COMPARATIVE ANALYSIS OF MICROFINANCE SYSTEMS IN THE UPPER WEST REGION OF GHANA

Abstract

The importance of the operations of MFIs on the income of households in northern Ghana cannot be over stated considering the prevalence of poverty in that area. This research compared the microfinance systems in the Upper West Region of Ghana to determine their relative impact on households’ income and asset value. Data collection was done using an interview guide and a questionnaire and data analysis was carried out using descriptive statistics, multiple regression, multinomial probit, and propensity score matching. The study revealed that the Upper West Region is endowed with a number of indigenous microfinance arrangements ranging from borrowing from friends and relatives to the provision of farm services either in kind or in cash to father in-laws. The study further revealed that the formal and semi-formal microfinance institutions incorporate some indigenous microfinance features such as group solidarity, “susu” and family ties in their operations particularly in the area of group lending. It further revealed that access to formal credit has the most impact on the income of beneficiaries followed by the semi-formal with indigenous source having the least impact. The study also revealed that interest rate, household income, gender of beneficiary, dependency ratio, years of schooling, access to microfinance information, and repayment period of current loan, household size and group size are major determinants of amount of loan access by beneficiaries. It is recommended that interest rate in the indigenous credit market be regulated by the Bank of Ghana through the application of the banking laws on this sector to ensure a reduction in the exorbitant interest rate charged by operatives within this sector. Indigenous microfinance arrangements and support systems need to be strengthened through the continuous socialisation of the people of the Region on the significance of these arrangements or support systems to ensure that these indigenous arrangements do not become extinct.