Microfinance and Poverty Reduction: Evidence from Market Women in the New Juaben Municipality, Ghana Doris Ohene Ntim

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1 ADRRI JOURNALS ( VOL. 15, No.6 (3), January, 2018 Microfinance and Poverty Reduction: Evidence from Market Women in the New Juaben Municipality, Ghana Doris Ohene Ntim Department of Liberal Studies, Faculty of Business and Management Studies, Box KF 981, Koforidua Technical University, Koforidua, Ghana. Available Online: 31 st January, 2018 URL: [Cite Article as: Ntim, D. O. (2018). Microfinance and Poverty Reduction: Evidence from Market Women in the New Juaben Municipality, Ghana. ADRRI Journal of Arts and Social Sciences, Ghana: Vol. 15, No. 5 (3), Pp , E- ISSN: , 31 st January, 2018.] Abstract This study examines extent to which access to microcredit contributes to poverty reduction among market women in the New Juaben Municipality, Ghana. Further, it examined the extent to which market women are satisfied with the services of microfinance institutions (MFIs), and also identified challenges market woman faced in accessing microcredit. Using data from 120 respondents purposively sampled, the descriptive results revealed that most of the respondents, compared with those who were either very satisfied or dissatisfied with the services of MFIs, were satisfied with the services provided by microfinance finance institutions. Also, lack of collateral and high interest rate charges were the topmost challenges facing respondents in accessing loans or credit from MFIs. On the contribution of microfinance to poverty reduction, most of the respondents indicated that access to credit from microfinance institutions averagely contributes to poverty reduction. The study therefore recommends that microfinance institutions should attempt to reach out to more market women and lend out loans to contribute to poverty reduction. Keywords: microfinance, microcredit, poverty, women 12

2 INTRODUCTION Women are key instrument in the society and their role is very important in the world because they act dual role in both the family as well as society (Yogendrarajah & Semasinghe, 2013). One of the important tools that plays a crucial role in empowering women is microfinance because of its potential credit access to women to engage in income generating activities to support themselves and their households. This study, therefore, intends to contribute to the discourse on microfinance and poverty reduction by providing evidence from the perspective of market women in the Eastern Region of Ghana. Microfinance refers to the provision of small or soft loans to the poor and individuals who cannot acquire loans from the formal banking set up. The definition of microfinance has been broadened to include the provision of savings and insurance (Microfinance Gateway, 2004). The rapid emergence of microfinance institutions (MFIs) in Ghana and other developing nations has called for new banking policies to regulate their activities. In the last three decades, the emergence of MFIs in many developing countries has led to major transformation and innovations in the financial system (Richman & Fred, 2010). The need for the establishment of MFIs has been taunted for banking the unbanked and offering financial help to the informal sector as they cannot provide collateral to access credit from the traditional banks. MFIs have played crucial role in providing financial support to the disadvantaged in society who seek credit to do business, yet lack collateral, credit history and other attributes for credit worthiness (MFI report, 2012). The provision of these services by MFIs has lessened the burden of many people who could not otherwise accessed credit or any form of these services without collateral; hence, helping to reduce their livelihood vulnerability. MFI is seen as an institution, which provides a 13

3 broad range of financial arrangements, which are innovative and are meant to attract the poor in society as borrowers or savers (Richard, 2007). The emergence of microfinance institutions (MFIs) is viewed as a panacea for poverty alleviation and livelihood vulnerability reduction. For instance, in Bolivia, Bangladesh or Indonesia, many individual borrowers have had welfare improvements among thousands of the poor whose poverty status had been reduce through the provision of credit and other financial services by MFIs (Ostthoff, 2005). It has been stated that, interventions considered as tools are safety practices to help alleviate poverty and this tool is microfinance (Morduch & Haley, 2001 cited in Claudius, 2009). The important role played by MFIs in poverty alleviation and financial empowerment for the poor has been taunted as prudent and timely. The institutional frameworks of most MFIs have made their operations and existences a major challenge to poverty reduction in many developing countries including Ghana. The important discussion about the challenges of MFIs is centered on over indebtedness by MFIs clients of which are because of poor monitoring and evaluation. While a clear-cut definition among industry experts and practitioners is still largely missing, there is mutual consent that over-indebtedness of microcredit borrowers is a growing risk in microfinance and sometimes even considered one of the most serious risks. It is considered detrimental to borrowers due to the material, psychological and social consequences of being unable to respond to repayment obligations (Schicks 2010 cited in Lontzek et al, 2010). According to Haas(2006) overindebtedness has to do with individuals or households who are unable to repay their debts in full or on the appointed time. The ground of over-indebtedness has increased uncertainty and collapse of many MFIs in Ghana and other part of the world and thereby defeating its core function of reducing poverty. 14

4 In Ghana, there is proliferation of microfinance institutions whose theme is to supply credit facility to the vulnerable in society to reduce the poverty nature of the people. These microfinance institutions end up folding in their very first year of establishment and thus, raise serious questions about volatility and sustainability of these enterprises. Due to this increasing situation in which many microfinance institutions fold up and bolt with meager savings of borrowers, uncertainty stems in and loss in confidence of the sector increases. The aforementioned situation has necessitated this study, as it shall bring to bear ways of halting these challenges and the new ways of enhancing livelihood empowerment especially among women by microfinance institutions. Several studies have lauded the importance of microfinance in poverty reduction among households in general (Bui, 2014), but not much is said about the major clientele of MFIs, market women, in respect to poverty reduction, after receiving microcredit from microfinance institutions. Although some attempts have been made in the empirical literature, findings from such studies have not pay particular attention to market women, which happens to be the major customers of MFIs, and hence, such studies remain sparse. The aforementioned triggered this study to assess whether access to microcredit contributes to poverty reduction among market women in the New Juaben Municipality, Ghana. Specifically, the study determined the extent to which market women are satisfied with the services of microfinance institutions in the New Juaben Municipality, Ghana. Again, the study identified challenges faced by market women in accessing microcredit from microfinance institutions in the New Juaben Municipality, Ghana. Finally, the study examined the extent to which access to microcredit contributes to poverty reduction among market women in the New Juaben Municipality, Ghana. In achieving these objectives, the study sought to answer following questions: 15

5 To what extent are market women satisfied with the services of microfinance institutions in the New Juaben Municipality? What are the challenges faced by market women in accessing microcredit from microfinance institution in the New Juaben Municipality? To what extent do access to microcredit contributes to poverty reduction among market women in the New Juaben Municipality? This particular study is of immense importance, as both policymakers and microfinance institutions in Ghana, to safeguard the sector, would use recommendations. Specifically, it will highlight the level of satisfaction of services provided by MFIs to market women as well as the challenges faced by these women in accessing microcredit. In addition, the study will serve as a good template for further research in the future. The rest of the study is organised as follows. Section 2 presents empirical literature review on microfinance and poverty reduction. Section 3 outlines the methodology of the study while section 4 presents and discusses the empirical results. Finally, section 5 concludes the study. LITERATURE REVIEW The discourse on microfinance and reduction has gained roots due to the outcome of several studies on the subject. For instance, Waita (2012) analysed challenges faced by women in accessing credit from microfinance institutions in Kenya. Specifically, the study examined factors which motivates women entrepreneurs to borrow from microfinance institutions, and also, identified challenges faced by women in accessing loans. Using purposive sampling to select a sample of 20 members of microfinance institution, the study revealed that collateral requirement, business skills, cultural beliefs 16

6 and perceptions about women borrowing are barriers that prevent women from accessing loans from microfinance institutions. In addition to the above, Denanyoh et al (2013) investigated challenges faced by women entrepreneurs in sourcing microfinance in Ghana. Using a sample of 120 women entrepreneurs, the study confirmed that women faced challenges in accessing loans from microfinance institutions in Ghana. The authors recommended that microfinance institutions should intensify their campaign to encourage women entrepreneurs to open saving accounts to improve access to credits. Imtiaz et al (2014) examined impact of microfinance on poverty reduction in Pakistan. The study based on a sample of 200 respondents indicated that there is poverty reduction because of receiving small loans from microfinance institution. The study further recommended that more loans at lower interest rate should be introduced to help reduce poverty. In addition, it was recommended in the study that appropriate measures needs to be undertaken to recover borrowed amount against future borrowing. A recent study by Nukpezah and Blankson (2017) assessed microfinance intervention in reducing poverty among rural women farmers. To achieve the objective of the study, the used a sample of 100 rural women farmer entrepreneurs. The results from the study suggested that microfinance intervention improves access to credit, business performance and standard of living among rural women farmers. Moreover, it was realized from the study that microfinance has been successful due strong social network and group relationship among farmers. METHODOLOGY The study used descriptive research design with specific reference to the case study method, which was aimed to assess whether access to microcredit contributes to poverty 17

7 reduction among market women in the New Juaben Municipality of the Eastern Region of Ghana. The target population was market women in the Municipality. There are many markets in the municipality but the study used respondents from the Koforidua central market because the market is known to house diverse informal sector activities ranging from market shop operations to open space trading. The New Juaben Municipality is depicted in the map below showing districts in the Eastern Region of Ghana. Source: The sample size for the study was one hundred and twenty (120) and the sampling technique adopted was purposive sampling to illicit information from market women in the Koforidua central market. The researchers used purposive sampling because the target respondents were all market women and also to ensure effective coverage. The main instrument used for gathering data was a structured questionnaire designed with the objectives of the study in mind. Experienced experts were used to check the validity of the questionnaire. The questionnaire reliability was confirmed through the inter-rater 18

8 reliability method. There was hundred (100) percent response rate of the questionnaires administered as researchers assisted respondents in providing responses to questions asked. The primary data obtained was fed into IBM SPSS, Version 21 for analysis. Quantitative analysis was undertaken through descriptive statistics by using tables and charts. RESULTS AND DISCUSSIONS Demographic Characteristics of respondents The study targeted only market women because they are major clients or customers of microfinance institutions and also, because poverty is high among women. The demographic characteristics of the respondents are presented in Table 1 below. Table 1: Demographic Characteristics of respondents Variable Frequency Percentage Age (Years) above 45 Marital Status Single Married Divorced/Separated Widowed/Widower Level of Education No formal Education Primary School Middle/ Junior High School (JHS)

9 Secondary School Total Source: Field Data, 2018 Out of 120 market women sampled, majority (50.8%) were between the ages of 36 and 45 years, followed by 41.7% which fall within the ages 20 and 35 years, and the remaining (7.5%) were above 45years. For marital status, while most of the respondents (37.5%) were married, 31.7% were singles, 19.2% were widowed or widower and the rest (11.7%) were either divorced or separated. The respondent with primary school education dominated the study with 49.2 %, followed by those with no formal education at 42.5%, 5% of the respondents educational level were up to middle/ JHS and the remaining (3.3%) attended school up to secondary level. Microfinance Usage of Respondents Table 2: Banked with Microfinance Institutions Frequency Percentage Yes Total Source: Field Data, 2018 From table 2, respondents were asked whether they have banked with microfinance institutions. As targeted by the study, it was realised that all the respondents (100%) have banked with microfinance institutions. This helped to get the needed response in support of the study. 20

10 Table 3: Respondents who have received credit from microfinance institution and reasons Frequency Percentage Yes Reasons for applying microcredit: For start-up business/trading Expand existing business/trading Pay for ward school fees Total Source: Field Data, 2018 Similarly, from table 3, all the respondents (100%) have received credit or loans from microfinance institutions. As anticipated, most of the respondents representing 50.8% borrowed from microfinance institutions to expand their existing business or trading. Again, while 30% of the respondents borrowed to start business or trading, the rest of the respondents (19.2%) borrowed or received credit from microfinance institution to pay ward school fees. Table 4: Basic requirement needed to satisfy before credit was given to respondents Physical collateral Savings Guarantors Frequency Percentage Total Source: Field Data, 2018 Table 4 highlights the basic requirement respondents needed to satisfy before credit or loans were given to them. From 120 respondents, 49.2% satisfied physical collateral requirement, before credit or loan was issued. In addition, while 31.7% of the respondents 21

11 used their savings to obtain credit or loan from microfinance institution, 19.2% had to look for guarantors as a requirement before loans or credits were given to respondents. Table 5: Respondents level of Satisfaction with the Services of Microfinance Institutions Very Satisfied Satisfied Dissatisfied Frequency Percentage Total Source: Field Data, 2018 To achieve the objective of finding out the extent to which market woman are satisfied with the services of microfinance institutions, respondents were asked to rate their satisfaction level of the services provided by microfinance institutions. The findings suggested that 61.7% representing majority of the respondents were satisfied with the services of microfinance institutions, 20.8% of the respondents were not satisfied with the services with microfinance institutions, and the rest of the respondents (17.5%) were very satisfied with the services of microfinance institutions. 22

12 Challenges in accessing credit from microfinance Institutions Another objective of the study is identify challenges market women faced in accessing credit from microfinance institutions. The results are mixed and highlighted below in Figure 1. The findings revealed that approximately 49.2% of the respondents stated lack of collateral as the major challenge faced in accessing credit from microfinance institutions. High interest rate charges is also another challenge facing respondents as approximately 19.2% of the respondents indicated that as a challenge in accessing credit from microfinance institutions. Further to the above, while 18.3% of the respondents indicated that newness in business or trading prevented them from accessing credit or loan from microfinance institutions, the rest of the respondents (13.3%) stated that lack of track records was also another challenge faced in accessing credit from microfinance institutions. This result is in conformity with the findings of Waita (2012) who also found 23

13 collateral requirement as a major challenge in accessing credit from microfinance institutions in Kenya. Microfinance and Poverty reduction Table 6: Contribution of microfinance to poverty reduction Very high High Average Low Frequency Percentage Total Source: Field Data, 2018 As an objective of the study, the study sought to determine the extent to which access to microcredit contributes to poverty reduction among market women. Findings revealed that 41.7% of the respondents indicated that access to credit from microfinance institutions averagely contributes to poverty reduction. This is closely followed by 40% of the respondents who revealed that access to microcredit highly contributes to poverty reduction. Besides, while other respondents (10.8%) said access to credit from microfinance institutions have low impact on poverty reduction, the remaining respondents (7.5%) were of the view that access to microcredit have a very high impact on poverty reduction. Overall, this finding suggest that access to microcredit contributes positively to poverty reduction among market women in the New Juaben Municipality. This result is consistent with a study by Nukpezah and Blankson (2017) whose objective was to assess microfinance intervention in reducing poverty among rural women farmers. 24

14 Table 7: Contribution of microfinance to the economic empowerment of respondents Yes No Frequency Percentage Total Source: Field Data, 2018 Finally, Table 7 highlights contribution of microfinance to the economic empowerment of market women. Out of the 120 respondents, 80.8% said that microfinance has generally contributed to their economic empowerment and the remaining 19.2% indicated that microfinance has not contributed to socioeconomic development. It can, therefore, be concluded that microfinance is a tool for economic empowerment among market women. CONCLUSIONS AND RECOMMENDATIONS The study sought to examine the extent to which access to microcredit contributes to poverty reduction among market women in the New Juaben Municipality, Ghana. The study further examined the extent to which market women are satisfied with the services of MFIs, and also identified challenges market woman faced in accessing microcredit. To achieve these objectives, a descriptive research methodology with the help of structured questionnaire to elicit information from respondents was adopted. Purposively using clients of microfinance institutions who are market women, the study revealed that most of the respondents borrowed from microfinance institutions to either expand their business/trading activities or start up trading activities. Again, physical collateral and savings were the major basic requirements respondents had the satisfy before credit or loans were issued out. The study also found that most of the respondents, compared with 25

15 those who were either very satisfied or dissatisfied with the services of MFIs, were satisfied with the services provided by microfinance finance institutions. Also, lack of collateral and high interest rate charges were the topmost challenges facing respondents in accessing loans or credit from MFIs. On the contribution of microfinance to poverty reduction, most of the respondents indicated that access to credit from microfinance institutions averagely contributes to poverty reduction. Finally, it was realized that microfinance generally contributes to the economic empowerment of respondents. The implication of this is that microfinance contributes to poverty reduction and generally to the economic empowerment of market women in the New Juaben Municipality, Ghana. It is, therefore, recommended that microfinance institutions should attempt to reach out to more market women and lend out loans to contribute to poverty reduction. Microfinance institutions should also endeavour to adopt flexible access to loan requirement that has more of disciplining mechanisms such as savings deposits and loan repayments. Again, it is important for microfinance institutions to cut cost in order to charge lower interest rates to increase access to loans among market women in the Municipality. 26

16 REFERENCES Bui, L. T. (2014). Microfinance and poverty alleviation: Does credit access contribute to reduce household poverty in Vietnam? (Unpublished Masters Dissertation, Georgetown University). Claudius, K. (2009). Entrepreneurial Skills and Rural Poverty Reduction A Case Of MFIs Performance in Mubende and Wakiso Districts.( Unpublished, Doctoral Thesis, Makerere University) Denanyoh, R., Adjei, K., & Owusu, E. S. (2013). Challenges Faced by Women Entrepreneurs in Sourcing Micro Finance in Ghana; Evidence from Kumasi and Sunyani Markets. International Journal of Innovative Research and Development, 2(13). Haas, O.(2006). Overindebtedness in Germany, Working Paper No. 44, Geneva, ILO. Imtiaz, A., Mehmood, H. Z., Akram, W., Irfan, M., & Code, P. P. (2014). Impact of Microfinance on Poverty Reduction: A Case Study of District Faisalabad. Journal of Economics and Sustainable Development, 5(9), Lontzek, L., Kappel, V. and Krauss, A. (2010). Over-indebtedness and Microfinance Constructing an Early Warning Index. Center for Microfinance, University of Zurich. MFI Report (2012). The State of Microfinance Investment. Micro Rate s 7th Annual Survey and Analysis of MIVs. Microfinance Gateway (2004). Frequently Asked Questions, Retrieved from Morduch, J. and Haley, B. ( 2001). Analysis of the effects of micro finance on poverty reduction. Results Canada for the Canadian International Development Agency, November Nukpezah, J. A., & Blankson, C. (2017). Microfinance intervention in poverty reduction: A study of women farmer-entrepreneurs in rural Ghana. Journal of African Business, 18(4),

17 Osthoff, J. (2005). Is Microfinance an Effective Development Tool in the Context of Poverty Alleviation? Evaluating the Case of Rural China. (Unpublished Masters Thesis, University of Birmingham). Retrieved from /24428_file_Microfinance_Rural_China.pdf. Richard, V. (2007).Services for the Poor: What Work, Why and Where? Sri Lanka: Sri Lanka. Asian Development Bank. Richman, D., & Fred, A. K. (2010). Gender Composition, Competition And Sustainability Of Micro Finance In Africa: Evidence From Ghana s Microfinance Inustry, (2003), Schicks, J. (2010). Microfinance Over-Indebtedness: Understanding its drivers and challenging the common myths, Bruxelles: Centre Emilee Bergheim, Solvay School of Business, CEB Working Paper No 10/048. Waita, J. M. (2012). Challenges facing women in accessing credit from microfinance institutions in Nakuru. (Unpublished Masters Thesis, University of Nairobi) Yogendrarajah, R., & Semasinghe, D. (2013). Challenges facing by women in accessing credit from microfinance institutions in Sri Lanka. 28