Microfinance companies and poverty reduction: The Koforidua experience

from Ghana Business News..

By George Larbi

July 2, 2013

Poverty has always been a part of the world; even in the developed world where it is assumed that everyone is well-to-do, some of the people find themselves living on the streets due to poverty.

The under-developed countries, which find themselves in all kinds of economic crisis, have nothing to write home about on the issue of poverty, as many people live on less than one dollar a day.

Ghana is still among the poorest countries in the world. Currently, nearly 40 per cent of the population are struggling to make ends meet.  Government after government came with different strategies all aimed at eradicating poverty, notable among which were the  Rural Development Strategy, the Poverty Reduction Strategy Paper (PRSP) and the most recent Livelihood Empowerment Against Poverty (LEAP).

In all this, however, what seems to have made the desired impact as far as the lives of the ordinary people are concerned has been the establishment of microfinance as a means of achieving poverty eradication.

Microfinance is often referred to as financial services for poor and low-income clients offered by different types of service providers.

Microfinance includes the provision of financial services and the management of small amounts of money through a range of products and a system of intermediary functions that are targeted at low income clients. It includes loans, savings, services and other financial products and services.

The concept of microfinance is not new in Ghana. There has always been the tradition of people saving and taking small loans from individuals and groups within the context of self-help to start businesses or farming ventures.

For example, available evidence suggests that the first credit union in Africa was established in Northern Ghana in 1955 by Canadian Catholic Missionaries.

However, ‘Susu’, which is one of the microfinance schemes in Ghana today, is thought to have originated from Nigeria and spread to Ghana in the early 20th century.

Over the years, the microfinance sector has thrived and evolved into its current state due to various financial sector policies and programmes undertaken by different governments since independence.

Microfinance in Ghana has proven to be a powerful tool for promoting inclusive economic growth and employment generation.

The last decade has seen micro-credit loans improve the economic lives of at least three million Ghanaians.

The fact on the ground is that microfinance in Ghana is actually in its infant stages, but the sector has shown positive signs of growth.

This is largely seen in the number of microfinance companies that have sprung up over the last three years.

According to Mr. Settor Amediku, Deputy Head of Financial Stability Department at the Bank of Ghana, as at the year 2000, Ghana had only eight savings and loans companies, but by December 2010 the number had increased significantly across the country.

He said Ghana was however yet to achieve the objectives of microfinance which include increasing outreach, impact and sustainability.

It is therefore important for regulators and stakeholders to help the industry to achieve the set objectives.

The current recognition received by microfinance as an alternative financial strategy for the poor and the low-income earner better places the microfinance sector under the watchful eyes of major players in financial circles who seek to assess and gauge happenings within the sector.

Public confidence in the microfinance sector is going to deepen further as a result of the  Bank of Ghana’s released guidelines and policy operations for microfinance institutions aimed at regulating the entire microfinance sector.

This will address nagging problems including situations where some companies after collecting customers’ deposits diasppear with the money.

In Koforidua alone there are more than 25 microfinance companies with over 500 employees, according to Mr Kingsley Ofosu, General Manager of Minolex Microfinance Company, who is also the Eastern Regional Representative of the Ghana Association of Microfinance Companies (GAMC).

In an interview with some market women and petty traders at the Juaben Serwah market in Koforidua, who are beneficiaries of loans from microfinance companies, they said the establishment of the microfinance companies had helped them to secure loans to start or expand their businesses.

It is estimated that averagely, microfinance companies in Koforidua have disbursed loans totaling GH¢1,560,000. This has contributed largely to poverty alleviation in the area.

The microfinance sector has thrived and evolved into its current state due to financial sector policies and programmes such as the provision of subsidized credits, the establishment of rural and community banks (RCBs) and the liberalization of the financial sector, among others.

Indeed the signs on the ground are that if offered adequate support, the microfinance sector can contribute to the growth of the nation’s economy and boost employment generation which would eventually help to reduce poverty significantly.

Link to the article: http://www.ghanabusinessnews.com/2013/07/02/microfinance-companies-and-poverty-reduction-the-koforidua-experience/

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