Wealth Creation through Micro Financing: Evidence from Small Scale Enterprises in Ghana

Abstract

This study was designed to assess the effect of microfinance on Small Scale Enterprises (SSEs) in wealth creation and poverty reduction in Ghana. Specifically, it was designed to examine the various sources of finance needed by SSEs for start-up survival and future expansion; ascertain the current microfinance institutions (MFIs) arrangements to finance SSEs towards wealth creation and poverty reduction; determine the main obstacles hindering SSEs in accessing credit to MFIs; determine the main challenges MFIs face in advancing credit to SSEs; and identify new and sustainable ways MFIs can utilize to advance credit to SSEs. Five research questions that guided this study were gleaned from these research objectives. The study was a survey designed with questionnaires as the major means of data gathering. The respondents for the study come from 5 MFIs and 85 SSEs who operate in Abossey Okai. While the respondents from the MFIs were selected purposively, those from the SSEs were selected conveniently. The study found that personal sources were the main sources of funding for SSEs start-up and expansion. Other sources such as commercial and microloans contribute marginally to start-up and growth relative to personal sources.  It was also found that the current MFIs arrangements to finance SSEs include different types of loans whiles the major challenges SSEs face in sourcing for credit include laborious loan application process, the demand for non-existent collateral among others. Meanwhile the challenges MFIs face in advancing credit to SSEs pertains mainly to default and their inability to recover loans. In the light of these findings, it was suggested that MFIs should ensure that they understand the business of their clients to be able to design products and services that fit their needs. Such products should be marketed to the target recipients to ensure that these products are patronized.

Keywords: microfinance, microfinance institutions, wealth creation, poverty alleviation