Microfinance and Poverty Reduction: The Case Study of Selected Institutions in the Greater Accra Region of Ghana

In spite of the popularity gain of microfinance in developing countries and the world at large, much remains to be learnt about its welfare impacts. Drawing upon data obtained in a survey of clients of five microfinance institutions, this paper extends the discussion on microfinance by examining the impact of microfinance on poverty in the Greater Accra Region of Ghana. The study examines the extent to which microfinance institutions reach the poor and investigates the factors influencing participation in microfinance programmes. In addition, the study employs a propensity score matching model (PSM) to ascertain the poverty-reducing effects of participation in microfinance programmes. The empirical results shows that microfinance institutions reach more of the less poor households than the very poor households. Again, socio-economic characteristics such as gender (i.e. being a female), literacy, child dependency ratio and landholdings were found to have significant influence on the likelihood of participating in microfinance programmes. In general, the results did not show significant effect microfinance on poverty reduction. However, if we consider the effects of microfinance on poverty across sub-groups under poverty groupings, significant poverty-reducing effect of microfinance was observed for the very poor households while for the less poor the effect was not statistically significant.