THE ROLE OF FORMAL CREDIT IN CONTEMPORARY POVERTY REDUCTION STRATEGIES IN NORTHERN GHANA.

Abstract

The question this study seeks to answer is whether formal credit has made any sigruiicant impact on contemporary poverty reduction efforts in northern Ghana. A discourse on poverty indicates that the three Northern Regions - Upper-East, Upper-West and Northern are substantially poorer than the rest of Ghana with poverty levels ranging from 70lVo in the Northern Region to 97.3% in the Upper East Region. Deliver) of formal credit is one widely accepted strategy employed to combat poverty, and lack of access to credit has often been cited by people of low incomes as the single most important obstacle to overcoming their poverty. Abundant literature indicate that many of the problems that providing formal credit is designed to solve soon disappear when credit is available unde: suitable conditions. This study has therefore become imperative as a result of the contradiction arising from the deep and persistent poverty in northern Ghana despite the presence of numerous credit schemes operating in the area. Credit and credit technology are consequently extensively discussed, with special focus or, .he small credits (called microcredit) that are given to people of low incomes. Microcredit has been hailed around the world :.IS the panacea that cures poverty and all the ills associated with it. This received wisdom is tested in this study among low income women's groups who are clients of the Bonzali , Rural Bank living in urban Tamale and its surrounding rural areas. The methodology employee! in this l exercise is anchored on an evaluative non-experimental cross-sectional research that is hinged on a triangulation of methods to achieve best research results. The research questions are couched in a manner that queries the methods used to deliver formal credit in the research area. A discourse of the study area shows that the three main credit systems (formal, semi-formal and informal credit) are available though the respondents in this study receive only formal credit. Analysis of field data is carried out using the SPSS programme that generates tables, graphs and charts to enable easy interpretation. Anecdotal accounts of respondents are put forth to support research findings. The findings indicate that whereas ill some instances formal credit does not appear to make any positive impact, in other instances, significant impact on poverty reduction is found among respondents. This leads this study to conclude that formal credit has achieved mixed results in poverty reduction efforts in northern Ghana. Among important lessons learnt in this study, financial institutions are rather reluctant in permitting research at their establishments and it is thus worthwhile to make such arrangements well in advance. Officials of these institutions prefer to Sit in during respondent interviews and this tends to produce interviewer effects that may skew research findings in a certain direction. Some of the recommendations made by the study are that: • Credit institutions should consider prior engagement with prospective clients to see how they could integrate their inputs in the design and implementation of' the credit schemes. • Formal credit institutions should build linkages with semi-formal and informal credit operators in order to enhance their own outreach and efficiency when they lend to the poor. • Credit institutions should address complaints about small loan size and high interest rates in order to make a positive impact on clients or low incomes. • Government would greatly compliment the efforts of all the actors in the fight against poverty in northern Ghana in particular and Ghana in general by infusing adequate funds into financial institutions with strong and dedicated social missions .