In Ghana, although the informal sector represents 80% of the economy, small farmers and traders have difficulty accessing banks.
For that reason, they turn to microfinance institutions (MFIs). At the end of the 2000s, after a prosperous period, incidents of fraud, insolvency and loss of savings multiplied in these institutions – the main cause being governance problems. In order to try to provide an answer, Agence Française de Développement (AFD) initiated in 2015 the Microfinance Companies Capacity Improvement Project (MICCIP) – a project to improve the capacity of microfinance companies led by the Ghana Association of Microfinance Companies (GAMC), the umbrella body.
Train and support for stronger microfinance
With a total amount of 1.5 million euros (just over 9 million GH¢, entirely funded by AFD), the aim of the project is to support consolidation of the sector and the rise of solid and sustainable microfinance companies. Thus, this project helped to facilitate and encourage access to credit and savings for populations excluded from the traditional banking system. It also made it possible to share universal standards for social performance management, including the principles of client protection (Smart Campaign).
For 40 months, until February 2019, 56 microfinance institutions – all members of GAMC – benefitted from training and support for the implementation of key actions, such as redefinition of the business model and development of new products. This allowed them to, among other things, reach individuals and microenterprises which until then were almost left out, and to implement responsible customer care.
… A more competitive economy
The impact on companies which benefitted from the project is significant. Between 2015 and 2018 their average number of clients increased by 47%, the average loan portfolio by 146% – and that of savings by 160%.
“We now have over 6,000 customers. And this year, the Chartered Institute of Credit Management (the world’s largest professional organisation in the sector) has named us as the most promising microfinance institution in Ghana. MICCIP has really helped us,” said Bertha Agyeman, CEO of Hopeline Microfinance.
Besides the direct beneficiaries, there are final beneficiaries. These are farmers (including smallholder farmers), small traders, street vendors, craftsmen, micro and small businesses which all lack the collateral needed to access financing from banks. In addition to accessing credit, they are now able to save with microfinance houses to improve their financial security. Some of them even provide their clients with financial education, enabling them to improve their financing decisions.
Hilda Owusu, a seamstress and now a business owner, testifies: “I was going through a difficult period in my business when I turned to a microfinance company [benefitting] from the MICCIP project. Thanks to their advice, today I have 3 clothing stores”.
MICCIP, a seed for the future
Even if it is already noticeable, the positive impact of MICCIP is expected to increase over time – thanks in particular to the continued capacity building provided by the GAMC training centre, which was equipped for this purpose as part of the project: development of 5 training modules and training of 20 trainers in particular.
In addition, government efforts to regulate the microfinance sector have increased. In May 2019, the Bank of Ghana’s microfinance sector consolidation programme was completed: 347 licences were revoked. The sector is now more concentrated and able to perform better, benefitting clients of microfinance companies.