneau, 2019;Awaworyi Churchill, 2020;Bansah & Adjei, 2023;Amanor et al, 2023).…”

“…It is found from related literature that microfinance positively impacts poverty alleviation and is an effective tool for poverty reduction in many countries, including India, Nigeria, Ghana, South Asia, Vietnam, Latin America, the Caribbean, Uganda, Ethiopia, and Tanzania. When implemented and managed carefully, and when services are designed to meet the needs of business actors, microfinance has a positive impact not only on business actors but also on families and the wider community (Belwal et al, 2012;Beisland & Mersland, 2012;Cristabell & Vimal Raj, 2012;Obadeyi, 2015;Awawory & Marr, 2016;Akingunola et al, 2018;Fiala, 2018;Thanh et al, 2019;Khan et al, 2022;Amanor et al, 2023;Bansah & Adjei, 2023).…”

“…Microfinance has emerged as a new promise for alleviating poverty and improving the limited access to financial services by offering small loans to people experiencing poverty, with no pledged collateral requirement. Due to the unique features of microfinance, the credit relationship between the lender and the borrower is considered to be the foundation of the business (Abbas & Shirazi, 2015;Awaworyi Churchill & Marr, 2016;Lahkar & Pingali, 2016;Sim & Prabhu, 2017;Thanh et al, 2019;Mushtaq & Bruneau, 2019;Awaworyi Churchill, 2020;Li et al, 2022;Bansah & Adjei, 2023;Amanor et al, 2023) Microfinance Institutions (MFI) are financial institutions specifically established to provide business development and community empowerment services, either through loans or financing in micro-scale businesses to members and the community, managing savings, as well as providing business development consulting services that are not solely seeking profit (RI Law, 2013) MFI aims to (a) increase access to microscale funding for society, (b) help increase economic empowerment and community productivity, and (c) help increase the income and welfare of the community, especially the poor and low-income communities (Bhuiyan et al, 2011;Bhuiyan et al, 2012).…”

“…The results show that microfinancing of MSMEs in Ghana helps increase their income levels, improve the managerial competence of MSME owners, and develop innovative products and services. However, the remaining 55% of microfinance institutions only focus on providing loans and do not provide business development training to their clients (Bansah & Adjei, 2023;Amanor et al, 2023).…”

Microfinance practices versus sustainable welfare

“…Changes that will produce sustainable prosperity characterized by increased community life expectancy, increased community income, decreased inequality between regions, and reduced community income gaps (Beisland & Mersland, 2012;Awaworyi Churchill & Marr, 2016;Awaworyi Churchill, 2020;Bansah & Adjei, 2023). This change can be realized if the community has economic stability obtained through easy access to capital, increasing business income, and empowering the community to be ready to become entrepreneurs.…”