MICROFINANCE AS A TOOL FOR COMMUNITY DEVELOPMENT

Microfinance without social objective is micro banking. Micro banking is practically creating financial access mainly credit to the low income or poor. The inclusion of social objective together with financial objective is what transforms micro banking into microfinance. This, therefore, makes microfinance effective as a tool capable of transforming   the economic and social livelihood of the poor and low income clients.

Ghanaians have come to embrace microfinance institutions as key players within the main financial system. People are aware that microfinance can assist address the varied financial needs of both the poor and some high networth clients. There are over 400 microfinance companies registered with the   Ghana Association of Microfinance Companies (GAMC) as at the end of 2012. The increasing number of MFIs under the four tiers attests to the theory that the activities of microfinance institutions have been accepted as an important component within Ghana’s financial system. The proposed reasons that have herald the acceptance of MFIs in Ghana is largely hinged on two reasons. These reasons have relations to whether one is an investor or a consumer seeking financial services and products.

Many people theoretically or practically have come to accept that microfinance can assist in improving the income levels of the target clients. Apart from this well known fact, microfinance can assist to directly contribute to community development so as to improve the community where the poor people live and work.

This article will attempt to bring to light the activities of a Microfinance Company based in Agona in the Western Region of Ghana that has demonstrated how microfinance methodologies can help to develop the poor and their communities.

Turning waste water sachets into bags  

Innovative microfinance methodologies can be use to restore the cleanliness of our environments whiles at the same time create a source of livelihood for the poor and low income clients. Through innovation, this MFI has develop and implement products to assist clients to sew school bags, shopping bags and carrier bags from using disposed water sachet bags which mostly   litter most places in Ghana.

The MFI offers capacity training for the selected clients or beneficiaries on how to create an economic usage from   disposed water sachet bags. The clients are extensively train on how to sew bags and other materials by using disposed sachet bags. The MFI in addition to the training provide clients with logistics like sewing machines on credit basis and working capital in the form of microcredit to enable them to purchase or pay for the sachets bags that have been collected or mobilized by other people within community. This product, therefore, provide three key benefits which are;  income for the collectors of the disposed sachets, income for the clients sewing the bags and providing solution to waste disposal within the community.

Improved Cook Stoves

The MFI targets women who are fish mongers in a community near Axim. The MFI observed that the conditions under which these women were working was not healthy and environmentally friendly. The MFI took steps to ensure that these clients work and support their livelihoods in a manner that was  not  dangerous to their health as well as to the environment. In view of that the MFI went on to research   better and healthy ways by which the client can work to protect their health and as well adopt environmentally friendly cook stoves to save the environment.

To be able to address the needs of the clients the MFI collaborated with other institutions to design and build improve cook stove using traditional materials like clay. The key point about of this product is that, the MFI trained the women on how to build this improve cook stove so that they can provide such services to other women alongside their main trade. Apart from training the women themselves some members within the community are well trained to take up the duty of building the stoves. The MFI adopts technology transfer as part of its operations. The positive impact of the “microtech” transfer according to the MFI enabled some women to re-construct new stoves when floods destroyed the stoves that were built for them. The client in this case used the skills acquired to rebuild a stove for themselves without having to wait for any financial support. The positive factor of microfinance is that it enables the poor and the low income earners to participate in the process of poverty reduction by themselves instead of it becoming the duty of government and its partners alone. This can only be achieved through capacity building aimed at transferring simple technology to help simplify the lives of these clients.

Providing quality drinking water device

Access to quality drinking water is a challenge in most communities in Ghana. Through a socially responsive microfinance programme clients of the Agona based MFI are provided with a simple portable water treatment device to assist their clients to purify their drinking water. These devices are provided on credit basis. To make microfinance very beneficial to the clients, MFIs should note that they require stratergic partnerships with other organizations that have products and services that can help solve some of the problems the clients encounter. Through workable linkages, clients of MFIs are having access to energy and other essential amenities. A practical example is the provision credit to enable rural clients purchase Solar Home Systems (SHS) through the rural banks in Ghana. The product was made possible through a partnership between the Ministry of Energy and the Apex Bank together with the SHS providers. Positive linkages can help to reduce transactional cost and also improve the scope of products for the poor clients.

Value Chain Actors

MFIs can as well be a major player within the various agricultural value chain processes. For instance the MFI I visited as part of their operations organise the palm kennel oil producers within it catchment area to form associations. The MFI is currently researching the industrial uses of palm kennel oil to further enable them to arrange for sales or marketing contracts for the produce of their clients. The MFIs took the initiative to organise these producers into a cooperative by educating them on the need to come together to seek their own common good. The objective of the MFI is therefore, to provide financing to the oil palm producers, the palm kennel oil process and other actors within the palm kennel oil value chain. The successful implementation of this product will at least take care of some actors within the palm kennel oil value change which will go a long way to help the producers of the oil to acquire guarantee market for their produce.

Important linkages between microfinance and national development

Microfinance companies can be a vehicle by which important products and services can reach poor communities in a sustainable way. It can also be used for the transfer of technology to help simplify the lifestyles of the poor clients. One clear partnership that should be looked into is a partnership between MFIs and the National Health Insurance Scheme (NHIS). This linkage can help reduce the cost of transaction for the National Insurance Authority (NIA) since the MFIs will be the point of premium payments or collection whiles the NA takes care of their main operations of providing the product to their clients. Such partnership as well will mean that the NIA will not have to either spend money to establish offices or hire agents in specific locations but can work through already established rural banks or MFIs. In this partnership the rural banks or MFIs provides a onetime “shopping” point for both insurance and banking services thereby reducing the cost of transaction also for the clients.

Information dissemination to people within a particular community can be perfectly done through the microfinance institutions. My observation is that, clients whether poor or rich have lots of respect for officers who work for financial institutions including microfinance companies. The contribution of these institutions can, therefore, be beyond just the provision of financial services. Most clients of financial services look up to these officers for advise even beyond financial management. The MFIs command a great deal of respect and can partner institutions like the National Commission on Civic Education, Ministry of Health,  Ministry of Agriculture other agencies  for the purposes of educating the poor on important subject relating to national development.

Conclusion

The social aspect of microfinance in Ghana has been a challenge due to the fact that social investment in microfinance does not directly affect the profit of MFIs. Most MFIs in view of the lack of adequate financial muscles, therefore, do not include social objectives as a key component in their operations. The big question they ask is who will pay for the social investment?

 Transforming  livelihood and the communities of the poor clients can largely be achieved through  sustainable means if the various microfinance institutions are adequately assisted through technical, logistics and capital means to enable them pursue the social dimension of microfinance. In the absence of the needed support it is important for MFIs to create a social vehicle within their operations since that can directly or indirectly translate into customer retention and profitability.

Governments in supporting the to grow the microfinance sector  by way of developing clear policy, infrastructure and logistics  must consider assisting the establishment of a sustainable microfinance fund that can be commercially accessed by socially responsive MFIs so as to ensure sustainable development to complement government developmental agenda. To make microfinance responsive to national development there is the need for governments, donors and other stakeholders to still support the social aspect of microfinance because it’s that part of microfinance that can sustain poverty reduction.