Microfinance as a Tool for Small Business Growth in Urban Ghana

Abstract

While a number of studies have shown evidence of positive impact of microfinance on the growth of small businesses, others have shown evidence of microfinance worsening the plight of small businesses by exacerbating their indebtedness. It is in the light of these conflicting views that this study sought to investigate the role of microfinance in promoting the growth of small business in Ghana. Microfinance in Ghana provides a great potential to support economic activities of small businesses. This study therefore, examined the impact of microfinance on the growth of small businesses in urban Ghana. It used responses to structured and unstructured questionnaire elicited from a cluster sampling of 213 clients from 58 microfinance institutions (MFIs) in the Ashanti and Greater Accra regions, the two most urbanized regions of Ghana. Multiple and logistic regression analyses showed that the increase in business profits, stock and business assets after the acquisition of microfinance loans were statistically significant, indicating that the loan amount had significant impact on profit levels, stock adjustments, and acquisition of business assets. However, the change in employment was statistically insignificant. The study recommends the development of appropriate loan products and services that meet the needs of small business operators to sustain and enhance the growth of their businesses.