Introduction
The major approaches in the micro financing continuously changing and described as triggered by credit of rural banks. In addition, the growing masses of Small and Medium Enterprises (SMEs) create an impact in the country’s national economy. The design and process of the micro credit in most of the country resulted in improving the living status of the poor by fighting the poverty. Furthermore, the education of the people within the community is another criterion towards the effectiveness of the micro-financing. The features included in the micro credit policy of the rural banks are however, affected by the effective management scheme in meeting the objectives of the country and can be used for the future.
Background and Problem Statement
The formal financial sector in Ghana mostly comprises of commercial banks that operates in number of branches in the country. Recently, the banks and other financial institutions sought to broaden the management in micro-credit or loan to strengthen the SME sector. This behavior attracted the financial users but the threats also increased. Rural banks and other financial institutions are advised to be cautious because of the identified risks associated in the micro-credit sector (Mensah, 2004). Because of this fact, what are the effective management strategies or scheme that can be applied in the micro-credit delivery, particularly among the rural banks?
Research Aim and Objectives
The main aim of the study is to build the capacity in rural banks by unveiling the effective management approach that can be used in micro-credit delivery. In order to fulfill this aim, the study should consider the three objectives. First is to identify the similarities and differences of the informal and formal financial sector in the country. Second, is to recognize the developments in rural banks from the past five years. And third is to describe the influence of growing sector such as the SMEs in the effective management and growth of micro-financing.
Literature Review
The essential approach of Ghana is discovering the potential of rural banks in outreaching the poor while sustaining the savings and credit offers. Micro-finance is defined as the provision of financial services, that includes credit, loans, savings and insurance, to poor, disadvantaged and otherwise under-privileged members of society (particularly in developing countries) who would otherwise not have access to such facilities (Parikh, Ghosh, & Chavan, 2003). In Ghana, the micro-finance has emerged as one of the most effective methods of financial development and poverty alleviation. The micro-financing attempts to unleash the forces by transforming the lives of the individual. The growth of the rural economics is due to effective facilitation of the micro-finance. This action is simply explained from inducing the development to the initiated development that tends to create changes in the role of bank credit, particularly in rural banks (Raghayan, 2006). However, it is identified that the institutions have weak management and internal controls which demonstrated in the experience of Ghana is balancing the various areas in banking. Although the Bank of Ghana has exercised the considerable regulatory which allows the institutions in regulating their system, there’s still system among the micro-financing that failed to achieve the impressive outreach (Steel & Andah, 2003). There are barriers to the rapid development of the financing, for example in SME, are schemes, initiatives, and funding mechanisms of the rural banks to facilitate the effectiveness of micro-credit support. The SME in Ghana is affected of the lack of financial support or the low level of the financial intermediation. Because of the inconsistency caused by the schemes, there is an increase in the financing gap that entirely affects the industry. Furthermore, there is lack of institutional and legal structure that facilitates the management of micro-credit risks (Mensah, 2004). Because of the ineffective management of the micro-finances, the country can move forward to the utilization of the free economic principles such as the idea of information technology (IT) to provide the necessary attention in the rapid growth of the micro-finance (Raghayan, 2006).
Methodology
The suggested method in the study is the use of the secondary information. The important information can be obtained from the case studies, rural bank financial reports, World Bank Association, and other reports that can give details to the effective management approach of various countries. By comparing the micro-financing management schemes of the countries, the study can generate the analysis regarding the applicable solution in micro-credit delivery. In the end, the study can organize the conclusion on the preferred management approach in micro-credit delivery.
References:
Mensah, S., (2004)” A Review of Financing Schemes in Ghana”, Presented at the UNIDO Regional Workshop of Financing Small and Medium Scale Enterprises, Accessed 28 July 2010, from http://www.semfinancial.com/publications/SME%20Financing%20Schemes%20in%20Ghana.pdf
Parikh, T., Ghosh, K., & Chavan, A., (2003) “Design Studies for a Financial Management System for Microcredit Groups in Rural India”, Accessed 28 July 2010, from http://people.ischool.berkeley.edu/~parikh/papers/p0314-parikh.pdf
Raghayan, R.S., (2006) “Micro-Finance – Uplifting Rural Economy”, The Chartered Accountant, Accessed 28 July 2010, from http://www.icai.org/resource_file/102921143-1148.pdf
Steel, W.F., & Andah, D.O., (2003) “Rural and Micro Finance Regulation in Ghana: Implications for Development and Performance of the Industry”, Accessed 28 July 2010, from http://www.worldbank.org/afr/wps/wp49.pdf
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