Microfinance institutions and micro and small enterprises in Ghana: The potential of the missing middle

• Micro and small enterprises (MSEs) could be a catalyst for development in Ghana, if they are able to grow in size and productivity. However a challenge to this is the lack of access to finance.
• Microfinance institutions (MFIs), and in particular financial non-governmental organisations (FNGOs), could provide this missing link and faciliate the growth of MSEs.
• To fulfil this function, the government should design a financial inclusion strategy based on further assessment of MFIs and MSEs, and apply different regulatory requirements to FNGOs who wish to become commercial enterprises from those which want to retain their social focus.

MSEs are important as major generators of employment and livelihood strategies in Ghana, and could be an important catalyst for the development of the country. One of their major growth challenges is the lack of access and appropriate use of financial products and services. This is principally due to the weak performance of the financial sector as a whole. Government efforts to create a more inclusive financial system through microfinance have intensified in recent years. However, the lack of a national microfinance policy guiding stakeholders towards the same goal is hampering the efforts of supporting organisations and MFIs. Specifically, new regulatory requirements on FNGOs may prevent some of the well-functioning ones from continuing operations, leaving thousands of individuals without access to financial products and services again.

The government should therefore consider:

(1) conducting further research on the different segments of MSEs and MFIs to design a common strategy;

(2) developing a closer alignment of the different ministries in the elaboration of strategies, policies and regulations related to “MSEs growth”, “women & low income individuals’ empowerment”, and “financial inclusion”;

(3) reviewing the regulations for FNGOs, enabling those that want to ‘transform into formal financial intermediaries’ to do so, while maintaining different regulations for FNGOs that want to retain a ‘primary social mission’;

(4) strenghtening the capacity of microfinance networks and supporting associations, and of MFIs, to develop more appropriate financial products and services, and to deliver them in an appropriate manner.