MICROFINANCE PAPER WRAP-UP: Who is Reaching Whom? Depth of Outreach of Rural Micro Finance Institutions in Ghana, by Kofi Awusabo-Asare, Samuel K. Annim, Albert M. Abane and Daniel Asare-Minta

Written by Kofi Awusabo-Asare, Samuel K. Annim, Albert M. Abane and Daniel Asare-Minta, published in the International NGO Journal Vol. 4 (4), pp. 132-141, April 2009, 10 pages, available at: http://www.academicjournals.org/ingoj/PDF/Pdf2009/Apr/Asare%20et%20al.pdf

This paper aims to study the socioeconomic status of clients being reached by different “types” microfinance institutions (MFIs) in Ghana. Using a poverty index, the study shows which type of MFIs reach relatively poorer or richer clients. The study also attempts to explain these results through reasons relating to the “source of funds, strategies for outreach and mission of the institution.” Lastly, MFI policy recommendations are made.

The study uses a “Microfinance Poverty Assessment Tool,” to measure socioeconomic status. This measure was developed by the Consultative Group to Assist the Poor (CGAP), an “independent policy and research center dedicated to advancing financial access for the world’s poor” [1]. It “combines various welfare variables including housing conditions and characteristics, food security and vulnerability, livestock and consumption assets to calculate a household relative poverty index.” The study included 1600 clients. For simplicity, all institutions were referred to as “MFIs”. The “MFIs” were separated into rural and community banks, financial non-governmental organizations (NGOs), savings and loans companies, credit unions, and susu collectors (mobile bankers running a small savings a loan operation). Sixteen MFIs were selected in addition to one makeshift “MFI” that was simply a group of susu collectors.

The index was divided into five “quintiles,” namely, the lowest (poorest), below average, average, above average, and the highest (richest of the poor). It was found that rural and community banks and NGOs reached the broadest group, ranging from the poorest people to the richest. Credit unions reached those in the range of “below average” to the richest. Lastly, savings and loan companies and susu collectors reached from the “average” clients to the richest. Overall, only the rural and community banks tended to reach the poorest clients.

The authors found that institutions that employ peer selection and loan qualification requirements tend to cater to higher income clients. Peer selection involves potential clients forming a group, choosing members believed to  be trustworthy in terms of repayment. This is likely to eliminate the poorest clients. The same can be said for a situation in which potential clients must prove to the institution that they “qualify” for a loan based on their economic characteristics such as income and assets. On the other hand, institutions that select clients by committees reach lower income clients, especially when these institutions rely on donors who have a specific interest in reaching poor clients. Committee selection involves “technical advisers, representatives of the district assembly, loan officers of the rural bank and representative of the donor institution” voting on which clients to select. If the donor institution specifically wants to reach the poorest clients, this outcome will often materialize. Generally, rural and community banks employ peer selection and/or committee selection. Financial NGOs used peer selection, but allowed non-financial contributions such as produce in order to open credit access to poorer clients. Susu collectors generally have a group insurance scheme. Therefore clients self-select based on their ability/willingness to make a contribution, thus eliminating the poorest clients. Similarly, credit unions and savings and loan companies have economic requirements for loan qualifications that may segment out poorer clients.

The authors point out that social and political interference, such as political patronage, was the main thing preventing selection committees from reaching poor clients. Therefore, they believe that avoiding this pitfall should be an important policy concentration for MFIs. Also, they mentioned the success of financial NGOs that allowed clients to make non-financial contributions such as vegetables. They believe this is one way for MFIs to reach the poorest clients.

Kofi Awusabo-Asare is a professor of population studies at the University of Cape Coast in Cape Coast, Ghana [2]. His areas of interest include “adolescent reproductive health, social dimensions of HIV/AIDS infection, poverty studies, and issues of population, environment and health” [2]. Samuel K. Annim works in economics and microfinance, also at the University of Cape Coast in Cape Coast, Ghana[3]. Specifically, he has worked in “health economics, poverty and microfinance issues in developing countries” [3]. Albert M. Abane has previously written about sexual and reproductive health in adolescents [4]. Daniel Asare-Minta has worked at the Rural Financial Services Project at the Bank of Ghana as a Project Manager [5]. The research was backed the by the University of Cape Coast Department of Economics which was established in 1976 and houses a Microfinance unit [6].

By Christopher Maggio, Research Assistant

Bibliography
[1] CGAP: http://www.cgap.org/p/site/c/aboutus/
[2] Kofi Awusabo-Asare on Union for African Population Studies: http://www.uaps-uepa.org/councilprofile.php?recordID=1
[3] Samuel K. Annim on Department of Economics University of Cape Coast: http://www.econsucc.edu.gh/samuel.html
[4] Albert M. Abane on CGS Policy Archive: https://www.policyarchive.org/browse-author-items?scope=Abane%2C+Albert+M.&backurl=browse-author%3Fpage%3D1
[5] Daniel Asare-Minta on Academic Journals.org: http://www.academicjournals.org/jgrp/abstracts/abstracts/abstracts2008/July/Annim%20et%20al.htm
[6] Department of Economics University of Cape Coast: http://www.econsucc.edu.gh/about_us.html

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