Microfinance institutions and the promotion of small scale enterprises: a case study in the Kumasi Metropolis
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Date
2005-11-03
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Abstract
The dynamic roles of small scale enterprises in developing countries have been highly emphasized. These enterprises have been identified as the means through which accelerated growth and poverty reduction as well as other developmental goals of developing countries can be achieved. The sector is faced with a lot of constraint which threatens the achievements of its full potential. Some of the constraints relate to lack of or inadequate credit, lack of capacity or the technical know-how to effectively manage their businesses and the absence of suitable policies and programmes to address their plight. Thus they are unable to come out of the vicious cycle of poverty.
The emergence of microfinance is thought to provide answers to the numerous problems faced by small scale enterprises. Microfinance institutions are expected to provide suitable financial services with education. Some of the services include the provision of credit, facilitate and inculcate the habit of savings in entrepreneurs and the provision of educational programmes to build the capacity of entrepreneurs all of which are geared towards improving the incomes of household.
Using purposive sampling, four (4) Savings and Loans Companies in Kumasi were randomly selected, and 99 respondents were randomly selected for the study. Interviews were conducted using semi-structured questionnaire; questionnaire for institutions and separate questionnaire for beneficiaries.
From the survey the following were found out:
• MFIs served as a source of credit or loans to small scale enterprises
• Personnel of MFIs do not have the requisite knowledge to develop suitable products to meet the needs of clients
• Determination of loan amount is contractual and the only determinant is the savings of the client.
• The only financial product known to clients is credit and sometimes savings
• There is no programme of activities intended to build the capacity of clients
It could be realized that the only effort by MFIs towards the promotion of small scale enterprise in the informal sector is the provision of credit based on contractual agreement and not on any credit need assessment. This has resulted in the stagnation of the small scale enterprise sector such that they are always looking for credit and paying back credit.
The importance of savings to accumulate own capital, the need for business advisory services, insurance to protect against disaster and host of educational programmes have not been given the needed attention towards the promotion of small scale enterprises. It is arguably right that if these things as well as other issues are considered by MFIs coupled with the design of appropriate and suitable products for small scale enterprises holistically then the expected role of these enterprises in reducing poverty can be realized.
Description
A Thesis submitted to the School of Graduate Studies, Kwame Nkrumah University
of Science and Technology, Kumasi in partial fulfillment of the requirements
for the degree of Master of Science in Development Policy and Planning, 2005