Assessing the impact of operational flaws on the performance of microfinance institutions in Ghana: a case study of selected microfinance institutions

Agyeman, Annette Serwaa; Gyimah, Adjei Gyamfi; Adu-Asare, Solomon

doi:10.22105/jarie.2020.213974.1118

Document Type : Research Paper

Authors

¹ School of Finance, Zhongnan University of Economics and Law, Wuhan, China.

² Supply Chain and Business Linkage Department, Competitive Cashew Initiative, German Development Cooperation.

³ Frontline Capital Advisors, Ghana.

https://doi.org/10.22105/jarie.2020.213974.1118

Abstract

Microfinance Institutions (MFIs) contribute significantly to the development of a country and many of these institutions are found in most developing countries including Ghana. However, many challenges have been alleged to stifle the efforts of microfinance companies in their attempt to make their all-important contribution to the development of nations. This study explored the effect of operational flaws on the performance of microfinance institutions in Ghana. The results discovered flaws and challenges associated with the operations of the MFIs in many areas including corporate governance, credit risk management, credit administration, regulatory challenges, and training programs. The study also revealed that such flaws and challenges do harm the overall performance of the MFIs. Based on the findings, it is recommended that MFIs put in place a well-composed and resourceful credit committee to perform the duty of credit risk management in the institutions. The institutions could also reduce their interest rates to encourage their clients to apply for more loans. Lastly, it is recommended that the MFIs take all necessary steps to ensure that they reduce the flaws and challenges they face to mitigate the negative impact of such deficiencies on their performance.

Keywords

Main Subjects

Case studies in industry and services

References

[1] Addai, B. (2017). Women empowerment through microfinance: Empirical evidence from Ghana. Journal of finance and accounting, 5(1), 1-11.

[2] Anitha, C., & Reddy, D. R. (2017). Evolution and emerging role of MFIs in Indian microfinance sector. Sumedha journal of management, 6(4), 87-105.

[3] Arku, R. E., Bennett, J. E., Castro, M. C., Agyeman-Duah, K., Mintah, S. E., Ware, J. H., ... & Ezzati, M. (2016). Geographical inequalities and social and environmental risk factors for under-five mortality in ghana in 2000 and 2010: Bayesian spatial analysis of census data. PLoS medicine, 13(6), e1002038.

[4] Asiama, J. P., & Osei, V. (2007). Microfinance in Ghana: an overview. Accra, Ghana: Research Department, Bank of Ghana.

[5] Bertocco, G. (2007). Some observations about the loanable funds theory. Seminar presented at the meeting of Department of Economics, University of Insubriain its series Economics and Quantitative Methods. Economics and Quantitative Methods, Department of Economics, University of Insubria.

[6] Boateng, A. A. (2015). An examination of challenges and prospects of microfinance institutions in Ghana. Journal of economics and sustainable development, 6(4), 52-60.

[7] CGAP (2015). Microfinance FAQs. Retrieved 17 March, 2018 from http://www.microfinancegateway.org/what-is-microfinance

[8] Couchoro, M. K. (2016). Challenges faced by MFIs in adopting management information systems during their growth phase: the case of Togo. Enterprise development and microfinance, 27(2), 115-131.

[9] Dato, M. H., Mersland, R., & Mori, N. (2018). Board committees and performance in microfinance institutions: Evidence from Ethiopia. International journal of emerging markets, 13(2), 350-370.

[10] Donou-Adonsou, F., & Sylwester, K. (2016). Financial development and poverty reduction in developing countries: new evidence from banks and microfinance institutions. Review of development finance, 6(1), 82-90.

[11] Egyir I. S. (2010). Rural women and microfinance in Ghana: challenges and prospects. Paper presented at the Joint 3rd African Association of Agricultural Economists (AAAE) and 48th Agricultural Economists Association of South Africa (AEASA) Conference, Cape Town, South Africa. Retrieved from file:///C:/Users/jpour_000/Downloads/34.%20Rural%20women%20and%20microfinance%20in%20Ghana.pdf

[12] Ferrando, A., Popov, A., & Udell, G. F. (2017). Sovereign stress and SMEs’ access to finance: Evidence from the ECB's SAFE survey. Journal of banking and finance, 81, 65-80.

[13] Flora, K. A. (2015). The challenges confronting small scale businesses in accessing microfinance services from MFIs case study: rural Tanzania. International journal of academic research in business and social sciences, 5(11), 299-311.

[14] Friends Consult. (2015). FAQs about microfinance capacity building. Retrieved March 8, 2015, from http://www.friendsconsult.co.ug/index.php/2013- 05-03-00-58-34/microfinance-capacity-building.

[15] J-PAL. (2014). Theory of change. Retrieved from https://www.povertyactionlab.org /sites/default/files/event/Lecture%25202-THEORY%2520OF%2520CHANGE.pdf&ved=2ah UKEwiAmuT_kdrkAhUPJVAKHb8CBWoQFjAKegQIAhAB&usg=AOvVaw316YOtMvX- H70ovFOrAirt.

[16] Kumar, A., & Conteh, A. (2015). Common frauds in micro finance institutions (MFIs). International journal of advanced rural management, 1(1), 11-18.

[17] Mia, M. A. (2017). Interest rate caps in microfinance: Issues and challenges. The Journal of industrial distribution & business, 8(3), 19-22.

[18] Loanadble fund http://kokminglee.125mb.com/economics/loanablefund.html

[19] Volschenk, J., Fish, T., & Mukama, J. (2005). Problems affecting the growth of microfinance institutions in Tanzania. African finance journal, 7(2), 42-63.

[20] Okezie, A. I., Bankoli, B., & Ebomuche, N. C. (2014). The impact of nigeria microfinance banks on poverty reduction: imo state experience. International letters of social and humanistic sciences, 16, 92-113.

[21] Owusu-Nuamah, P. (2014). Collapse of microfinance companies – Companies shot themselves in the foot. Retrieved March 1, 2018, from http://microfinanceafrica.net/news/ghana-collapse-of-microfinance-companiescompanies-shot-themselves-in-the-foot.

[22] Shah, R. J., & Patel, A. B. (2017). Micro-finance in India: strategies to overcome operational issues and challenges. International journal of advanced research in management and social sciences, 6(2), 90-101.

[23] Stein, D. and Valters, C. (2012). Understanding theory of change in international development. (JSRP and TAF collaborative project) (JSRP Paper 1). Justice and Security Research Programme, International Development Department, London School of Economics and Political Science, London, UK.

[24] Wulandari, P., & Kassim, S. (2016). Issues and challenges in financing the poor: case of Baitul Maal Wa Tamwil in Indonesia. International journal of bank marketing, 34(2), 216-234.

Journal of Applied Research on Industrial Engineering

Assessing the impact of operational flaws on the performance of microfinance institutions in Ghana: a case study of selected microfinance institutions

References

References

Volume 7, Issue 2
June 2020
Pages 137-153

Assessing the impact of operational flaws on the performance of microfinance institutions in Ghana: a case study of selected microfinance institutions

References

References

Volume 7, Issue 2June 2020Pages 137-153

Volume 7, Issue 2
June 2020
Pages 137-153