The Impact of Microfinance on Poverty Reduction Amongst Farmers in Ghana

The microfinance programme is largely deemed to be a mechanism aimed at reducing poverty particularly in developing countries. The prevalence of poverty is considered to have a negative effect on the health of an economy as well as the wellbeing of its people. Thus, this thesis investigates microfinance provision and its poverty reducing impact. In particular this study sought to investigate the relationships between microfinance provision and the wellbeing of the family including the agricultural activities of the borrowers. In this thesis, poverty is conceptualised from the perspective of “capability deficit”. Thus, the wellbeing of the family is considered to have been improved as a consequence of an increase in its capability. This thesis begins with a review of the state of knowledge within the domain of extant microfinance literature that focuses mainly on the effect of microfinance on poverty reduction. The empirical study of this thesis is based on 320 structured questionnaire responses from microfinance farmer borrowers. 10 semi-structured interviews were carried out with the microfinance loan officers and 40 semi-structured interviews were conducted with the service users. The study findings suggest that there is a significant relationship between microfinance provision and positive effect on the wellbeing of the microfinance clients and their families as well as their agricultural activities. The research finds that, microfinance clients’ perception of poverty focus significantly on maintaining a reliable source of income and the ability to meet essential family needs. The findings also show that, the selection of members into groups based on personal relation and trust as an embedded feature of group formation to hedge against moral hazard problems, suggests the likelihood of exclusion from benefiting from microfinance loans. The outcomes of this empirical study contribute significantly to the wider microfinance literature that shows microfinance leads to a positive effect on the holistic livelihood of poor service users (Hulme and Mosley, 1996; Armendariz de Aghion and Morduch, 2005; Adjei, et al., 2008). Moreover, the thesis provides significant methodological and theoretical contribution to the research in microfinance in both developed as well as developing economies