Implications for Poverty Reduction in Rural Households in Ghana: Introduction

Implications for Poverty Reduction in Rural Households in Ghana: IntroductionThe revolution in the Microfinance (MF) industry has created a development paradigm shift. This paradigm shift favours the use of MF as an important ingredient in improving the welfare of the poor particularly in developing countries. This has come about as a result of: the call by The 1997 Microfinance Summit for the mobilization of US$20 billion over a 10-year period to support microfinance; The proclamation of 2005 by the United Nations as the “Year of Micro-credit”; and the ultimate award of a Nobel Peace Prize to a universally acclaimed founder of modern microfinance, Prof. Muhamad Yunus and the Grameen Bank which he founded in 1970. These milestones in the history of MF, can be said to have partially propelled the boom in the MF industry.
It has been estimated that at least 400 million poor and low-income people are not being served by MF programmes (IFAD, 2004). Usually, the poor has no access to loans from the banking system, because they cannot put up acceptable collateral and/or because the costs for banks in screening and monitoring the activities of the poor, and enforcing their contracts, are too high to make lending to this group profitable. This situation has serious negative impact on poor households struggling to reduce poverty, vulnerability, and attain food security. Access to credit enables poor people to smooth consumption in times of income variability and also engage in microenterprises which lead to value creation and ultimately move the poor out of poverty.
Microfinance has been found as an important tool for fighting poverty particularly in the developing countries and a plethora of studies attest to this. Though various studies have pointed to this fact, some of the findings have been contested and have pointed to the contrary. Payday Loans Online

Poverty in Ghana is said to be a disproportionately rural phenomenon. The report of the Ghana Living Standards Survey round five indicates that eighty-six percent of the total population who live below the poverty line in Ghana, reside in rural areas. The report further indicates that 50% of these rural poor live in rural savannah. In the light of this, MF interventions over the years were imperative. The financial sector reforms in Ghana, particularly, the promulgation of PNDC Law 328 in 1991 to allow the establishment of different categories of non-bank financial institutions, including savings and loans companies, and credit unions, gave an impetus to the MF industry in Ghana to further grow. This was to meet the ever increasing financial needs of poor households who are usually unreached and underserved by the traditional financial institutions. In sub-Saharan Africa (SSA), as at 2007, Ghana was ranked the highest recipient (about US$186m) of development partner’s donor funding into microfinance. Thus in the spirit of poverty alleviation most of the MFIs in Ghana particularly Financial Non-governmental Organizations targeted rural households. This was to enable the beneficiaries engage in income generating activities so as to improve upon their livelihoods.
In a similar vein, the Upper East Region (UER) which according to the GLSS5, is the second poorest Region in the country with about 70% of the population living below the poverty line, received MF services targeting rural poor women. Most of these women engaged in agro-processing activities such as rice milling, shea-butter extraction, malt making and so forth. Thus financial services from MFIs were meant to help these women boost their output, increase their earnings and ultimately improve upon their socio-economic welfare.
Despite the fact that the UER has received much support in the areas of MF, it is still not clear if this has been able to reduce the poverty level of beneficiaries and their households. Studies in the areas of MF that seek to establish the link between MF and the welfare outcomes are inconclusive as reports on the impact of MF on poverty reduction are conflicting. In this regard, further exploration of the impact of MF under varying assumptions and in different context is important.

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