Microfinance as a poverty alleviation tool for women in Ghana's informal sector?

Abstract

Poverty alleviation has directly and indirectly played a major role in development theory and projects over time. In recent years, microfinance became a popular poverty alleviation tool, incorporated as part of the Poverty Reduction Strategy Papers (PRSPs) of various developing countries and contributing to the fulfillment of the Millennium Development Goals (MDGs). Microfinance is the delivery of banking services to the poor to help them to start or expand an income-earning activity and thereby escape poverty. This study aims to explore whether microfinance is an effective poverty alleviation tool for women in Ghana’s informal sector. The objectives of this study are to identify the major poverty and development theories and schemes with a particular focus on microfinance, to provide background data on Ghana’s development and poverty policies since the 1980’s, to examine the challenges facing Ghana’s microfinance sector, to use the NGO Sinapi Aba Trust as a case study providing us with an example of a large microfinance institution (MFI) operating in Ghana that has made a moderate impact on poverty alleviation, and to recommend solutions for how microfinance in Ghana could be more effective in poverty alleviation. This paper suggests that microfinance has made only limited progress as a poverty alleviation scheme for women in Ghana’s informal sector because despite moderate improvement in building assets and reducing vulnerabilities, microfinance clients have not been lifted out of poverty, but have instead progressed to a more modest form of poverty. Also, microfinance is currently not reaching the poorest segments of the population because of the perceived risk of clients has driven MFIs to operate in areas that are not being served by microfinance.