The Defining Poverty And The Poor Economics Essay

The Defining Poverty And The Poor Economics Essay

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Since the concept was born in Bangladesh almost three decades ago, microfinance has proved its value, in many countries, as a weapon against poverty and hunger. It really can change people's lives for the better, especially the lives of those who need it most UN secretary General Kofi A. Annan (Latifee, 2006)

In September 2000, building upon a decade of major United Nations conferences and summits, world leaders came together at United Nations Headquarters in New York to adopt the United Nations Millennium Declaration, committing their nations to a new global partnership to reduce extreme poverty and setting out a series of time-bound targets, with a deadline of 2015. These eventually became known as the Millennium Development Goals (MDG). The commitment of these world leaders in solving the poverty problem was shown in the first of these goals (MDG 1), which states that the proportion of people with an income of less than US$1.00 a day shall be halved relative to what it was in 1990. In the global arena there is already the impression that microfinance is successful in reducing poverty. Many policy makers are therefore engaged on how to make microfinance sustainable and available to many poor households in the future (Bamwesigye, 2008).

Microfinance, largely regarded in the development arena as a powerful tool in combating poverty traces its etymological roots from two words. These two words are micro and finance which literally mean small credit. The concept, however, goes beyond the provision of small credit to the poor, according to Kiiru (2007). Christen (1997) defines microfinance as 'the means of providing a variety of financial services to the poor based on market-driven and commercial approaches'.

Though microcredit (i.e., providing the poor with small credit with the hope of improving their labour productivity and thereby lead to increment in household incomes) is what readily comes to mind when one thinks of microfinance, Christen's definition encompasses provision of other financial services such as savings, money transfers, payments, remittances, and insurance, among others.

The optimism over the role and the movement of micro finance as a poverty reduction intervention is increasingly becoming stronger evidenced by the micro credit summit campaign in 1997. This summit targeted to halve poor people in 2005 and open access for 100 million of the poorest families by 2015 for self-employment and the declaration of the year 2005 as the international micro credit year by the United Nations (Kiiru, 2007; Latifee, 2006; Bamwesigye, 2008).

In the same manner CGAP (2006) emphasizes that access to financial services can help poor people take control of their lives. It stresses that financial services can put power into the hands of poor households, allowing them to progress from hand-mouth survival to planning for the future, acquiring physical and financial assets, and investing in better nutrition, improved living conditions, and children health and education.

This research paper analyses how microfinance can be used as a tool in poverty alleviation. It tows the popular theme of poverty and microfinance in the global arena, narrowing it down to Assin-Akropong in the Central Region. The paper examines whether the poor have been included in and or excluded from microfinance, the kind and nature of products provided, outreach, how and in what ways microfinance has helped the poor to exit from the poverty traps, and the challenges met by microfinance programme in reaching the poor.

1.2 PROBLEM STATEMENT

Growing concerns about poverty has been a developmental concern for all governments, especially, African governments (Asiama and Osei, 2007 cited in Awaworyi and Danso, 2010). Between 1990 and 2001 the headcount ratio of poverty for all Least Developed Countries (LDCs) fell from 27.9% to 21.1%, but the ratio for Africa actually increased from 44.6% to 46.4%, leading analyst to doubt if Africa will achieve its target by 2015 (UNDP, 2007). In the specific case of Ghana, the Ghana Living Standards Survey (GLSS) in 1991 gave the poverty level as 51.7% but there was a reduction in 1999 to 39.5%. This dropped further to 28.5% in 2005. Of these percentages, a large number of women have been seen to be more prone to poverty (Fosu and Tsikata, 2007, cited in Bamwesigye, 2008).

Microfinance over the years has been considered one of the most effective and flexible strategies in the fight against global poverty. It is said to be sustainable and can be implemented on the massive scale necessary to respond to urgent needs of those living on less than US$1.00 a day (GHAMFIN, 2005) It has been seen to be promoting economic growth since loans given are supposedly used in investing in micro business. This statement is not entirely true because funds from microfinance according to Ditcher (2007) have been mostly used for consumption rather than business development. This defeat the whole purpose of microfinance which is supposed to help alleviate poverty through granting small loans to those considered as uncredit-worthy to better their living standards. It is very obvious that poverty in Ghana cannot be totally effaced but efficient microfinance techniques can alleviate it to an appreciable level. This study has been prefixed on the above issues in the case of clients of residents of Assin - Akropong. The central question that will be answered in this study is whether microfinance has indeed had an impact on the poverty situation in the town, using clients of Akoti Rural Bank Limited (ARBL) as the case study.

OBJECTIVES OF THE STUDY

The major objective of the study is to assess the impact of microfinance on poverty reduction in Ghana, using clients of Akoti Rural Bank in Assin-Akropong as the case study. The specific studies will be as follows:

Find the microfinance services offered by ARBL that is targeted at poverty alleviation.

Ascertain from the perspective of the beneficiaries how those products have led to poverty alleviation or otherwise in Assin-Akropong.

Relate interest charges to poverty entrenchment among clients of ARBL.

Determine the challenges/constraints faced by ARBL in the delivery of microfinance services to the poor

RESEARCH QUESTIONS

The study will answer the following questions:

What microfinance products are offered by ARBL that is targeted at poverty alleviation?

Have those services led to the reduction of poverty or otherwise among beneficiaries?

What role do interest charges have in poverty alleviation among clients of ARBL?

What challenges/constraints are faced by ARBL delivering microfinance services to the poor?

1.5 JUSTIFICATION OF THE STUDY.

The United Nations through the MDG has reiterated its commitment to reducing worldwide poverty by 2015. In this line, the Government of Ghana since 2000 has embarked on the Poverty Alleviation Campaign through many anti-poverty reduction programmes of which micro financing is part (Awaworyi and Danso, 2010).

Although micro finance is not the only remedy for poverty and poverty related development challenges, it has and continues to play an important role in reducing poverty through the creation of job opportunities for the poor which leads to increase in incomes, allowing the poor to build assets, reduce their vulnerability, and improve education levels by increasing school enrolment and lowering drop-out rates among those who participate in microfinance programmes. This study will highlight these benefits.

The study will also delve into one key area that the researcher believes worsens the situation of poor people who access microfinance products, ie, interest rates. It will assess how interest charges reduce the benefits microfinance clients are supposed to enjoy and make their situation worse off. The findings here will be of interest to microfinance operators, scholars and policy makers in the government.

Overall, the study has been designed to delve into ascertaining the extent of poverty in Assin Akropong, the kind of products designed to alleviate poverty and how effective these have been and finally, the challenges MFIs face in poverty alleviation in the town. In the light of the role of microfinance in poverty alleviation, the study is seen as a good resource for policy pursuits by the government towards the grand vision of poverty alleviation. Also, it will serve as literature source for future researchers who want to study on the issue of microfinance and its linkage to poverty alleviation.

SCOPE AND LIMITATION

Poverty reduction and microfinance are two ubiquitous issues that can be tackled from multiple angles. The scope of this study; however, is to assess how microfinance has led to the reduction of poverty situation on Assin-Akropong. In other words, it is designed to assess whether microfinance has had a positive effect in poverty in the town.

Also, this study could have used any of the banks or the numerous microfinance institutions in the town for its case study. The researcher however chose to study the issue from the perspective of clients of ARBL because he is a Staff therefore information would be readily available to him. Secondly, it is one of the leading banks in the town hence findings on the role and challenges on micro finance and poverty alleviation could be generalized for the other banking institutions in the area. Therefore, every literature review, questionnaire design and data gathering will be done in the light of this scope.

The major limitation envisaged in the study is the fact that the findings might not apply to other institutions, especially the commercial banks. Efforts will however be made to achieve both validity and reliability in the study. Again, time and resource constraints might limit the thoroughness with which the researcher wants to undertake the study. Nevertheless, efforts will be made to present a well-researched work despite the time and financial resource constraints. With that said, it must be emphasized that most of the constraints will be brought to the fore at the data gathering stage. These will be presented and elucidated on in the final presentation.

CHAPTER ORGANISATION

The research paper will be organized into five chapters. Chapter one will comprise the background to the study, statement of the problem, objectives of the study, research questions, and significance of study. The second chapter will provide a review of literature related to the issue of poverty and microfinance.

The third chapter, entitled Methodology, will give information on the Research Design, Sampling and Sampling Techniques, Data collection procedure, Validity and reliability. Chapter four will provide information on the data analysis, presentation of results and discussion on the data collected. Finally, chapter five, will give information on the summary, recommendation and conclusion.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

'The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder to development. The ladder of development hovers overhead, and the poorest of the poor are stuck beneath it. They lack the minimum amount of capital necessary to get a foothold, and therefore need a boost up to the first rung' Jeffrey Sachs quoted on http://www.betterworld.net/quotes/microcredit-quotes. This observation of Jeffery Sachs sums the situation of the poor in most African countries, with Ghana not excluded. This section of the study will assess the major issues of poverty and microfinance from the perspective of several authors.

2.2 Understanding Poverty

2.2.1 Defining poverty and the poor

Kuuri (2007), quoting World Bank estimates reported that about 1.3 million people of the world live with less than one dollar a day (World Bank) while about half of the world's people (nearly three billion people) live on less than two dollars a day. In fact, the total wealth of the world's three richest individuals is greater than the combined gross domestic product of the 48 poorest countries; (about a quarter of the entire world states (Ignacio 1998, cited in Kuuri, 2007). The above observations show the extent of inequality in the distribution of wealth in the world and importantly, the prevalence of poverty across the world. It is obvious that the world's wealth is lopsided or skewed in its distribution. As a matter of fact, the United States of America, which is one country, boast of more and billionaires than the whole of Africa, put together (Forbes, 2012).

Though there are several definition and understanding of poverty, it is generally expressed as material deprivation. By and large, poverty is defined as the state of being poor or deficient in money or means of subsistence (Barker, 1995 cited in Awaworyi and Danso, 2010). However, according to World Bank (2002), defining poverty solely as being money deprivation is not sufficient; since it overlook social factors. Accordingly, the organization quips that social indicators and indicators of risk and vulnerability must also be considered and understood to obtain a clear picture of poverty. Social indicators such as availability of infrastructural services, including safe water, sanitation, solid waste collection and disposal, storm drainage, public transportation, access roads and footpaths, street lighting and public telephones are all factors to consider with regards to poverty definition (Awaworyi and Danso, 2010).

In the literatures, the following offered for poverty definitions have been:

The Scottish Poverty Information Unit defines poverty relative to the standards of living in a society at a specific time. People live in poverty when they are denied an income sufficient for their material needs and these circumstances exclude them from taking part in activities which are accepted parts of daily life in that society (Scottish Poverty Information Unit, 2007).

The World Bank Organization (2002) asserts that "The most commonly used way to measure poverty is based on incomes. A person is considered poor if his or her income level falls below some minimum level necessary to meet basic needs. This minimum level is usually called the "poverty line". What is necessary to satisfy basic needs varies across time and societies. Therefore, poverty lines vary in time and place, and each country uses lines which are appropriate to its level of development, societal norms and values."

According to the United Nations, fundamentally, poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means that one does not have enough to feed and clothe a family, not having a school or clinic to go to, not having the land on which to grow one's food or a job to earn one's living, not having access to micro financing. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living on marginal or fragile environments, without access to clean water or sanitation. (Human Right Facts (94) )

Pitted together, these definitions encapsulate the concept of poverty, though the fact remains that poverty means several things to several institutions and individuals, despite the common thread that weaves through these definitions. As a matter of fact, most of these organizations could not define the concept but rather had to end up describing what the concept is, by way of definition. The all-encompassing nature of these definitions further underscores the dire situation of poverty in Africa in general and Ghana in poverty. For instance, the food aspect of poverty definition does not only pertain to just food passé but also includes clean water and sanitation services.

2.2.2 Poverty as a vicious cycle

The cycle of poverty has been defined as a phenomenon where poor families become trapped in poverty for at least three generations. These families have either limited or no resources (Marger, 2008). There are many disadvantages that collectively work in a circular process making it virtually impossible for individuals to break the cycle. This occurs when poor people do not have the resources necessary to get out of poverty, such as financial capital, education, or connections (Marger, 2008). In other words, poverty-stricken individuals experience disadvantages as a result of their poverty, which in turn increases their poverty. This would mean that the poor remain poor throughout their lives. The baton is eventually passed over to their children and the trend can continue indefinitely.

Oxfam (n.d.), citing United Nations figures reported that about 25,000 people die every day of hunger or hunger-related causes, as a result of the cycle of poverty. The problem is that hungry people are trapped in severe poverty. They lack the money to buy enough food to nourish themselves. Being constantly malnourished, they become weaker and often sick. This makes them increasingly less able to work, which then makes them even poorer and hungrier. This downward spiral of poverty is often perpetuated until the person dies.

According to the World Health Organization (WHO), diseases such as Malaria, Pneumonia, Tuberculosis Diarrheal diseases including cholera and dysentery kill more than 2 million people, most especially children each year in poor countries. Though these diseases are treatable, these huge numbers still die owing to poverty, eventually steeping families on the path to the vicious cycle of poverty.

The vicious cycle of poverty has however been disputed in a study McCulloch and Baulch (2000) did. The researchers found that poverty was not static or transitional. Contrary to the stance of anti-poverty crusaders, McCulloch and Baulch (2000) found that poor households move in and out of poverty.

2.2.3 Levels/Types of Poverty

Poverty has many dimensions or types. It includes chronic or transitory, income or non-income, monetary and non-monetary, absolute and relative, material and psychological. According to Montgomery and Weiss (2005) and later Bamwesigye (2008) poverty can broadly be classified into

The long-term or 'chronic poor'

The chronic poor can further be broken into

Those needing welfare or the destitute

The destitute can further be divided into

The core poor

The non-core poor

Those needing assets and opportunities to overcome poverty

Temporary poor or those who fall into poverty as a result of adverse shocks (transitory poor).

In principle, microfinance relate to the chronic (non-destitute) poor and to the transitory poor (Bamwesigye, 2008). In the McCulloch and Baulch (2000) that was quoted earlier on, it was found that contrary to the view of anti-poverty crusaders, poor households move in and out of poverty. The study confirmed the finding of the UK Institute of Development Studies that poverty has two parts: a chronic part and a transitory part. The researchers therefore examined the impact of two different types of policy - those designed to smooth out incomes and those designed to promote income growth - on the extent of transitory and chronic poverty in rural Pakistan. The study suggests that policies which help households to smooth income can dramatically reduce transitory poverty. But in the long-term, only large and sustained growth in household incomes will reduce chronic poverty. The results of applying different measures of transitory and chronic poverty to the income data suggest that 68% of total poverty is transitory, arising from variations in households' incomes.

Another classification, albeit similar to the one advanced by Montgomery and Weiss and later Bamwesigye has been given by Awaworyi and Danso (2010). They classified poverty into Type A, B and C.

Type A Poverty

This type is about insufficient resources to meet basic needs, such as nutrition, shelter, health and education. This insufficiency can result in the following material symptoms of poverty

Low income or consumption levels

Low average calorie intake levels

High infant mortality rates

Low life expectancy rates

High illiteracy rates

High unemployment

Widespread diseases, especially curable ones

Famine or high risk of famine

High rates of economic migration.

Type B Poverty

This type is about absolute and relative poverty. Absolute poverty is defined as the lack of sufficient resources. It measures the number of people living below a certain income threshold or the number of households unable to afford certain basic goods and services. Relative poverty defines income or resources in relation to the average. It is concerned with the absence of the material needs to participate fully in accepted daily life. It measures the extent to which a household's financial resources falls below an average income threshold for the economy. Poverty type A is often linked to poverty type B, i.e. the more unequal a society, the more people suffer from absolute poverty.

Type C Poverty

A third kind of poverty is vulnerability, the actual risk of future poverty. This vulnerability can result in the following psychological symptoms of poverty:

Fear, stress

Feelings of insecurity

Irrational precaution measures

Lack Family planning decisions

Migration.

One empirical study done in this light was undertaken by Navajas et al (2000). The study analyzed the depth of outreach for 5 microfinance organizations in Bolivia, according to poverty categorized using the 1992 national poverty assessment. The classification of the poor beneath the poverty line were i) poor and the rest were ii) non-poor. The poor were sub-classified as i) moderate or ii) poorest. The study made the following findings

That the five microfinance organizations in Bolivia, most often, did not reach the poorest of the poor but rather those just above and just below the poverty line

That the group lenders (group loans) reached the poorest better than individual lenders

The study further highlighted the need for more scrutiny of the flood of funds budgeted in the name of access to loans for the poorest with the conclusion that "What matters is not whether the microfinance organizations reached the poorest of the poor, but whether they reached the poorest of those who demanded loans and who were creditworthy. " (p.23)

Moreover, it was found that

The five lenders reached about 4,500 of the poorest out of a portfolio of more than 52,000 borrowers (8.65%)

2.3 Microfinance

2.3.1 Definition

Microfinance has been defined by the CGAP Microfinance Gateway (n.d.) as the provision of financial services for poor and low-income clients offered by different types of service providers. The concept has also been seen as the provision of a broad range of financial services such as - deposits, loans, payment services, money transfers and insurance products - to the poor and low-income households, for their microenterprises and small businesses, to enable them to raise their income levels and improve their living standards (Awaworyi and Danso, 2010).

In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as "microfinance institutions" (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly (CGAP Microfinance Gateway, n.d.; Awaworyi and Danso, 2010).

Maanen (2004) states that microfinance, is about banking the un-bankables, bringing credit, savings and other essential financial services within the reach of tens or rather hundreds of millions of people who are too poor to be served by regular banks, in most cases because they are unable to offer sufficient collateral. Microfinance can embrace a range of financial services that seek to meet the needs of poor people, both protecting them from fluctuating incomes and other shocks and helping to promote their incomes and livelihoods (Rogaly et al 1999) cited by Fisher and Sriram. (2002).

Montgomery and Weiss (2005) have observed that the poor, before the advent of microfinance, usually relied on money from money lenders at high interest rates or friends and family whose supply is often limited or inconsistent. MFIs attempt to overcome these barriers through innovative measures such as group lending and regular savings schemes. In a study done by Marguerita (2001), she found that

"Among the economically active poor of the developing world, there is strong demand for small-scale commercial financial services-for both credit and savings. Where available, these and other financial services help low income people improve household and enterprise management, increase productivity, smooth income flows and consumption cost, enlarge and diversify their micro business and increase their incomes." (p. 6)

2.3.2 Models of Microfinance

According to Aryeetey (1995) and Okanji (2009), there are basically two main models of microfinance, that is, formal and informal models of providing micro credit to the target group.

2.3.2.1 The Informal Model

The informal model is built around group concept. The model works in a situation where groups whose commitment to savings and credit are weak and look up to donor-sponsored credit. While this works better with a group that voluntarily come together to form a revolving savings and credit association, it develops managerial problem where the groups are not cohesive and not voluntary (Besley, coate and Loury 1993). Okanji (2009) list three practices that can be classiefied under this model.

The Grammen Bank approach - They started with the group concept-informal lending to the poor. It involved assisting landless people in Bangladesh obtain credit that could not be obtained from the formal financial system. As at 1999, the Grammen Bank had provided its services to about 1.5 million poor, unified about 60,000 small village banks in the linkage process and about $480 million to its clients for small scale trade, construction, backup funds or local production credit as well as for emergency funds.

The Non-Government Organization (NGO) approach -This approach adapt the Grammen principles and usually are gender specific and sartorially motivated. There are women groups, farmers union, trader union etc.

Susu approach - Susu is a revolving loan scheme operated in most West African countries, including Ghana. The group formed to operate the revolving schemes is voluntarily, where members make fixed contributions of money at regular intervals. At each interval, one member collects the entire contributions from all. Every member takes a turn until the cycle is completed, and then it starts again.

2.3.2.1 The Formal Model

The formal micro-finance model is built around formal financial institutions such as the commercial banks, rural/community banks. Instances in Ghana are HFC's Boafo, GCB's Kudi Nkosoo among others. According to Okanji (2009), most of the formal institutions that purvey credit to the poor had not been successful. The reasons adduced for their failure had been limited knowledge of the poor and no closer relationship between the formal institutions and the informal institution.

2.3.3 Microfinance Targeting and Outreach

Targeting is a method of identifying a certain section of the population or area to benefit from the services offered (Bamwesigye, 2008). The reason behind it was that economic growth benefited the developed areas and well-to-do people in many of the developing countries. Since this means that the poor people usually never enjoyed any benefits accruing from economic growth, the conscious targeting of the poor basing on their assets, social groups and incomes emerged was seen as the most viable means of reaching the poor (Hirway, 2003). However, microfinance targeting has sometimes been problematic because of the unclear definition of who is poor. As a result some not-so-poor people have benefited from microfinance services where the core poor were supposed to have benefited.

According to Vega (1998) as cited by Qorinilwan (2005) outreach is the number of people reached by a given project. To scale up programmes to reach a large number of clients with small amount of resources has proved an elusive target of many micro credit schemes because of financial and other constraints. For the purpose of this study, outreach refers to the scale, geographical outreach, depth of outreach, quality and breadth.

2.4 Effect of Microfinance on Poverty reduction

Simanowitz et al (2002) cited by Nalunkuuma (2006) argues that poverty reduction is a process of increasing income and economic stability, which will lead to improved fulfillment of basic needs and services and developing a range of assets that will reduce household vulnerability to physical, social and economic shock. Johnson and Rogaly (1997) emphasize that poverty can also be understood as vulnerability to downward fluctuations in income. "Interventions which reduce such vulnerability and protect livelihoods also reduce poverty", Johnson and Rogaly (1997) emphasized.

According to Guerin and Palier (2005), the primary objective of microfinance is the provision of financial aid on a small scale to those who are on the fringes of society, too overwhelmed by the formal restrictions and procedures of the organised sector, too vulnerable to help themselves and left out of the mainstream. Microfinance provided to the vulnerable has to be synonymous with empowerment of the beneficiary groups in order to sustain their income flow and make them economically independent (ibid). Micro credit is generally considered to be an effective tool for reaching the poor and stimulating the transformation of the vicious circle of poverty into a virtuous cycle of economic development (Lont and Hospes, 2004) hence playing a leading role in the process of economic development.

Accordingly, Bamwesigye (2008) argues that microfinance institutions are intended to provide reliable and affordable financial services to the poor by providing cheap credit with minimum requirements for poor clients. These schemes also cut on the bureaucratic tendencies which make it easier for the poor people to access micro credit. It is argued these microfinance institutions (MFIs) are in position to enhance the ability of the poor to move out of poverty as well as to prevent those above the poverty line from sliding in to poverty (QoriniIwan, 2005).

Montgomery and Weiss points out that the case for microfinance as a mechanism for poverty reduction is simple, the authors outlined that if access to credit is improved, the poor can finance productive activities that will allow income growth, provided there are no other binding constraints (Montgomery and Weiss, 2005).This means that there is an effective route out of poverty for the non-destitute chronic poor.

For the transitory poor who are vulnerable to fluctuations in income that bring them close to or below the poverty line, microfinance provides the possibility of credit in times of need or opportunities of regular savings that can be drawn on to ensure income stability. The avoidance of sharp declines in family expenditures by drawing on such credit or savings allows 'consumption smoothing' (Montgomery and Weiss, 2005).

Proponents of microfinance consider that the poor's access to credit boosts income levels, increases employment at the household level and thereby alleviates poverty. Also, credit enables poor people to overcome their liquidity constraints and undertake some investments. Furthermore, credit helps poor people to smooth out their consumption patterns during the lean periods of the year (Okurut et al 2004). In sum, credit maintains the productive capacity of the poor households. Zeller and Sharma (1998) cited by Okurut et al (2004) argued that microfinance can help to establish or expand family enterprises, potentially making the difference between grinding poverty and economically secure life.

Remenyi and Quinones (2000) undertook a study to find if microfinance has an effect on poverty. The study found that household income of families with access to credit is significantly higher relative to households without access to credit. In Indonesia a 12.9 per cent annual average rise in income from borrowers was observed while only 3 per cent rise was reported from non-borrowers (control group).

The following trend are empirical findings that illustrate that households with access to credit generally do better in their economic endeavours that household without access to credit. Remenyi notes that, in Bangladesh, a 29.3% annual average rise in income was recorded and 22% annual average rise in income from non-borrowers. Sri-Lanka indicated a 15.6 rise in income from borrowers and 9 per cent rise from non-borrowers. In the case of India, 46% annual average rise in income was reported among borrowers with 24% increase reported from non-borrowers. The effects were higher for those just below the poverty line while income improvement was lowest among the very poor.

2.5. Arguments against Microfinance as a poverty reduction tool

Most proponents of microfinance do not agree that microfinance alone can do the job of poverty alleviation. For example, Chowdhury (2009) quoting Sam Daley-Harris (2007), Director of the Microcredit Summit Campaign, wrote,

"Microfinance is not the solution to global poverty, but neither is health, or education, or economic growth. There is no one single solution to global poverty. The solution must include a broad array of empowering interventions and microfinance, when targeted to the very poor and effectively run, is one powerful tool." p 1.

In the words of Yunus (2003),

"Micro-credit is not a miracle cure that can eliminate poverty in one fell swoop. But it can end poverty for many and reduce its severity for others. Combined with other innovative programmes that unleash people's potential, micro-credit is an essential tool in our search for a poverty-free world" p 171.

Microfinance has been recognized to be ineffective by itself because most poor people do not have the basic education or experience to understand and manage even low level business activities. They are mostly risk-averse, often fearful of losing whatever little they have, and struggling to survive (Aneel, 2007). Annel therefore summarizes this point as follows:

"Most people do not have the skills, vision, creativity, and persistence to be entrepreneurial. Even in developed countries which have individuals with high levels of education and access to financial services, about 90 percent of the labor force is employees, not entrepreneurs" p 37.

According to Vijay Mahajan (2005), a social entrepreneur and chairman of BASIX,

"Microcredit is a necessary but not a sufficient condition for micro-enterprise promotion. Other inputs are required, such as identification of livelihood opportunities, selection and motivation of the micro-entrepreneurs, business and technical training, establishing of market linkages for inputs and outputs, common infrastructure and sometimes regulatory approvals. In the absence of these, micro-credit by itself, works only for a limited familiar set of activities - small farming, livestock rearing and petty trading, and even those where market linkages are in place" p 22.

Robert Pollin (2007) has a similar view, and puts it in the following words:

"Micro enterprises run by poor people cannot be broadly successful simply because they have increased opportunities to borrow money. For large numbers of micro enterprises to be successful, they also need access to decent roads and affordable means of moving their products to markets. They need marketing support to reach customers." p 2.

Hulme, and Mosley (1996) did a study that put the brakes on the notion that access to microfinance always leads to poverty alleviation. Studying 13 institutions, they concluded that The poorest or 'core poor' receive few direct benefits from income-generating credit initiatives and so alternative assistance strategies (in the finance and other sectors) need to be developed and also institutions seeking to provide income generating credit to the poor while pursuing their own financial viability will have a tendency to concentrate on the 'upper' and 'middle' poor.

2.6 Microfinance and Poverty Alleviation in Ghana

Adjei, Arun and Hossain (2009) have observed that as a result of the depth and scale of poverty levels, Ghana has focused on poverty reduction as the core of its development strategy since the early 1980s. For instance, the Economic Recovery Programme (ERP), which began in 1983, was backed by other programmes, including the Programme of Action to Mitigate the Social Cost of Adjustment (PAMSCAD), and later followed by Ghana Vision 2020, aimed at reducing the scale and depth of poverty in the country. However, according to Asenso-Okyere et al. (1993), some of the policy reforms adversely affected vulnerable groups; especially women, children and rural dwellers, and some were even made worse off than when the programme was launched. For instance, as a result of the introduction of the cost-sharing policies in respect of user fees in the health sector, attendance at health centres and clinics dropped, especially in the rural areas (Vogel, 1988).

Currently, the government is implementing the Ghana Poverty Reduction Strategy (GPRS), which began in 2002 (Government of Ghana, 2003b). The overall policy framework for microfinance is informed by the poverty reduction strategy, which seeks to balance growth and macroeconomic stability with human development and empowerment in such a way as to positively impact the reduction of the country's poverty levels in the medium term (Government of Ghana, 2003a).

Following the limited success achieved by these top-down policies and programmes, as well as the non-sustainability of previous government-backed credit programmes specially designed for poor people (Quainoo, 1997), Ghana has embraced microfinance as a major strategic tool to combat the severe poverty that continues to plague the country. This stems mainly from the belief that providing small loans, savings facilities, insurance products, money transfer services and skills training to poor people, and more especially women, could be a way of providing opportunities to be self-reliant and play active roles in their households and communities and the economy as a whole (Yunus, 2001). The interest in microfinance is a reflection of the successes of small-scale lending programmes in countries like Bangladesh and Bolivia.

2.7 Conclusion

This section has focused on the review of data from various authors and researchers on the issue of microfinance and poverty alleviation. It started by defining the concept of poverty and expatiating on the various types of poverty. It was observed that the definition of poverty is indeed widespread and diversified. It is therefore difficult to define the concept without describing it. It was also observed that there are various types of poor people. Under microfinance, the concept was defined and the types outlined. The argument against microfinance was also deliberated, in addition to the various interventive programmes instituted by the government of Ghana in its bid to combat poverty. Largely, it was realized most of the programmes that have been targeted towards poverty alleviation in Ghana has failed and microfinance presents the most viable means of alleviating poverty in the country.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter basically deals with the methods, tools and techniques which this researcher will use to obtain the necessary information and analyze the findings on the impact of microfinance on poverty alleviation in Assin Akropong. It critically examines the research design, population, sample and the sampling technique. It also analyses the procedure of the study, the method of data analysis as well as the ethical considerations.

3.2 Research Design

This study will be designed as a quantitative survey. Cohen (1980) defines quantitative research as a social research that employs empirical methods and empirical statements. Creswell (1994) also defines the concept as a research that collect numerical data to explain phenomena, using mathematically based methods. Survey, on the other hand is defined as "the systematic gathering of information from respondents for the purpose of understanding and/or predicting some aspects of the behavior of the population of interest. The survey research is concerned with scientific sampling, questionnaire design, questionnaire administration and data analysis" (Sukamolson, 2011, p 2)

In addition, survey requires random sampling (that is., each member of the population has a chance of being selected) of respondents (Sukamolson, 2011). Also, survey enables researchers compare data between groups through defined techniques, such as random digit dialing and sampling procedures to ensure a scientific sample (Sukamolson, 2011).

3.3 Population

The first step in obtaining a sample is to define the population. This means identifying the characteristics which members of the study group have in common and which is used to identify units of a particular group (Creswell, 1994). Sukamolsen's (2011) posited a similar understanding when he said that defining the characteristics of the population will enable the survey use scientific sampling and questionnaire design to test the research data with statistical precision.

In selecting a samples that meets conditions of randomness, the researcher, having identified the research problem, defined the characteristics of the population which will provide the sample information for analysis (Gay and Diehl, 1992). In this study, the population comprises workers and clients of Akoti Rural Bank from the various branches of the bank. The bank currently has Seventy-two (72) workers in all categories. These man the Seven (7) branches of the bank so far. The customer base of the bank currently stands at twenty seven thousand, nine hundred and four (27,984) countrywide. This information is summarized in Table 3.1 below.

3.4.1 Sample

The inability of researchers to observe the entire population of study necessitates sampling members of the population or taking a subset of the population and using their responses to make inferences about the entire population (Bradburn&Sudman, 1988). Preferably, such a sample selected must have characteristics that correspond to the population of interest, in order to make generalization from the sample to the population possible (Bradburn&Sudman, 1988).

According to Ogboru (2010), three factors determine the size of an adequate sample. These are nature of population, types of sampling design and the degree of precision desired. Accordingly, she explained that when a researcher uses a sample that is too large, he/she waste resources while using a sample that is too small means getting results that are likely to be lacking in validity. With this understanding, this will seek to sample 30% of the employees' populations and 5% of the client population according to Table 3.1 below:

Table 3.1: Population and sample for the study

Category of respondents

Population

Sample

%

Number of Staff

72

22

30

Number of Clients

27,984

1,400

5

Total

28,056

1,422

 

Source: HR and Operations Department, ARBL, 2012

In general, the study will select 22 employees and 1,400 clients for the study.

3.4.2 Sampling technique

Sampling technique represents the process researchers use to select the sample from the population of study. Researchers observe two main sampling approaches in social research, that is, the probability and the non-probability sampling methods (Bradburn&Sudman, 1988; Creswll, 1992 and Sukamolsen, 2011).

On the probability sampling method, Bradburn and Sudman (1988) explains that "all elements (example, persons, households) in the population have some opportunity of being included in the sample, and the mathematical probability that any one of them will be selected can be calculated" p 4. Example the probability sampling method is the simple random, the stratified and the systematic or the quota sampling method. This study will use the probability sampling method for the selection of the workers of Akoti Rural Bank for their views on the subject matter of the study. Specifically, these will be selected with the simple random sampling method. In deploring this sampling method, the researcher will select every fifth name on the staff list that is given by the Human Resource Department. This style will be followed till the researcher selects the full list of respondents he needs for the study, as itemized in Table 3.1 above.

Utilizing the non-probability sampling method means selecting respondents according to their availability or based on the researcher's personal judgment that they are representative. This sampling method has a high probability of selection bias, in the sense that for instance, if respondents do not happen to be at the place of interview at the particular day and time it was done, then they do not stand a chance of being part of the study. The convenience, purposive and the snowball sampling methods are examples of the non-probability sampling method. In the present study, the non-probability sampling method will be used in the selection of the client for the study. In deploring this sampling method, the researcher will chose two days where he will interview respondents who come to the bank to transact business. As stated earlier, the selection bias will come into play because clients who do not come to the bank those two days will not be selected for the study.

3.5 Source of data

Both primary and secondary data were used in this study. Data collected for a specific purpose are known as primary data. The collection of facts and figures as designed in the questionnaire for this study and interview of the respondents will form the primary data for this study. The essence of obtaining such data is to ensure that the exact information wanted for the study are obtained to make valid and reliable conclusions and generalizations.

Secondary data refers to information sampled from other authors and researchers to set the background for this study. According to Ogboru (2010), occasionally, data are collected for some other purpose mostly for administrative and policy reasons, and form part of the information or data used in this study which were referred to as secondary data. These materials are usually obtained for purposes other than this study. The author also cautions that secondary data must be used with caution. The secondary for the study were sourced from books, journal articles, magazine articles and other published and unpublished sources. Internet sources such as ebsco, google, scribbs were extensively used for this purpose.

3.6 Research Instrument

The study will make use of two main data gathering tools - 1) Questionnaire and 2) Interview guide. While the latter will be used to gather data from the workers, the former will be utilized in gathering data from the clients. Questionnaires are noted to produce quick result, convenient and less expensive to use. Questionnaires are advantageous whenever the sample size is large enough to make it uneconomical for reasons of time or funds to observe or interview every subject (Kalton, 1983). The greatest difficulty with questionnaires that are distributed to the subjects or potential respondents is the probable bias which exists when less than the total number in the sample actually responds to the questionnaires (Ogboru, 2010).

The questionnaires will be divided into five parts. These are:

Demographic information

Microfinance services offered by ARBL

Relationship between microfinance services and poverty alleviation

Interest rate and poverty alleviation

Challenges in micro financing

The questionnaire will be designed to feature mainly close-ended questions. The interview guide will be designed along similar lines. As stated earlier, it will feature mainly open-ended questions and will be targeted at the staff. This will be done to give the respondent freedom to decide the aspect, detail and length of his answer. It enables the respondents to give a more adequate presentation of his/her understanding or appreciation of the issue under study and convey flexibility in their choice. The closed questions on the other hand are designed to limit responses to particular options whiles minimizing the risk of misinterpretation unlike the interview guide. Moreover, questionnaires permit easier tabulation and interpretation by the researcher (Ogboru, 2010).

.

3.7 Administration Procedure

Permission will be sought from the Management of ARBL with a letter from the researcher or Ghana Telecom/Coventry University to allow the researcher to undertake data gathering from employees and clients of the bank. Addressed to the Supervising Manager, the letter will craze their indulgence to assist this researcher in his data gathering efforts to fulfill academic requirements.

After approval has been given by the institution, the researcher will get the full list of staff from the Human Resource Department and code this list. As explained earlier, the coded list will be written on pieces of paper, cut and randomly selected to be interviewed. The clients will be interviewed alongside the interviewing of the workers. This process is estimated to take about three weeks.

3.8 Data analysis

Collected data will be organized and analyzed with the Statistical Package for Social Scientist (SPSS) software and Microsoft excel. The final data will be presented in tables, graphs, pie chart and bar graphs. This information will be presented in percentages or frequencies. However, some of the responses from the interviews will be inserted in the analysis to explain issues of interest in the analysis.

3.9. Overview of Akoti Rural Bank Limited

Akoti Rural Bank Limited was established on March 12, 1984 as a limited liability company under the Companies Code 1963, Act 176 with an initial Capital of GH¢5,000.00 raised by the Citizens of its catchment area and additional non-voting redeemable preference shares of GH¢125,000.00 for Bank of Ghana, comprising a total of 1,716 Ordinary Shares and 125 Preference Shares. It was granted a license to operate as a financial institution in 1983 in accordance with the Banking Law of 1989 (PNDC Law 225).

The Bank has its head office at Assin-Akropong; it has opened branches in Akropong, Foso, Bereku, Praso, Akonfudi and Abura Dunkwa all in the Central Region of Ghana. Microfinance services were provided by only the Abura Dunkwa branch at its inception but have now extended it to all the Branches of the Bank.

Vision

The vision of the Bank is to become a leading Rural Bank in the country with microfinance focus.

Guided by this vision, the bank is poised to deepen its microfinance operations. This would enable it realize shareholders expectations of wealth creation.

Mission

The bank has set out the mission to undertake the following:

build a strong customer service base with the aid of a team made up of the Board, Management and well motivated Staff,

build a strong capital and deposit base through the strategic marketing of existing and new products,

set an achievable profits target within the plan period

create employment opportunities for the people in the catchment area

Corporate values

The bank puts much emphasis in maintaining it corporate image by adopting strong value in the following:

Provision of community development infrastructure for health and education.

Good Staff/customer relationship

Dedicated and committed Staff

Realizing shareholders expectation of wealth creation

Ensuring customer satisfaction with products and services

Markets

Akoti Rural Bank is expected to play a crucial role as a rural financial intermediary in the socio-economic development of its catchment area. The Bank attracts clients such as the Municipal/District Assemblies, decentralized departments located in its catchment area, local and international NGOs and individuals. The major markets within the catchment area are located at Foso, Manso and Praso. Agriculture, transport services, cottage industry and petty trading are some of the major economic activities in the catchment area. Microfinance services are operated at the AburaDunkwa Branch only.

Products/Services

The following are some the products and services offered by the bank:

Acceptance of deposits from the general public, corporate institutions and other organizations and individuals.

Payment of workers' salaries

Funds (money) transfer services

Provision of loans and overdrafts to clients

Current Accounts

Savings Accounts

Fixed Deposits

Security registry

Competitive Orientation

Akoti Rural bank Limited operates in an environment with little competition in its catchment area. It however, has competition coming from some institutions also involved in the microfinance operations. These institutions are:

Christian Rural Aid network based in Cape Coast

World Vision International based in AssinFoso

NyankumasiAhenkro Rural Bank

Assinman Rural Bank

ProCredit Savings and Loans

First National Bank

Fidelity Bank

Ghana Commercial Bank

Agricultural Development Bank

Akoti Rural Banks competitive advantage over all the identified competitor institutions stems from the large catchment area it covers giving it the ability to mobilize much more savings and deposits.

Brief Performance

The Akoti Rural Bank Limited has its head office at Akropong. It has however opened branches in Foso, Bereku, Akonfudi, Praso, Abura and the recently created Darmang branch in an attempt to improve its resource mobilization.

Akoti Rural Bank has a total of 72 Staff made up of 52 males and 20 females. With Seven branches and a total client base of 27,984 in 2012, the staff client ratio is estimated to be 388. The banks executive management team comprises of the Supervising Manager, the Operations Manager, the Finance/Accounts Manager, Projects/Credits Officer and Internal Auditor.

For the bank to stay in competition and serve its clients to the best of their ability and satisfaction, the Board of Directors of the bank has engaged the below Executive Management in place to control the daily affairs of the bank. The executive management team has experience in the banking field and has therefore transformed the bank within the last five years.

Within a short period of the coming into office of the below management team, they have been able to move the bank from its manual operations to a fully computerized environment.

The microfinance scheme has since its inception in 2003 achieved a 99% recovery rate. The microfinance products of Akoti Rural are Susu Savings and Credit and Savings with Education (CSWE) operated at the Abura Dunkwa branch only .The bank has been able to extend the microfinance to the rest of its branches and have formed major groups within its catchment area.

Profitability of the bank has grown rapidly since the coming into force of this plan. The bank has attempted to adopt the strategy of high and massive loan disbursement and recoveries. Therefore, a loan recovery taskforce has been formed to recover loans from its clients who do not want to repay the loans they contracted from the bank.

Management/Staffing

The top management of the bank has been summarized in Table 3.2

Table 3.2: Executive Management Composition

Name

Position

Qualification

Sex

Age

Banking Experience

Harry Hammond Ngoah

Supervising Manager

EMBA Finance

Male

49

16

Emmanuel Ofosu Ntow

Operations Manager

RSA III

Male

51

25

Bright Owusu

Finance/Accounts Manager

Bsc. Accounting

Male

34

12

Eric Kumah

Project Officer

HND Accounting

Male

32

5

Benjamin Aning

Internal Auditor

ACCA I

Male

42

12

Source: Management of Akoti Rural Bank Ltd, 2012

The head office at Assin Akropong houses the offices of all the heads of departments including the Supervising Manager who is the head of the bank. The bank has the Operations, Finance/Accounts, Credits/Projects and the Internal Audit departments. The branches are headed by Branch Managers with their assistants, Tellers, Customer Care Officers, Accounts Officers, Security Officers and Messengers/Cleaners. The researcher would use the Credits/Projects, Finance/Accounts and Operations departments for the study.

CHAPTER FOUR

RESULTS AND DISCUSSION

4.1 Introduction

This chapter presents an analysis of the results obtained from interviews held with both staff and customers of Akoti Rural Bank Limited. The results are interpreted and discussed along the lines of the objectives of the study.

4.2 Demographic Characteristics of Respondents

4.2.1 Staff Demographic Characteristics

Sample: All twenty two staff questionnaires administered were recovered resulting in a recovery rate of 100%. The analysis of staff of Akoti Rural Bank is therefore based on the total 22 respondents interviewed under the study.

Age: Majority (46%) of staff interviewed were aged between 30 and 34 years. A total of 26% are aged between 25 and 29 years whereas 9% were aged between 35 and 44 years. A further 9% is aged below 24 years. The general aged background of respondents is therefore middle aged.

Positions Held: The main positions held by the respondents were Top Level position (20%), Middle level position (20%), and Low level position (60%). The fact that low level employees formed a majority of staff used is significant in that these category of staff are in charge of implementing policies made by top level executives and are therefore in the best position to give answers on real practices of the bank.

Length of Work: Whereas 60% of respondent staff indicated that they had worked in the bank for below three (3) years, 40% mentioned that they had worked in the bank for between five (5) to ten (10) years. None of the staff interviewed had worked in the bank for more than ten (10) years. This indicates that majority of respondent staff are relatively new to the affairs of the bank, however as a considerable proportion of respondents have worked in the bank for more than three (3) years, a fair balance in responses between old and relatively new staff were obtained for the study.

Department of Work: The main departments in which the respondent staff were surveyed include: Accounts department, Credit department, Finance department, Internal audit, Main banking, and Operations.

Educational Background: Majority (64%) of respondent staff had highest level of education of a West African Secondary School Certificate/Middle School Leaving Certificate. A total of 27% hold a bachelors degree, whereas the remaining 9% hold a Master's degree. A summary demographic background of staff is presented in table 4.1 below.

Table 4.1: Summary Demographic Background of Staff

Demographic Background

Variable

Number

Percentage (%)

Age

Below 24 years

2

9%

25 - 29 years

8

36%

30 - 34 years

10

46%

35 - 44 years

2

9%

Total

22

100%

Position

Top Level

4

20%

Middle Level

4

20%

Low Level

12

60%

Total

20

100%

Length of Work

Below 3 years

12

60%

3 - 5 years

8

40%

Total

20

100%

Education

WASSCE/MSLC

14

64%

Bachelor's degree

6

27%

Master's degree

2

9%

Total

22

100%

Source: Fieldwork, 2012

4.2.2 Clients' Demographic Characteristics

Sample: A total of one thousand and four hundred questionnaire (1,400) were administered to clients of Akoti Rural Bank. This notwithstanding a total of three hundred and sixty four (364) questionnaires was recovered representing a recovery rate of 26%. The analysis is therefore based on the 364 recovered questionnaires.

Age: The majority (36%) of client respondents interviewed were aged between 45 and 54 years. A total of 29% was aged between 30 and 34 years whereas 21% was aged between 25 and 29%. 7% was aged between 35 and 44 whilst another 7% was aged below 24 years.

Profession: Half (50%) of clients interviewed are private sector salaried workers. Whereas 36% indicated that they were petty traders, the remaining 14% indicated that they were artisans.

Length of Saving with Akoti Rural Bank (ARB): Majority (64%) of clients interviewed have had a banking relationship with ARB for less than three (3) years. Twenty-two percent (22%) have saved with the bank for a period of between 5 to 10 years, whereas 14% have banked with ARB for a period above 15 years.

Education: The highest educational level of majority (54%) of the clients interviewed is WASSE/MLSC. A total of 15% possessed Bachelor's degree whereas 8% possessed professional qualification. A total of 23% of respondent clients are uneducated.

A summary of the demographic background of clients is presented in table 4.2 below.

Table 4.2: Summary Demographic Background of Clients

Demographic Background

Variable

Number

Percentage (%)

Age

Below 24 years

26

7%

25 - 29 years

78

21%

30 - 34 years