Transforming Local Economies Through Microfinance in Rural Ghana: Evidence From a Review of Existing Literature

Background

Evidence from various studies suggests that low income earners across the world are largely excluded from the formal banking sector (Chitimira & Ncube, 2020; Ozili, 2021; Sanderson et al., 2018). This exclusion from the formal banking system has forced the poor to find alternative ways of meeting their financial needs. This has therefore prompted some business organisations to design financial products/services specially for the poor. The most popular arrangement designed by formal and informal financial institutions to provide financial services to the poor is microfinance. In this regard, Hussaini and Chibuzo (2018) define microfinance as the provision of financial services to individuals who are unable to access such services from banks and other financial institutions. Similarly, Khan et al., (2021) define microfinance as all financial products that are available to the poor and low-income earners. Microfinance is therefore intricately linked to poverty reduction in poor communities particularly in developing countries. However, is microfinance merely designed to reduce poverty as suggested by Tasos et al., (2020) and Kumari (2020)? Surely not, as Akhter and Cheng (2020) have shown that microfinance plays a vital role in women empowerment. Besides, Adusei and Adeleye (2021) discovered a crucial role for microfinance in small business financing. Moreso, Alam and Azad (2021) found that microfinance provides opportunities for employment generation in rural communities.