Microfinance in Ghana and MicroQuips
The concept of microfinance is not new in Ghana. Traditionally, people have saved and taken informal small loans from individuals and groups in the context of self-help to start small businesses. Some evidence shows that the first Credit Union in Africa was established in Northern Ghana in 1955 by Canadian Catholic Missionaries.
Microfinance has gone through four distinct phases in Ghana: 1) the provision of subsidized credit by Governments starting in the 1950’s; 2) the provision of micro credit through NGOs in the 1960’s and 1970’s; 3) in the 1990’s the formalization of Microfinance Institutions (MFIs); 4) since the mid 1990’s the commercialization of MFIs.
In Ghana, the clients of microfinance are predominantly women in both rural and urban centers. These women are engaged in activities such as farming, food processing, minor trading, service provision and street vending.
Microfinance sector in Ghana comprises different types of institutions, like formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks; semi-formal suppliers such as credit unions, financial non-governmental organizations (FNGOs) and cooperatives; informal suppliers such as susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals and public sector programmes that developed financial and non financial services for their clients.
The need for microfinance in Ghana remains very high. One of the main goals of Ghana’s Growth and Poverty Reduction Strategy (GPRS II) is to eliminate poverty and income inequality, especially among the productive poor who constitute the majority of the working population. According to the 2000 Population and Housing Census, 80% of the working population is found in the private informal sector. This group is characterized by lack of access to credit, which constrains the development and growth of that sector of the economy. In a recent International Monetary Fund Country report on Ghana it has been reported that “weaknesses in the financial sector that restrict financing opportunities for productive private investment are a particular impediment to business expansion in Ghana.” In addition the World Bank underlined that “access to financial services is imperative for the development of the informal sector and also helps to mobilize excess liquidity through savings that can be made available as investment capital for national development in Ghana”.
Due to this lack of financial services for low income people in Ghana, MicroQuips, a social enterprise in the Greater Accra Region, decided to focus its activities on providing financial services to low income women entrepreneurs for whom access to affordable and ethical financial services is limited but crucial for the development of their businesses.
MicroQuips started its pilot project in 2009 with 50 women entrepreneurs, by providing them with microloans for their businesses. After observing how loans were being employed by beneficiaries, the organization found out that microloans may not predominantly be used for business purposes, but to support a wide range of household needs, including stabilizing consumption and other expenses like education fees, medical expenses or events such as weddings and funerals. MicroQuips now seeks to leverage the experience gained in this pilot phase to increase its services to 200 micro-businesses annually, by switching from microcredit to microleasing, through the financing of productive assets such as stoves, refrigerators and sewing machines. MicroQuips directly purchases the needed equipment and leases them to the beneficiary. While the beneficiary is making repayments, the equipment is owned by the organization. Once the lease repayments have been completed, she will become the owner of the machine and can purchase additional machines and hire employees with the increased profits from her greater production.
MicroQuips believes that micro-leasing offers a more sustainable impact on women’s businesses, as it facilitates long-term productivity to increase through investment in fixed capital (equipment) and technology. Microloans aimed at financing working capital (daily expenses) will instead increase productivity only until the existing production capacity is fully utilized (i.e. only in the short-run). Afterwards productivity will reach a steady state from which the business will be able to develop only through investments in new technologies and fixed capital.
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