The Sustainability of Microfinance Institutions in Ghana: Causes of Proliferation and Frequent Collapse of Savings and Loan Companies

Abstract

Many Savings and Loan Companies are being established almost every day in Ghana but they keep folding up. This leads to the questions: what are the reasons behind their proliferation and why do they keep on collapsing? There is the need to find answers to these questions to make microfinance institutions sustainable. Data were collected from 10 Savings and Loan Companies across Kumasi Metropolis and sample of 160; comprising 51 customers, 101 staff and managers and 8 owners. Using descriptive and qualitative analysis, the paper revealed that profitability, low financial requirement for its establishment, and laxity in regulatory requirements and supervision are driving force behind the proliferation. Also, high turnover of most qualified staff, inadequacy of financial professionals to handle various sections of the institution, rampant client exit, high default rate of loan repayment, and syndication of owners to exploit clients are driving force behind frequent collapse. The paper recommends that owners of savings and loan companies should employ qualified personnel and motivate them to stay, the Bank of Ghana must regularly supervise the institutions to comply with rules, client should be assisted to collect back their deposits when they collapse, and owners should be prosecuted when caught in default of BoG rules and regulations.