Microfinance Funding Structure

DEPARTMENT OF ECONOMICS

UNIVERSITY OF CAPE COAST

MSc. MICROFINANCE

TERM PAPER

PROJECT WORK

MFI’s FUNDING STRUCTURE, GOVERNANCE AND OUTREACH

BACKGROUND OF MICROFINANCE

Background to the study

The World Bank estimated that approximately 1.2 billon people who subsisted on less than US $1 a day in 2003, 850 million lived in rural areas. There is increasing recognition that poor people can and do save informally at home but lose much of their savings because the homes are risky places to save. There is also recognition that before rural people (the excluded) will have the confidence to start businesses, they must be able to gain more control over household risks such as hunger, disease and natural disaster. This requires access to safe, flexible small-balance savings accounts.

The focus of microfinance is on women economic activities which coincide with a growing interest in financing the thousands of tiny businesses that make up the developing world’s vast informal sector. In Ghana and Africa as a whole, many of the so-called micro enterprises, ranging from food sellers on street corners to one-person apparel makers, are run by women.

The focus again, is to improve efficiency of resources allocation and for alleviating poverty by allowing equal access to credit by those traditionally shut off, namely women and the poor (Hess and Ross, 1997). Microfinance is not limited to the rural folks as it is being thought of. Today microfinance activities are all over the urban cities in Africa and Asia and even Europe and America. It is therefore not sound to limit the study of microfinance to the rural settings alone. Traditional commercial banks are today into microfinance in the cities of Africa. For example in Accra, Ghana alone, there is over 50 microfinance institution s operating to serve the needs of the poor. Microfinance has been defined to include the entire spectrum of financial services for broad sectors of the...