Title: Microfinance and Poverty Reduction: The Experience of Ghana
Author: Dr Joseph Kimos Adjei
No. of pages: 211
Publisher: Bold Communications Limited
Information on microfinance may abound in many books but when it comes to giving comprehensive insight to and making thorough analysis of the microfinance sector in Ghana, there may be no other book than the one titled ‘Microfinance and Poverty Reduction: The Experience of Ghana’, authored by Joseph Kimos Adjei, an academic and a practitioner in the field of microfinance.
The book is simply a masterpiece produced from long years of academic inquisition into and practical experience of the microfinance sector in Ghana. With long years of experience as credit manager in three prominent financial institutions in the country and a doctoral thesis on the subject, the author succeeds in breaking down the theoretical and practical intricacies of microfinance in general and the Ghana case in particular to the understanding of even those who may have low appreciation of microfinance. Coming in a beautifully-designed cover, the book is cast in eight main chapters. With a rich research background, the author spices the book with relevant graphs, tables, figures, academic references and scientific analyses that make the book very interesting reading. As the Executive Secretary of the Ghana Microfinance Institutions Network (GHAMFIN), Dr David O. Andah, who wrote the foreword to the book puts it, Microfinance and Poverty Reduction: The Experience of Ghana is “a must-read book for anyone interested in microfinance”. Indeed, the book is a masterpiece that players in the microfinance sector, researchers, lecturers and students of banking and finance, development studies and public policy will find more costly to forgo than to acquire at any price.
The first chapter provides clues as to how microfinance could be used as an effective tool for poverty reduction. Microfinance programmes throughout the world have been adopted by various institutions in the developing world as one of the key strategies towards the reduction of poverty. In this regard, governments and developing partners have contributed in diverse ways resources to support the microfinance sector to expand their operations and increase the depth of outreach. Over the past three decades, various governments have adopted varied strategies including short and long term measures to address the problem of the high prevalence of poverty in their countries. These strategies include the technical assistance and funding for micro-credit activities and the creation of of an enabling environment for key players to provide financial services to the poor to improve their livelihood. The author gives a vivid overview of poverty reduction strategies in Ghana from 1980 to 2008, and the role of microfinance in reducing poverty in the country. The author observes that for most micro and small entrepreneurs in Ghana, the lack of access to financial services “is a critical constraint to the expansion of viable micro-enterprises”. Microfinance institutions have been allowed to operate and play a role in poverty reduction through the provision of small loans, savings and insurance products, money transfer and other financial and non-financial services to enable the poor generate income, build assets, and improve on their housing structures and related facilities.
In chapter two, the author evaluates the development and success factors of microfinance in general, and makes a very intriguing comparison between micro-credit and microfinance. This chapter covers the development of the microfinance industry from the early 1980s when the focus was mainly on credit and other important financial services required by the poor were not provided. It also examined the era of state intervention in providing financial services to farmers and other disadvantaged individuals with poor repayment records, as well as contemporary times when most commercial banks and other non-bank financial institutions have deemed it necessary to enter this growing and profitable but competitive market. The innovative mechanisms and the unique methodologies adopted by microfinance institutions have also been explored. Challenges confronting the formal commercial banks who have ventured into the microfinance market were covered. Finally, ways by which these institutions, that had hitherto ignored this important sector of their economies, could chart a course into the sector have also been identified.
In chapter three, Dr Adjei exhibits his rich understanding of theory and practice in microfinance by providing readers with evidence-based effects of microfinance programmes on poverty reduction and asset building. The chapter examines the empirical literature on microfinance and its effects on poverty reduction in general. The review placed a large emphasis on studies in South East Asia especially Bangledesh, where formal institutional microfinance programmes started and where we have a large body of literature on the effects of microfinance on poverty reduction. There are also some studies from sub-Sahara African countries including Ghana. The review of existing works by various authors and researchers confirms the conflicting and mixed results of the effectiveness of microfinance as a poverty reduction strategy. Notwithstanding, microfinance has emerged globally as an effective strategy for poverty reduction with the potential for far-reaching impact in transforming the lives of poor people. Overall, the review indicates that there is a common acceptance of the important role microfinance institutions are playing in poverty reduction efforts in developing countries. It has, however, been observed that most of these programmes are not reaching the very poor. It is further noted that such people could benefit from microfinance progammes only if such programmes are well-designed and targeted specifically at the poorest with some form of social welfare component attached.
Chapter four of the book deals with contextual issues affecting microfinance in Ghana. The author examines some factors of poverty, such as population, the economy and inequality. He also discusses the geographical disparities in poverty levels, gender dimensions of poverty and policies to support microfinance programmes.
Making references to World Bank and Ghana Statistical Service data, Dr Adjei observes that although Ghana has achieved impressive economic growth rates since 1991, “poverty incidence and depth in the country remain high”. He enumerates many programmes introduced at various times with the view to reducing poverty.
These interventions include the Rural Finance Project, Rural Financial Services Project, Microfinance and Small Loans Centre and Ghana Microfinance Policy. Even though various programmes and policies have been adopted to reduce the incidence of poverty, not much has been achieved. As part of the strategy to solve this problem, government have placed greater emphasis on microfinance under the GPRS I and II and have also put in place an enabling environment for the microfinance sector through a microfinance policy document.
Microfinance in Ghana has come a long way, and for people who may have little or no knowledge about the history of the sector, the author provides in chapter five of the book an in depth information on the evolution of microfinance in the country. In this chapter an overview has been provided of the important roles being played by various microfinance institutions in Ghana. As part of the strategy to reduce the level and incidence of poverty in the country and, therefore, attain some of the objectives of the Millennium Development Goals, the government has placed greater emphasis on microfinance by putting in place an enabling environment for the microfinance sector. We examined the evolution of the microfinance sector in the country to its current status. It must be noted that microfinance institutions in Ghana are arranged in three tiers, namely the formal, semi-formal and informal players. These institutions play important roles in the socio-economic development of the country, especially in the area of income generation, employment and poverty reduction. Through the provision of credit, savings and insurance products as well as non-financial services, most beneficiaries especially women, are able to expand their businesses and generate income to support their households.
Having given such vivid account of the evolution of microfinance in Ghana, the author makes the book a class act by bringing readers up-close to the operations of microfinance institutions. Presenting a case study of Sinapi Aba Trust (SAT) in chapter six, he measures the depth of SAT’s outreach programmes through a survey that gives a better appreciation of the positive contributions of microfinance institutions. The results of the study indicate that, in general, SAT microfinance programme targets a disproportionately smaller number of the very poor in its operational areas, with approximately 46 per cent of its clients classified as less poor. These results are informed by the mission and objectives of the organization, the products and services it offers, as well as its policy of branch placement. The poverty assessment tool used for the analysis relies on varied poverty indicators reflecting the multi-dimensional nature of poverty and also offers an objective method for summarizing the overall poverty information of each household and unambiguously ranking these household by their relative poverty levels. Even though the method adopted for the analysis does not provide information on the absolute level of poverty of the two groups of respondents, it must be noted that, in most cases, it is the relative rather than the absolute poverty that is of concern to policy-makers and researchers.
Focusing on microfinance, asset building and poverty reduction, the author makes another case study of SAT in chapter seven, examining the determinants of borrowing from SAT, while analysing the effects of its programmes on clients in terms of financial, human and physical capital/assets. The chapter examines how participation in a microfinance institution enabled established (old) clients to build up assets in the form of financial, human and physical capital in comparison to the new clients of the programme. The study found out that the size of loans is the key determinant of positive programme effects on participants. It was also observed that the level of education is positively related to the acquisition of household durables and that, most often, clients who are well educated normally serve as executive members of the various trust banks, and may be rewarded with larger loans for the assumed responsibilities. Another major finding of the study is the little or non-significant effect of the length of time with the programme on the outcomes variables. Generally, the findings of this study are consistent with other studies carried out by various researchers in Africa and South East Asia especially Bangladesh. It must be emphasized that even though these findings were obtained within the Ghanaian context, they could be applicable to microfinance institutions operating in other developing countries throughout the world.
In tune with the adage that the past guides the future, the author peeps into the future in chapter eight, the last chapter of the book, as the author discusses some challenges facing the microfinance sector in the country and the way forward. The notes that the key challenges confronting the microfinance sector in developing countries, including Ghana, are capacity building; inadequate and expensive infrastructure base; poor credit delivery and management; inability to properly target the vulnerable and marginalized, research, monitoring and evaluation. On the way forward, the author underlines the need for microfinance institutions to expand access to commercial sources of funding in order to enlarge their operational tentacles. Furthermore, there is the need for microfinance institutions to develop the requisite skills and build good corporate governance, as well as dynamic and mission-oriented management to ensure efficiency.
Where to Obtain a Copy
Copies of the book can be obtained from the various public universities (i.e. University of Ghana (Business School, ISSER and the Bookshop) University of Cape Coast (Department of Economics); Kwame Nkrumah University of Science & Technology (KNUST Business School); University of Development Studies (both Tamale and Wa campus), UCC, KNUST, UDS) and selected bookshops across the country, as well as the offices of the National Banking College, GHAMFIN, Chartered Institute of Bankers, http://www.amazon.com and branches of HFC Bank where HFC Boafo Microfinance Services Ltd operates. One can also obtain copies from the publisher or the author.
Price: GH¢ 30 (Thirty Ghana cedis only).