ASSESSING THE RELEVANCE OF MICRO FINANCE CREDIT TO THE INFORMAL SMALL BUSINESSES IN JUKWA IN THE CENTRAL REGION OF GHANA

ABSTRACT
Credit facilities continue to pose a major threat to the survival of the SME sector. Traditional banks have failed to advance credit facilities to the SMEs due to challenges with collateral securities and information. This study sought to assess the relevance of microfinance in terms of meeting credit needs and reducing poverty among the small business owners of Jukwa in the Central Region. Thirty-one (31) respondents were sampled for the study. Descriptive statistics were used for the presentation of the findings. Questionnaire was also used to collect data for the study. Analyses of the responses revealed that majority of the respondents have felt positive impact of microfinance activities. It is found that, through microfinance credit, considerable amount of business capital has been accessed either for start-up or for expansion. Family burdens among the respondents were seen to decrease owing to microfinance credit. Others also felt the positive impact as it helped them in support of their children’s education. The key problem associated with microcredit, according to the respondents was the exorbitant interest rate charged by the microfinance institutions. This situation prevented many potential beneficiaries from subscribing to microfinance credit. It is recommended that the microfinance institutions lower their rates so as to attract more clients for their businesses.

CHAPTER ONE
INTRODUCTION
Micro, Small and Medium Enterprises (MSME’s) are, collectively, the largest employers in many low-income countries, yet their viability can be threatened by a lack of access to such risk-management tools as savings, insurance and credit. Their growth is often stifled by restricted access to credit, equity and payments services (McCourtie, 2015).

Microfinance involves extending small loans, savings and other basic financial services to people that do not readily have access to capital. It is a key strategy in helping people living in poverty to become financially independent, which helps them become more resilient and better able to provide for their families in times of economic difficulty. These people can be classified under MSMEs. Considering nearly half the world survives on less than $2 a day, the relevance of microfinance cannot be over-emphasized.

Background of the Study 
The Small and Medium Enterprises (SME’s) have not received the outermost attention it deserves. The SME’s have not received the attention of policy makers for a long time, even though it has been established beyond doubt that they contribute enormously to the development of the country. This critical sector needs funding to grow to the levels that can be beneficial to the economy of Ghana. Over the years the funding needs of the small business sector have not been forthcoming. This acute lack of credit to the informal small business sector has stifled their growth and consequently reduces the development of the country at large. For a long time, this credit deficit has been dealt with through the informal financial services in the form of money lending by individuals, borrowing from relatives and friends, financial gifts from relatives and friends, as well as credit from savings and loans associations. These sources of credit cannot provide enough and sustainable funding for the informal small businesses.

The informal small business sector constitutes a critical ingredient for eradication of poverty and for that matter promoting national development, and as such, has forced governments, donors, and non-governmental organizations to promote the sector in a bid to reducing poverty and inequality (Cook, 2001). Several programs have been instituted by governments of Ghana such as the Ghana Center for Entrepreneurship, Employment and Innovation (GCEI), the Ghana Youth Employment Development Agency (GYEDA), the Youth Enterprise Support (YES) and others, with the aim of revamping the small business sector of the economy. There is also support from other local and international entities such as the West Africa Social Entrepreneurs Network (WASEN) and Hill Foundation to enhance the development of small businesses in Ghana and other African countries.

In addition to the above, Micro finance services have emerged as a sustainable, and competitive source of credit for the informal small businesses sector. Leikem (2012) believes that the micro finance approach offers a better prospect since it employs effective collateral substitute for short-term and working capital loans to micro-entrepreneurs. During the past decades, many developing countries including Ghana have seen their financial system undergo some transformation and innovation due to the emergence of micro finance institutions (MFIs).

The need for microfinance credit is necessitated by the fact that the mainstream banks do not want to grant credit to small businesses, most especially those located in the rural communities, as a result of their inability to provide collateral. Small businesses in the rural communities of the country are usually assessed to be high-risk businesses by the mainstream banks and as result, lending credit to these small businesses is always seen as a 'waste of time and effort'. Microfinance operators however are prepared for the risk associated with doing business with the informal small businesses sector. In the words of Khawari (2004), microfinance is a small-scale financial services provided to people into petty businesses in both rural and urban communities. The concentration of micro finance operation is solely on the operations of the informal business sector, which is characterized by inadequate funding and more. Micro finance institutions are primarily established to provide credit or bring financial services to 'poor and vulnerable' groups in society with the ultimate goal of improving living standards or by eradicating poverty.

Statement of the Problem
The need for microfinance as a development tool became more pronounced when it was recognized that the poor businesses and individuals are excluded from formal financial institutions and forced to depend on expensive and often exploitive informal sources of credit. Exclusion from formal institutions is a common and constant problem for the 'poor businesses and individuals' in the society. High transaction costs, information barriers, collateral issues, and more are the reasons for exclusion by the so-called commercial banks. Thus micro and small businesses lack access to credit from the formal financial institutions.

Microfinance attempts to overcome these barriers so that the poor can have reliable and affordable access to credit. However, the microfinance system in Ghana is not without problems. For example, some microfinance institutions run into the problems of liquidity and insolvency and in extreme situations run away with clients' savings or charging too high interest that rather over-burden the very people they claim they want to help.

During recent years the very purpose of the microfinance industry has come under scrutiny with critics arguing that MFIs do not go far enough. The institutions concerned do not necessarily reach the households that would benefit most from their support, because the financial services they provide, small loans in particular, do not match the most pressing needs of these poor households (Zeller, Sharman & McClafferty, 2010). High interest charged by some MFIs are exorbitant and bolting away with clients' savings and deposits is on the increase. It is against this background that this study is being undertaken to assess the poverty reducing impact of microfinance credit to the informal small businesses in Jukwa in the central region of Ghana.

Purpose of the Study
The general objective of the study is to assess the relevance of microfinance credit in poverty reduction to the informal small businesses in Jukwa in the central region of Ghana.

Objectives of the study
Assess whether small businesses in the Jukwa area get the needed financial service from the micro finance institutions in the country

Ascertain how microfinance loans impacts on poverty reduction of the beneficiaries in Jukwa.

Ascertain problems associated with microloans.

Research Questions
Based on the above objectives the following research questions are formulated:

Do small businesses and individuals get the needed financial service from the micro finance institutions in the Jukwa community?

What are the poverty reducing potentials of microfinance programmes?

What problems are associated with microloans?

Significance of the Study
The study helps reveal better practices in microfinance operations and helps microfinance institutions in reviewing their policies towards clients in order to achieve greater efficiency and offer better services. The findings also provide for policy recommendations and will contribute to knowledge.

Organization of Study
This dissertation is structured in five chapters: chapter one gives a background introduction on microfinance benefits and some problems associated with microloans; statement of the problem; research objectives; significance of the study; limitation and organization of the study. Chapter two reviews the relevant literature on the subject matter. Chapter three explains the methodology employed to achieve the objectives. The presentation of findings and analysis is captured in chapter four. Chapter five presents the summary of the discussions, conclusions and recommendations.

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Item Type: Ghanaian Postgraduate Material  |  Attribute: 62 pages  |  Chapters: 1-5
Format: MS Word  |  Price: GH110 ($20)  |  Delivery: Within 30Mins.
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