AN EVALUATION OF THE IMPACT OF MICROFINANCE ON PETTY TRADERS (A CASE STUDY OF KUMASI CENTRAL MARKET)
The high standard set by commercial banks in financing petty traders has created a gap in the economy that microfinance has filled. Governments and Non-Governmental Organizations have concluded that poverty among the petty traders could be solved through the concept of microfinance. But, has the era of commercializing micro financing lived up to this vision? Microfinance institutions in Ghana are seen as businesses that have profit making as their goal. What impact have they made on the petty traders in the society? A descriptive study that employed both quantitative and qualitative approaches was conducted to evaluate the impact of micro financing on petty traders in the Kumasi Metropolis. A non- random sampling method was used to select five microfinance institutions from the metropolis who have been in operation for more than five years, with identified branch managers or credit supervisors and also close to the market and 200 petty traders who are customers of these institutions and also operate at Kumasi Central Market were sampled out by the use of convenient sampling method for the study. Questionnaires were issued to petty trading customers whiles interview guides were administered to branch managers or supervisors and data gathered were analyzed through the use of simple regression and correlation. It was revealed that there was a very weak relationship between microfinance credit and savings on the one hand and petty traders’ profitability, business capital and livelihood on the other hand. The impact of Microfinance Institutions on petty traders was found to be low contrary to preview studies and literatures. In order to correct this, it has been recommended that government should partner with microfinance institutions to revise the approach of microfinance to a hybrid form that will combine profit making with subsidy
TABLE OF CONTENTS
TABLE OF CONTENTS V
LIST OF TABLES VIII
LIST OF FIGURES IX
CHAPTER ONE: INTRODUCTION
Background of the Study1
Objectives of the Study4
Significance of the Study4
Scope of the Study5
Limitation of the Study6
Overview of Methodology7
Organization of the Study7
CHAPTER TWO: LITERATURE REVIEW
Definition of Petty Trading and Petty Trader8
Definition and Concept of Microfinance8
Theoretical Approach of Microfinance12
Overview of Microfinance in Ghana15
Evolution of Microfinance in Ghana15
The Evolution of Microfinance Regulation in Ghana17
Models of Microfinance Interventions20
Individual Lending Model21
Group or Peer Lending Model21
Grameen Bank Model22
Village Banking Model23
Rotating Savings and Credit Association24
Impact Assessment of MFIs Credit and Savings on Petty Traders24
CHAPTER THREE: METHODOLOGY
Population and Sample Frame31
Sources of Data33
Unit of Analysis33
Data Collection Instrument33
Brief Profile of the Case Study35
CHAPTER FOUR: DATA PRESENTATION, DISCUSSION AND ANALYSIS
Models and Processes of MFIs in micro credit accessibility37
Assessing impact of MFIs credit on petty traders41
Impact of MFIs credit on profitability41
Impact of MFIs credit on business capital43
Impact of MFIs credit on petty traders’ livelihood44
Assessing the impact of MFIs savings on petty traders46
Assessing the impact of savings on profitability47
Assessing the impact of savings on business capital48
Assessing the impact of savings on livelihood49
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
Summary of Findings50
Models and processes of MFIs micro credit accessibility50
Assessing impact of MFIs credit on petty traders51
The impact of MFIs credit on petty traders’ profitability51
Impact of MFIs credit on petty traders’ business capital51
Impact of MFIs credit on petty traders’ livelihood52
Assessing impact of MFIs saving on petty traders52
Impact of MFIs savings on petty traders’ profitability52
Impact of MFIs savings on petty traders’ business capital52
Impact of MFIs savings on petty traders’ livelihood53
APPENDIX A(Questionnaire)… 64
APPENDIX B (Interview Guide) 66
LISTS OF TABLES
Table 1 (4.1) Models features and processes 39
Table 2 (4.2.1) Impact of MFIs credit on petty traders’ profitability 42
Table 3 (4.2.2) Impact of MFIs credit on petty traders’ profitability 43
Table 4 (4.2.3) Impact of MFIs credit on petty traders’ business capital 43
Table 5 (4.2.4) Impact of MFIs credit on petty traders’ business capital 44
Table 6 (4.2.5) Impact of MFIs credit on petty traders’ livelihood 45
Table 7 (4.2.6) Impact of MFIs credit on petty traders’ livelihood 45
Table 8 (4.3.1) Association between savings and the study variable 46
Table 9 (4.3.2) Impact of savings on profitability 47
Table 10 (4.3.3) Impact of savings on capital 48
Table 11 (4.3.4) Impact of savings on livelihood 49
LIST OF FIGURE
Figure 1 (2.1) Conceptual model of the study 29
CHAPTER ONE INTRODUCTION
Background of the Study
Microfinance is seen as a solution to petty traders who may fall below the standard of the commercial bank lending criteria and also to correct the general notion of financing the poor (Bank of Ghana, 2007). The concept of micro financing is rooted in the idea that, poor people have excellent repayment rate and are prepare and have the power to pay the interest rate charged, to ensure that any microfinance institutions cover cost and even make profit. Thus, petty traders have the ability to use loans wisely to generate income and even continue with saving which make it easy for them to repay loans granted them. Microfinance sought, initially, to provide credit facility to the poor population which mostly includes petty traders and farmers, and was seen as a strategy for minimizing poverty among the petty traders in most developing countries. Currently, microfinance encompasses all financial services like micro credit, micro saving and micro insurance that are targeted to the low income earners of a country.
Littlefield and Rosenberg (2004) are of the view that the exclusion of the petty traders from the formal banking sector has led to the establishment of an institution that will primarily provide financial services to them and also address the failures in the market, thus, the need for microfinance institutions.
The government of Ghana believes that one way to fight or reduce poverty and at the same time generate wealth is through the institution of microfinance. And in its pursuit of accomplishing the Millennium Development Goals and also becoming a middle income
country, Government recognizes the microfinance sector as a key factor in helping institutions and individuals release their potentials for economic growth (Asiamah, 2007).
Again, the former UN secretary general, Kofi Annan remarked at the launch of the International year of microfinance in December 2003 that, " sustainable access to microfinance helps alleviate poverty by generating income, creating jobs, allowing children to go to school, enabling families to obtain health care and empowering people to make the choice that best serve their needs" (Bank of Ghana, 2007).
Quaye (2011) indicated that, generally the idea of microfinance is purposely to improve the standard of living of petty traders in any country and also grant them opportunity of wealth creating. But are the ideas conceived of micro financing really realizing it purposes in our country? Are microfinance institution geared at helping reduce the poverty rate of the poor or improving their standard of living? With current high interest rates being charged on micro credit and microfinance institutions becoming ground for counting big profit, what impact are Microfinance Institutions (MFIs) making on the micro sector of the economy?
The realization that petty traders can improve their living conditions through the provision of micro loans and also their ability to use loan facilities, save income and make the necessary repayment has been the motivation of MFIs. Also, the fact that the commercial banks fail to meet the needs of petty traders in the population has created a vacuum in the economy that MFIs can fill.
It was stated in Bank of Ghana (2007) that, the mission of the MFIs in development is to help; firstly, petty traders to meet their basic needs and gain security against any form of risk. Secondly, MFIs are set out to better the household economic conditions of the petty traders. Lastly, they are set out to empower women who are major participants of petty trading, by providing them with the financial means for them to participate in the economy and thus, promote gender equality in the economy. This mission was to be realized through their provision of material and human capital.
Otere (1999), made known that the aims of MFIs could be summed into the provision of capital for petty traders to help reduce poverty. Therefore, MFIs are seen as a global strategy for alleviating poverty (Asiamah and Osei, 2007).
Notwithstanding, some previous researchers have indicated that MFIs are a less effective way to poverty reduction than it is thought (Hulme and Mosley, 1996). And most current studies conducted by Heathcote-Fumador (2013) on Microfinance Institutions in Ghana reveals that MFIs are not really geared towards poverty reduction. The major players in the industries have visions, missions, objectives and strategic plans entirely different from the roles MFIs seek to accomplish. Most of them have names which even differ from their purpose, with high interest rate charges and also some of them are using the industry as a platform to accumulate funds to meet the stated capital requirement level in order to become a savings and loans company or a commercial bank.
The study, therefore, seeks to evaluate the impact MFIs products and services are making on petty traders ’capital growth, profitability and living conditions in the wake of these findings and studies.
Objectives of the Study.
The objectives of the study are:
1. To examine the models and processes of MFIs in micro credit accessibility for petty traders.
2. To assess the impact of MFIs credit on petty traders business capital, profitability and livelihood.
3. To assess the impact of savings or deposit mobilization of MFIs on petty traders business capital, profitability and livelihood.
1. What models and processes qualify a petty trader in accessing MFIs micro credit?
2. Does the use of micro credit have any impact on petty traders’ business capital, profitability and livelihood?
3. Does MFIs savings or deposit mobilization have any impact on petty traders’ business capital, profitability and livelihood?
Significance of the Study
Microfinance is seen as a critical key strategy for the achievement of the Millennium Development Goals (MDGs) and in developing financial system that seeks to meet the financial needs of petty traders in the economy (Simanowitz and Broody, 2004).
The government of Ghana also seeks to reduce poverty through the provision of micro credit to all petty traders. This study will provide government agencies or MDGs implementers with a spectacle to have a clear view of the impact micro financing is making on petty trading industries in the fight against poverty and help them in making the necessary adjustments.
The study will unveil the true impact Microfinance companies are making on their customers and how they are contributing to their growth or otherwise. This will help the MFIs to review their policies and procedures to better serve their customers in line with the industry objectives.
The study will serve as a guide for new investors who want to enter the microfinance industry to frame a better vision or mission statement that will have a positive impact on their prospective customers to enable them to compete positively in the industry.
The study will be a useful tool for petty traders to better understand the operations of MFIs and how they should relate with them in seeking their services.
This study will reveal the real state of the microfinance industry and their contribution to petty trading industry and therefore serve as a secondary source of data for future researchers and students who may be interested in studying along this area.
Scope of the Study
The study is to evaluate the impact of microfinance companies on petty traders. This research is confined to the Kumasi Metropolis because the researcher was born, raised and also currently resides there. The Central Market is the target research site since it harbors
most of the petty traders and MFIs in the Metropolis. Also, a wider coverage is expensive and time consuming, but the researcher has limited time at his disposal for this project.
Limitation of the Study
This study will be done alongside researcher’s academic work and employment. Hence, it put more limitation on the researcher as regards to the gathering of all necessary and relevant information. Thus, he will be constraint with regards to time.
The researcher will also encounter little challenge in getting appropriate and accurate responses from respondents. The petty traders who are the main respondents are mostly illiterate and cannot read or write, thus the researcher needs to employ people who will read and explain questionnaires to respondents. This will be time consuming and costly. Also the respondents will answer the questions ask them base on the way they understand it from their interpreters.
Added to this, researcher will have to endure the bureaucratic procedure in gathering information from various organizations that forms part of the research respondents but will persist until he receives as many as possible of the answered questions from the respondents.
In the face of all these constraints, the researcher hopes to get the needed data and successfully work within the limited time frame to come out with adequate material, which shall be useful to all stakeholders.
Overview of Methodology
The study adopted both quantitative and qualitative research design. It gathered primary source of data through the issuance of questionnaires and interview guides while it collected it secondary source from various publications. The unit of analysis was MFIs and petty traders in Kumasi Central Market. The study sampled out 5 MFIs and their petty trading customers. The sample frame of 400 with a sample size of 200 was used for the study. Both the purposive and convenient sampling methods were used for the study. The data collection instruments employed in this study is a semi-structured interview guide and a questionnaire.
A pilot test was done on a selected MFI to identify any challenges faced by respondents in answering questions and the needed correction made. This study used simple regression and correlation to assess the impact of the savings and loans on profitability, business growth and living condition.
Organization of the Study
The study is organized into five chapters:
The first chapter contains the introduction which outlines the background of the study, problem statement, and the objectives of the study, the research questions and significance of the study. Chapter two looks at the literature review and theoretical framework concerning the study, while Chapter three is devoted to the methodology of the study, which explains the research process and the method adopted for data collection and analysis. Data presentation, discussion and analysis of the study are outlined in chapter four and finally the Chapter five deals with the summary of finding, conclusion and recommendations..