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DEFINATION
Microfinance refers to small financial transactions with low-income households and microenterprises (both urban and rural), using non-standard methodologies such as character-based lending, group guarantees, and short term.
Rural finance includes other instruments and institutions specifically intended to finance rural activities, both farm and off-farm. The common elements are that the clients being served typically lack the characteristics (e.g., titled property as collateral) required by commercial banks or are located beyond the reach of commercial bank branches and that innovative methods and specialized products or institutions are needed to reach these markets.
Northern Ghana in 1955 by Canadian Catholic missionaries. However, Susu, which is one of the microfinance schemes in Ghana, is thought to have originated from Nigeria and spread to Ghana in the early twentieth century. Over the years, the microfinance sector has thrived and evolved into its current state thanks to various financial sector policies and programmes undertaken by different governments since independence. Among these are
Provision of subsidized credits in the 1950s; Establishment of the Agricultural Development Bank in 1965 specifically to address the financial needs of the fisheries and agricultural sector.
Shifting from a restrictive financial sector regime to a liberalized regime in 1986. Promulgation of PNDC Law 328 in 1991 to allow the establishment of different categories of nonbank financial institutions, including savings and loans companies, and credit unions.
The policies have led to the emergence of three broad categories of microfinance institutions. These are: Formal suppliers such as savings and loans companies, rural and community banks, as well as some development and commercial banks. Semi-formal suppliers such as credit unions, financial nongovernmental organizations (FNGOs), and cooperatives. Informal suppliers such as susu collectors and clubs, rotating and accumulating savings and credit associations (ROSCAs and ASCAs), traders, moneylenders and other individuals. In terms of the regulatory framework, rural and community banks are regulated under the Banking Act 2004 (Act 673), while the Savings and Loans Companies are currently regulated under the Non-Bank Financial Institutions (NBFI) Law 1993 (PNDCL 328)
The main goal of Ghana's Growth and Poverty Reduction Strategy (GPRS II) is to ensure "sustainable equitable growth, accelerated poverty reduction and the protection of the vulnerable and excluded within a decentralized, democratic environment -Microfinance and poverty reduction in Ghana According to the 2000 Population andHousing Census, 80% of the working population is found in the private informal sector. This group is characterized by lack of access to credit, which constrains the development and growth of that sector of the economy
(i) Microfinance Institutions, including: The Rural and Community Banks, Savings and Loans Companies Financial NGOs Primary Societies of CUA Susu Collectors Association of GCSCA Development and commercial banks with microfinance programs and linkages Micro-insurance and micro-leasing services.
(ii) Microfinance Apex Bodies, namely; Association of Rural Banks (ARB) ARB Apex Bank Association of Financial NGOs (ASSFIN) Ghana Cooperative Credit Unions Association (CUA) Ghana Cooperative Susu Collectors Association (GCSCA)
End Users Economically active poor who are clients of microfinance products and services.
End Users Economically active poor who are clients of microfinance products and services.
Supporting Institutions Microfinance and Small Loans Center (MASLOC); The Ghana Microfinance Institutions Network (GHAMFIN); Development partners and international nongovernmental organisations
OPERATION OF MICROFINANCE
Microfinance uses the group methodology or solidarity guaranteed method which makes it possible for members of to be part of debt being owed by another member.
The MFIs, in turn, identify womens groups and provide them with training, as well as other support services. Group members are required to make mandatory savings, (minimum amount determined by the group or MFI), Intrest rate- 48 and 51 per cent per year Duration-10 weeks to 23 weeks
Repayment required in weekly, bi-weekly or monthly in equal installments. In all its collaborative arrangements with MFIs, the on-time annual repayment rate in village banks has been 98 per cent to 100 per cent.
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