The Impact of Microcredit on Household Expenditure and Business Performance in the Context of Ghana

Abstract

This thesis explores the impact of microcredit on household expenditure and business performance in Ghana. It aims to provide a detailed analysis of the impact of microcredit, contribute to the understanding of microcredit as a tool for economic development, inform policy, and ultimately help improve the lives of borrowers who benefit from microcredit programmes. The study is grounded in the fundamental theoretical underpinnings of access to credit and financial exclusion. This framework highlights the importance of financial inclusion, characterised by equitable access to financial services, in promoting economic wellbeing and reducing poverty marginalised populations. Microcredit plays a vital role in this context by providing small loans to those typically excluded from traditional banking systems due to factors like low income, lack of collateral, or poor credit history. By focusing on these theories, the study offers valuable insights into how microcredit interventions can enhance household expenditure and business performance, thereby improving the borrowers' living standards. The study used purposive sampling to collect primary data through a survey of OISL’s 200 borrowers and 25 staff using questionnaires and interviews, respectively. The research employed a mixed methodology approach to gather and analyse the data. Multiple regression and qualitative analyses were used to present the findings. Findings from the thematic analysis show that households accessing microcredit reported increases in expenditures on essential household items and a subsequent impact on business performance after borrowing compared to before borrowing. The impact of microcredit and its effectiveness on the standard of living of borrowers depends on specific factors. The study concluded that substantial evidence shows microcredit impacts household expenditures, supporting the alternative hypothesis. Additionally, the findings show that, on average, there is a positive correlation between microcredit and household expenditure and business turnover. They indicate that participating in a microcredit programme improves living standards, with increases in borrowers’ household expenditure and business turnover at a statistical significance level. Therefore, the study accepts the alternative hypothesis that microcredit impacts household expenditure and business turnover. This study makes significant theoretical contributions by significantly advancing the understanding of microfinance's impact on economic outcomes. It provides empirical evidence on how microcredit affects household expenditure and business performance, examining key variables. Also, it emphasises the importance of socio-economic contexts in shaping the effectiveness of microfinance interventions, contributing to the development of more tailored strategies for poverty alleviation and economic development. The methodological contributions include evaluating the impact of microcredit on economic outcomes by combining quantitative and qualitative methods. The integration of regression analysis with thematic analysis provides a detailed understanding of the data. Additionally, the study sets a high standard for research instrument design, ensuring accuracy and reliability of the findings and contributing to the advancement of research methodologies in the field of microfinance. The study's findings have significant policy implications for microfinance theory and practice. The evidence of microcredit's impact on household expenditure and business performance informs policymakers and microfinance institutions about key factors for effective microcredit programmes. Including socio-economic contexts in the analysis highlights the need for strategies tailored to specific contexts, indicating the need for customised approaches and offering insights for more efficient and sustainable microfinance interventions, ultimately contributing to more effective poverty alleviation and economic development efforts. This study acknowledges limitations in relying on self-reported survey data, constraints on sample size due to geographic or demographic factors and its cross-sectional design, which may introduce biases and restrict the ability to establish generalisability and causality. Future research should consider longitudinal designs and broader, more diverse samples to refine these findings.