MICROFINANCING: AN INTRO

By Michael Mak
SUMMARY

Setting up
Understanding Empowering Microcredit in
microcredit in
microcredit Women Ghana
Ghana
 BASIC CONCEPT
 Microfinancing encompass the provision of
financial services and the management of small
amounts of money through the range of
products and a system of intermediary functions
that are targeted at low income clients
 Includes: loans, savings, insurance, transfer services

Microloans

http://www.economicswebinstitute.org/essays/microfinanceghana.htm
 MICRO LOANS
 What are they?

 Small loan to purchase productive assets boosting

revenue allowing repayment over a short period of
time in small instalments without the guarantee of
collateral

 The size is kept small in three dimensions (see

next slide)

http://www.economicswebinstitute.org/glossary/microfinance.htm
 MICROLOANS – KEEPING IT SMALL
The size is kept
small in three
dimensions In relation
to borrower’s
income
In absolute
In respect to
monetary
lender’s
value (no
portfolio
competition)

Microloans

http://www.economicswebinstitute.org/glossary/microfinance.htm
 WHAT DOES MICROLOANS PREVENT?
 Eliminates ―loan sharks‖ that provide loans to
the poor at high rates, exploiting the emergency
need for money

 Avoid the cycle of growing indebtedness and

heavy pressure for repayment, avoiding menaces
and violence

http://www.economicswebinstitute.org/glossary/microfinance.htm
 MICROCREDIT VS. LOANS

Microcredit Loans
• relatively low interest • There is no limit on the
Advantages rate loaning amount and
• No collateral is required borrowing period
• Group member can
support you

•Limit with loan amount • Interest rate is high

and borrowing period • they request collateral
Disadvantages • Need to be a member for securing the loan
and pay membership fees

http://www.accu.or.jp/litdbase/material/pdf2/mt/mt06.pdf
 ENSURING PAYMENT

• Honesty and
Character reliability in paying
back the loan

• Current available
assets, that can be
used to pay back
Capital
the loan if expected
income is
unavailable

• How much money

can be paid back,
Capacity taking into account
income flow and
legal obligations

http://www.accu.or.jp/litdbase/material/pdf2/mt/mt06.pdf
 HOW TO PAY BACK

Paying an
instalment every Paying back the
week/month entire loan at the
end of the borrowing
period

http://www.accu.or.jp/litdbase/material/pdf2/mt/mt06.pdf
SUMMARY

Setting up
Understanding Empowering Microcredit in
microcredit in
microcredit Women Ghana
Ghana
 WHY TARGET WOMEN?
 Gender inequalities in developing countries
inhibit economic growth and development
 Women are disproportionately represented
among the world’s poorest people – 70% of the 1.3
billion people living on less than $1 per day are
women
 Women spend more of their income on
households, so when their income increases,
welfare of whole family is improved
 Promote gender equality and women’s equal
access to financial resources

Empowering women through microfinance

 WHAT IS EMPOWERMENT?

In order for a woman to be

Change empowered, she needs
access to the material,
human, and social
resources necessary to
make strategic choices in
her life . However,
resources are not enough –
Empowerment need ability to utilize these
resources

Power Choice

Empowering women through microfinance

 DOES CREDIT AUTOMATICALLY LEAD TO
EMPOWERMENT

 Basic theory: microfinance empowers women by

putting capital in their hands and allowing them
to earn an independent income and contribute
financially to households and communities
 However, the ability of a woman to transform her
life through access to financial services depends
on many factors
 Individual situation and abilities
 Status of women as a group
 Environment
 Need to properly access and evaluate the needs of
women to maximize effect of microcredit
Empowering women through microfinance
 EMPOWERMENT LEADS TO:
 Greater impact of decision making
 Increase in self confidence

 Impact on women’s status and bargaining

position within the household
 Strengthening of economic autonomy

 Improvement of women’s status in their

community
 Political empowerment (rarer)

Empowering women through microfinance

 CASE STUDY IN GHANA: SINAPI ABA
TRUST (SAT)
Nana Addai

―Before joining SAT, I did not have much money, so I had to collect the
goods from somebody, sell them, and give her the profit before she would
give me some. . . . Every week I would have to render accounts to the
supplier—what had been bought, what is left, etc., before she would give
me other goods to sell. . . . Because I now have my own money, I am able to
negotiate well for good prices and . . . if what my suppliers are selling is
not nice, I can go to a different store to purchase what I think people will
buy. . . .The time that I spend with my business has reduced because I now
have my own money, unlike the past where I was working for somebody so
I had to be able to sell all day long before she would give me my share. So
always I was tired and in a rush to make sure that I spend more time at
the business to ensure that people buy it. But now I have my own business
and money, and I can organize myself better to get time to rest.‖

Empowering women through microfinance

IMPORTANT POINTS FOR SUCCESS
 Need to provide business training that is
designed to complement their existing skills and
address their most pressing needs
 Improve general education and literacy
initiatives
 Foster balance between family and work
responsibilities
 Increase dialogue on social and political issues

 Workshops and experience in decision making

and leadership
SUMMARY

Setting up
Understanding Empowering Microcredit in
microcredit in
microcredit Women Ghana
Ghana
 MICROCREDIT IN GHANA
 Microcredit is not new in Ghana, rather it has
been common practice
 First microcredit was probably established in
Ghana in 1955 by missionaries
 Susu, one of the current microfinance schemes in
Ghana, is thought to have originated in Nigeria
and spread to Ghana from the early 1900s

Microfinancing: A working paper

 THREE BROAD TYPES OF MICROFINANCE IN
GHANA

Formal Semi-formal Informal

suppliers Suppliers Suppliers
• Rural and • Credit unions, • Susu
community financial non- collectors,
banks, loans governmental clubs, rotating
companies organizations and
(FNGOs), accumulating
cooperatives savings and
credit
associations

Microfinancing: A working paper

 MICROFINANCE EXISTING IN GHANA
 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.
 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)

Microfinancing: A working paper

SUMMARY

Setting up
Understanding Empowering Microcredit in
microcredit in
microcredit Women Ghana
Ghana
TVG STATEMENT
 Economic Empowerment: provide micro-loans
to women in rural villages in Northern Ghana so
that they can begin to end the cycle of poverty for
themselves and their families.
WHAT WE NEED TO DO

Assess current Build

funds and sustainable
resources from Economic Plan Review and
TVG with stages Evaluate

Assess Implement
demand/capacity stages according
from community to success
for
Microfinancing
ECONOMIC PLAN

Rules and
Suitable
guidelines to
interest rate?
loaning

Resources at Education and

hand Training

Planned
Stages that
Translation
need to be
from English
reviewed and
evaluated

Legalities and
accordance to
Ghana
Economic Formation of
Microfinance Plan Co-ops?
Policy
FORMULATED QUESTION
 Through assessing the need for microcredit loans
in a community and the resources in TVG, how
can we create and initiate a multi-staged
economic plan that involves business training,
education, and entrepreneurship so that women
can be empowered through starting their own
businesses?