Impact of microcredit on sme performance and household wellbeing of borrowers: Evidence from Ghana

Abstract

The main objective of providing microcredit to Small and Micro Enterprises (SMEs) is to support the poor who primarily operate in the informal sector to create and support businesses that exhibit the propensity to generate regular income and employment for their owners.

Drawing on the Institutional Theory, this study’s major aim was to determine the impact of the delivery of micro credit by Microcredit Institutions (MCI) on the performance of SMEs and owner household wellbeing in Ghana. The quantitative research approach (sample survey) was adopted. Stratified random sampling was employed to select participants. Out of 632 self-administered questionnaires distributed to SMEs in in the Greater Accra Region of Ghana, 455 questionnaires were retrieved. Multiple regression modelling was executed to examine the impact of microcredit on SME’s performance and borrower’s household wellbeing.

Firstly, the study revealed that microcredit factors positively and significantly impact borrower’s household wellbeing at a 1% significant level. Secondly, firm/individual elements (gender, manager's educational level, and business age) are statistically significant at a 5% level and correlate positively with sales growth, profitability growth, and employment growth. A sensitivity analysis revealed that the findings are significantly robust to probable endogeneity challenges.

This study has implications for policy and practice worth noting. First, key stakeholders including the government, the private sector and donor funding agencies should refocus their funding programmes on SMEs to further promote borrowers’ household wellbeing and microcredit factors in Ghana. Second, in view of the overwhelming challenges in loan accessibility by SMEs in Ghana, the process of microcredit delivery needs to be simplified to make it more attractive to SMEs through deliberate institutional support in Ghana.

The study also contributes to the academic discourse on SMEs in a number of ways. Firstly, studies on the delivery of microcredit and SME’s performance, and borrower wellbeing enhancement are underexplored in the Ghanaian research context. The study contributes to the entrepreneurship literature by developing a robust framework that conceptualises the linkage between microcredit delivery and wellbeing components. This framework could engender the generation of new pathways for theory building.

Characteristic of any research activity, this current research has limitations. The following study limitations needs to be considered. Firstly, the generalisation of the findings to the whole of SME context in Ghana could be limited because the study only covers a single region that focused exclusively on the Greater Accra Region of Ghana, thus limiting its generalisation to other parts of the country. However, the sample obtained is large enough to inform the generalisation of the study to the whole of the SME sector in Ghana. Thus, the validity and reliability of the study has not been compromised. Moreso, due to the robustness of the statistical techniques used. Secondly, the absence of qualitative design to consolidate the results of the quantitative strategy might create some level of deficit. However, it needs to be noted that this strategy was not possible due to limitations imposed by the COVID-19 pandemic at the data collection stage.