Keywords: ghana rural development
The problems of rural development in the 3rd World and in Ghana in particular, have become a major concern today. This matter notwithstanding, the problems seem as intractable as ever. There are significant disparities in income and specifications of living between your rural and urban populations (GPRS, 2004). This has resulted in the continuous upsurge in the movement of folks from the countryside to the town, creating a serious social problems, the ramification of which is affecting the quality of life. The manifestations of this include; people sleeping on pavements while others sprawling in shanty slums, ragged beggars, offences and other deviant behaviours such as prostitution, medicine craving and alcohol abuse. (GPRS, 2004)
About 60% of Ghana's inhabitants lives in rural areas which is regarded as a channel for monetary progress and development in the rural areas and the country all together. This trend is a great potential and when adequately harnessed can lead to sustainable rural development. To achieve this, various strategies are made to improve the economical and cultural life rural dwellers. Such strategies tend to include livelihood programs aimed at the rural poor. A few of these strategies include agro-based industrialization (agricultural handling), effective decentralization and private sector development (GPRS, 2004).
The success of these strategies hinges on a well working financial sector. It is generally accepted that financial development is a prerequisite to financial development. Hence, Microfinance Establishments (MFIs) are indispensable to financial development and development and in that way the reduction of poverty (Heidhues and Schrieder, 1999).
Furthermore, Heidhues and Schrieder, (1999) argued among others that financial markets are significance for economic progress, hence the inaccessibility of financial marketplaces is seen as a hurdle to rural business owners and rural business development
The Nadowli Area depicts a typical rural market dominated by the agricultural sector with the commerce and industrial industries least developed. Agriculture only uses about 85% of the labour pressure while business/service and industry account for 14% and 1% respectively.
The commerce/service sector is the next largest company of the district's labor force after agriculture. It encapsulates an array of tertiary activities. Included in these are retailing and petty trading, transportation and financial services among other services (Nadowli Area, MTDP, 2004).
There is merely one lender in the region. This is actually the Sonzelle Rural Loan provider Agency in Nadowli and its own branch in Kaleo. The primary concentrate of rural banking institutions is to:
Provide loans for agricultural activities
Provide loans for business and small size industries
Provide security for client savings (Nadowli District, MTDP, 2004).
However, this financial institution has didn't provide the needed support for the many economic sectors in the district particularly agriculture and business. This situation is a restriction to enterprise development and enlargement.
As indicated in the area medium term innovations plan, listed below are the major problems confronted by rural enterprises in the district:
Poor marketing opportunities
Poor technology in production (Nadowli District, MTDP, 2004).
The review therefore looks at the contribution of MFIs in the introduction of Rural Corporations and the rural population as a whole.
It is predicted that 'About 66% of Ghanaians stay in settlements of significantly less than 5, 000 people, that are defined as rural' (GPRS, 2004). Agriculture is still the main financial activity in rural regions of Ghana constituting about (67. 2%) of the labour pressure and the private informal sector (24. 7%). The government sector uses only 3. 9% and about 4. 2% is employed by the private formal sector (GLSS 4, 2000).
Notwithstanding the tremendous contribution of agricultural and the private informal sectors to nationwide development, they may be bedeviled with numerous problems, which limited access to financial resources is the most frequently cited by entrepreneurs. Hence, any development attempts by these areas require capital development, of which efficient financial markets play a key role (Mckinnon, 1973)
The country has within the last ages seen the proliferation of FINANCE INSTITUTIONS and Non-Governmental Organizations (NGOs) which provide microfinance services and or programs. The attention these programs have drawn stems philosophically from progress in cultivating self-sufficiency among those in abject poverty, and pretty much from the viability and high loan repayment rates of several microfinance companies. The programs expect that insufficient or limited capital is the main hurdle to the economical progress of the poor. Having less businessman business management experience and training, however, may develop a barrier evenly powerful and limit the expansion probable of microenterprises. That is spurred by its acceptance as a spatial development tool and a panacea to the financial needs of rural entrepreneurs, who tend to be unable to meet up with the loan acquisition requirements of normal commercial finance institutions, the management and control which is vested in folks as enshrined in the Banking Law 1989 (Decree 225) (Ghana: Banking law Report).
Research demonstrates rural finance plays a part in community financial development by lifting the indegent and low-income people out of poverty by permitting them to engage in more profitable plantation and non-farm income-generating activities to improve their living standards (Zeller et al, 1996). The effects of these are manifested in improvement in their nutritional status, health insurance and education, specifically in women and children (MkNelly and Dunford 1999, Khandker 1998, Wright 2000).
This brings to the fore the critical problem facing all producing countries of the necessity to stimulate the development of rural enterprises, because there is growing acknowledgement that these enterprises can contribute considerably to the creation of a stable civil culture and the equitable distribution of riches and opportunities.
To overcome the financial constraints confronting rural corporations, all growing countries, including Ghana, have developed various varieties of innovative financial intermediaries through the years to supply the necessary financial and other support services necessary to stimulate their development. In Ghana, between the various kinds of financial institutions initiated to market the introduction of rural enterprises are the Rural Banking System, Micro-finance and Small Loans Centres (MASLOC), the establishment of National Plank for Small Level Industries (NBSSI), The Community Investment Account (SIF), GRATIS Base, Formal/private sector commercial companies (Lead firms), Food and Drugs Mother board (FDB), Ghana Requirements Panel (GSB), Ghana Export Campaign Council (GEPC), Area Assemblies among others for the rapid development of companies in the country (Aggrey, 1993).
The mandate of the organizations includes the mobilisation of financial resources within the locality, inter alia, for investment principally in the development of rural companies, as observed by Aggrey-Mensah (1993). These establishments can be found to provide financial support, training and complex knowledge amongst others to agro-based sectors (Shea-nut and groundnut handling, cereal milling, weaving) as well as handicrafts development, trading, construction and move services amongst others. The question that lingers on is; from what degree do MFIs donate to the development of rural businesses in the region?
It is within this situation that necessitates the kick off of this research into the functions of microfinance organizations, to assess the performance of the rural businesses that have benefited from microfinance companies' support and how this is reflected in the living standards of the beneficiaries.
The main question attended to by this analysis is; to what amount do MFIs donate to the development of rural companies the Nadowli Area.
To accomplish that, the next specific research questions are to be addressed:
What kind of support or service has been provided by microfinance institutions to rural enterprise?
Do rural enterprises have access to micro financial services?
What are the conditions under which these support or services are given?
How are the credits utilized by the beneficiaries?
What will be the impacts of these on the introduction of rural enterprises and the livelihoods of the enterprisers?
What will be the weaknesses and strengths of MFIs in the delivery of financial services to rural business owners?
The general target of the study is to determine the contribution of microfinance corporations to rural businesses development in the study area.
To accomplish that, the following specific aims will pursued:
To find out the type and magnitude of support being provided by MFIs to rural companies.
To find out whether rural businesses get access to micro financial services.
To investigate the conditions under which these works with are given for rural venture development.
To analyze the use of the financial support directed at beneficiaries and the effect on the performance of enterprises and local monetary development.
To identify weaknesses and advantages in the prevailing management system in the delivery of financial services to rural business people.
To make suggestions based on results for the expansion and lasting development of rural enterprises in the analysis area.
The research will be conducted in the Nadowli Districts (ND) of top of the Western world Region of Ghana. The study will also centered on the credit facility provided by MFIs to rural entrepreneurs (males and females) between 2000 and 2010 who undertook non-agricultural activities for commercial purposes and exactly how effectively these enterprises are utilising these financial aids. The key variables to be analyzed include the credit amount and exchange cost, credit targeting, delivery and support services. The rest are credit utilization, venture performance, change in household incomes and work generation.
The main research design to be implemented is the Cross-Sectional Design, with Case Study as the specific method. That is an empirical enquiry that allows the researcher to research and understand the dynamics of a specific system. It investigates modern-day phenomena within real life situations. Hence the research study method enables generalization of the findings (Twumasi, 2001).
The "before" and "after" evaluation may also be adopted to examine the impact of the loans on venture performance with regards to changes in outputs, sales and employment. These changes detected will be analyzed in relation to the interventions of Micro Money Institutions in the region.
Both major and supplementary data sources will be utilized. The principal data intends to elicit useful information from the Micro Financial Corporations' personnel that includes personal savings and credit targeting, delivery and support services and loan performance, while such variables as credit usage, enterprise performance, change in home incomes and employment generation will be elicited from business people who are engaged in agro-processing, trading, development, transport and other services and also have had usage of loans from the micro financial institutions. The secondary sources will include documents and other documentations.
In view of the, a two-pronged methodology will be used in the study, focusing on both source and demand issues in relation to the funding of rural companies in the analysis area (Twumasi, 2001).
Both quantitative and qualitative research methods shall be employed to assist in the principal data collection process. Specifically, the next methods will be used:
Questionnaire is merely a self-administered interview. Thus, it needs specifically self-explanatory instructions and question design since there is certainly often no interviewer or proctor present to interpret the questionnaire to the subject. (Smith, 1975:170). This method shall be used in generating information from personnel of NGOs and complementing companies that are in to the portion of rural venture development in the region. This will help in the gathering of quantitative data on the aims. Open-ended and close-ended questions will be used to respond to the demand of the various factors in the analysis. An open-ended question is a question the leaves the respondent free to respond in a comparatively unrestricted manner. In comparison, a closed-ended question restricts choice of response by forcing the respondent to reply in terms of present categories or alternatives. (Smith, 1975:172)
Interviews shall be conducted to create qualitative information about the fads, levels, and obstacles involved in RED by the MFIs. Cannell and Kahn (1968:530) have identified the interview as a talk with goal specifically the purpose of information-getting. Maccoby and Maccoby, (1954:499) as with Smith (1975:170), view interview as a peculiar verbal interactional exchange "where one person, the interviewer, attempts to elicit information or expressions of ideas or perception from another person or people". Set up and semi-structured interviews shall aim for staff of MFIs, and other NGOs who are collaborators to the services of the researched MFIs in the area as well as beneficiary individuals, sets of individuals and neighborhoods within the area of research.
Focus Group Interviews will be used in the analysis of MFIs interventions that are usually more of group or community advantage than individualistic.
In terms of sampling approach, simple arbitrary sampling technique shall be used to select MFIs which will be included in this research exercise, given the known list of MFIs that operate in the district. This technique gives all the MFIs that operate in the region, equal chances of being decided on for the analysis.
Beneficiaries of MFIs under the analysis will be arrived at using stratified sampling approach which will be based on time, sex and venture groupings. This technique allows the study people to be grouped into strata of homogeneity to ensure representative test units for productive and effective evaluation of the contributions of the MFIs in business development in the region. It will be ensured that respondents will constitute 50% of every beneficiary stratum per MFI to be researched using simple random sampling. Questionnaires and interviews will then be implemented to the respondents to create detailed information on beneficiary experience and perceptions about the services and effects of the MFIs venture development in the region (Twumasi, 2001).
Qualitative and quantitative methods will be used for the examination and interpretations of data.
Quantitative data extracted from the rural enterprisers and MFIs will be put together and prepared using the Statistical Package for Public Scientist (SPSS) computer software.
Cross-tabulations will be used for the analysis. These will also look at the productivity / growth in relation to certain characteristics of the businesses (loan amounts granted, number of loan cycles and education of owners). Dining tables, percentages, frequencies and bar-charts will be used for the display of the results. Qualitative data will be analyzed by summarizing them into themes and drawing conclusions from them (Twumasi, 2001). .
I propose a 10-Month research programme, dealing with three field assistants. The task depends on the actions of micro financing programs and rural organization development in Nadowli Area of the Upper Western Region, Ghana.
The research will be based on one-on-one interviews, concentration teams, and personal observations. I assume approximately 30 interviewees from rural entrepreneurs, including 3-5 microfinance providers as "case studies" who will be interviewed as time passes. Focus teams will supplement the interviews.
Fieldwork will be conducted in English and where feasible, in the local language, to maintain people's ideas. Two field assistants that i am going to educate in qualitative research methods will perform a few of the interviews.
Majority of Ghana's society lives in rural areas with agriculture and small range activities as their main economical activities. Along with the rural sector producing the bulk of the nation's end result, their standard of living need to be improved. The best way of doing this is a carefully designed and applied rural finance programmes necessary to accelerate the tempo of economical development.
Amongst the aims of the establishment of MFIs for example Rural Finance institutions in Ghana is to determine institutional credit to the rural dwellers in their respected areas of operation and thereby help out with increased efficiency to create wealth for improved living standards. Because of this, the provision of credit to the rural poor for the introduction of their enterprises has been on top of the plan of governments and multilateral aid institutions for sometime now, but success has eluded most of the Rural Financial Institutions in producing countries (Yaron, 1992). This has been blamed on high business deal cost involved with loaning to small and micro-enterprises that are broadly spread, management cost, and insufficient acceptable collateral between others. These invariably underpin the conditions under which most finance institutions provide support to enterprisers. This therefore called for a study into the credit delivery support system of the MFIs, the way the rural enterprisers utilize these works with and exactly how it results in improvement in the neighborhood economy in the analysis area.
The research therefore sought to offer an entry way for restructuring the credit plans with the view of making them more efficient and effective for the progress and ecological development of rural companies in the analysis area.
In view of the above, the results of the research will be useful to the MFIs management clubs since their financial viability and long-run sustainability depend on the patronage and level of commitment with their customers, as well as the performance of these enterprises.
The studies of the research will also serve as inputs and lessons to the federal government and those companies spearheading the marketing campaign for support for rural companies. The significance of this study also is based on the fact that there are limited studies in MFIs activities in the introduction of rural enterprises and hence it will enhance the body of books which will serve as a reference material for students and analysts.
The study survey shall be provided in six main chapters. The first chapter which sorts the introductory aspects of the study statement shall consist of: background to the study, problem situation and statement, research questions and targets, and need for the study.
Chapter Two shall give attention to review of relevant related books and also look at the historical and conceptual frameworks of the study. Chapter 3 shall treat methodological and analytical frameworks of the analysis. Emphasis shall be on account of the analysis area, sampling techniques, data collection and analytical methods. Section four will be centered on presentation of case explanations from the study whilst Section Five will be discussing the major results of the study.
Chapter Six shall comprise Summary, Conclusions and Recommendations from the analysis.
This chapter examines the productive systems in rural economies, the MFIs and innovations in rural business funding in the global perspective. In the framework of Ghana, the review will be focused on the development of rural businesses and the relationship between money and rural organization development, and also take a look at the rural financial systems. Results and lessons learned from various ground breaking MFIs in relation to financing and organization development will be evaluated, it will also provide an summary of what has happened in other parts of the world to help notify the analysis of the analysis.
Rural financial systems or market segments are mechanisms within the home financial systems which ensure the availability, accessibility and utilization of rural finance. The nature and characteristic of every economic climate is often based on the demand for and supply of rural financing. Relating to Pagura (2004), "rural fund is usually demanded for;
Agriculture production - medium and long-term lending options, leasing arrangements, credit lines, crop insurance among others.
Agriculture founded industry - investment and working capital lending options, lines of credit
Non-farm enterprise and trade-investment lending options, short-term working capital lending options, and
Household consumer fund - emergency lending options, health insurance, personal savings, remittances, real estate"
As due to these, there are always a many rural financial systems which tend to be fragmented (Germidis, 1990; Besley, 1994) and contain casual, semi-formal and formal financial intermediaries (Pearce, 2004; Pagura, 2004). The role and activities of the sub-sectors are mainly complementary and do overlap.
Informal financial institutions tend to be non-bureaucratic plus much more flexible according of loan purpose, interest rates, collateral requirements, maturity period and personal debt rescheduling (Ghate, 1992). However, Gordon (2000) detected that rates of interest for rural finance are usually high and loans are taken out for short times. Such lenders are usually established within the community - they know their clients; they know their clients' businesses; plus they can apply pressure from within the city to ensure that loans are repaid. For most rural people, borrowing from the casual sources is a last resort, but even though the price tag on borrowing may be high, such lenders provide an important way to obtain profit rural areas where there are few, if any, alternatives. Where credit is not available, households may need to deplete their property base (spend personal savings, or sell jewels or livestock) or go without essential items, including food.
Despite these limitations, including inadequate money and legal constraints (Nwanna, 1996), casual financial institutions continue to play a substantial role in getting together with the credit needs of rural inhabitants and rural entrepreneurs.
In Pagura's characterization, Village Banking institutions, Cooperatives, Non Governmental Organizations (NGOs), Credit Unions (CUs), Input Suppliers, Agribusiness Companies and Marketing Companies are considered to be the semi formal intermediaries in the rural areas, for the reason that they are officially registered, but aren't licensed and regulated by the central lender of an country.
The formal financial intermediaries or companies are those that are designed under Companies' Rules, which provide them with legal entities as limited liability companies, and subsequently certified by their respective Central Banking companies under either the Banking Laws and regulations or the Financial Institutions (Non-Banking) Regulation as in the case of Ghana to provide financial services under lay down regulations.
Pagura (2004) suggested that the sources of money in the formal part of rural financing market segments are mainly: (a) co-operatives that meet the needs of short, medium and long-term credit; (b) commercial, cooperative and specialised banking companies; (c) micro-finance institutions (MFIs) and different government firms including those proven for agricultural development. The procedures of finance institutions in formal rural financial marketplaces are typically seriously regulated, and the nature and amount of formalities, as well as the interest rate structure, usually make usage of credit out of this market restricted to limited sections of the rural inhabitants.
Various innovative banking systems have been developed around the globe to provide the rural inhabitants, specially the poor, who are unable to gain access to credit from the conventional banking institutions for investment into their corporations and other home needs. These companies often expand usage of new segments of the rural populace not traditionally served, create quality increases in terms and condition of current products already being offered and broaden the variety to offering new products and services. Amongst these progressive banking systems are the Grameen banking in Bangladesh and the Community bank in Latin America.
The Grameen Lender, were only available in 1976 is the mind child of Dr. Mohammed Yunus, and the first microfinance firm started in Bangladesh offering small lending options to the poor with no collateral.
The bank gives a quantity to small teams and the individuals in the group make use of the money available in converts until all participants gain. However, loan repayment is set up to be paid regular (Yunus, 2002). The bank's current procedure addresses over two million women internationally and can be found in several countries worldwide.
Village banking, a concept developed in Latin America in the Bolivian Andes by John Hatch, Rupert Scofield and Achilles Lanao in 1980s, is currently being integrated in 28 countries worldwide including El Salvador, Honduras, Mexico, Costa Rica and Haiti, in different forms. Village bank is a rural financial services model that allows poor communities to establish their own credit and personal savings associations, or, town lenders. (Nelson, MkNelly, Stack & Yanovitch, 1996).
There are numerous kinds and sizes of rural enterprises. The type and characteristics of the enterprises effect the degree to which they can gain access to financial and other support services for their development. A brief on the hyperlink between money and enterprise development is therefore necessary from which the rural financial systems in Ghana can be dovetailed.
A glean at a few of the Medium Term Development Strategies revealed most of the main element rural economic activities in Ghana. A review conducted by Boapeah and Poppe (1992) in the Dangme Western District, Ghana also provided a few of the enterprises that can be found in an average rural environment of Ghana. These corporations have been grouped into the following five major categories as used by Boapeah and Poppe:
Agro-based: Bakery, Cassava control (gari), Palm olive oil extraction, Shea butter extraction, Dawadawa Processing, Cotton ginning, Pito making, Milling, Fish smoking, Distillation
Clothing: Dressmaking, Textile, Mat weaving
Wood-based: Carpentry, Charcoal using up, Boat building
Metal: Blacksmithing, Fitting
Others: Basketry, Stop making, pottery
Most authors and analysts have witnessed that how big is an enterprise performs a significant role (and the like) in set up organization will obtain credit. Generally, the larger the enterprise, the higher the likelihood it has to overcome some of the structural deficiencies, and then the better its chances of obtaining credit. In the same vein, the smaller the enterprise the greater unattractive it is most probably to be as most financial institutions will always want to recuperate their costs and make a reasonable profit, which always not obtainable from small lending. It really is for the last mentioned highly disadvantage group located typically in the rural areas that the Microfinance principle originated to make expansion of credit to this group possible.
The purpose of this section is to go over the relation between finance and business development.
The economic mechanism by which more investment leads to more growth and hence development can be referred to in conditions of the Harrod-Domor development model. The model relates the technology of total end result to the stock of capital through what's described as the capital - output ratio: the quantity of output that the administrative centre can be altered into. This model was designed by two people; Roy Harrod (1939) and Evesey Domor (1946). Both of these economists worked well independently but almost came to an identical conclusion. Their final result was that economical growth was reliant on investment which is described as the moving push behind the procedure of development (Todaro, 2000).
The Harrod-Domor growth model argues that as a leading mover, investment has a dual role; the demand and capacity functions. They defined investment as a big change in capital stock, so when this is taking place in an market it creates a chance for increased demand; the investments create additional usage and hence bring about off demand for real result. In addition they argued that net investment within an economy gets the tendency to boost the economies profitable capacity. Therefore for growth to be ecological, investment must always increase to increase usage to absorb the excess capacity that is established.
The role of financing is therefore a crucial element for financial growth and invariably the introduction of enterprises. You can find strong and growing facts that many businesses, particularly rural companies, have high rates of return to capital that may persist overtime for some enterprises due to highly fragmented mother nature of financial market segments. McKenzie and Woodruff (2004) discovered that the pace of return is as high as 15% per month for micro companies in Mexico.
Enterprises tend to be found in both rural and urban sectors of any country, hence it is critical to look at the rural financial systems in Ghana and how they contribute to the introduction of rural corporations.
The rural financial markets in Ghana is equally fragmented as regarding other producing countries and contain casual, semi-formal and formal financial intermediaries.
The informal financial institution covers a variety of activities known as susu, including individual savings collectors, credit associations and savings and credit "clubs" run by an operator. It also includes moneylenders, trade collectors, self-help communities, and unsecured loans from friends and family. Whiles the semi-formal financial institutions includes the various NGOs and the Credit Unions (CUs) which can be formally recorded, but aren't licensed and regulated by the lender of Ghana. The Formal financial system in Ghana consist largely of your central bank or investment company, commercial banks, insurance firms, discount houses, finance properties, leasing companies' personal savings and loans associations, rural lenders and a stock market(Nwanna, 1996).