Effects of Collapse and Delicensing of some Microfinance Institutions on Microentrepreneurs in La Nkwantanang-Madina Municipality

The microfinance sector in Ghana witnessed rapid growth in the late 2000s across the country without effective regulation and licensing, resulting in frequent collapse. In response, in 2011 the Bank of Ghana issued a licensing regime to regulate the microfinance sector. Despite the licensing of MFIs, the industry still faced liquidity issues and insolvency, causing significant loss of deposits across the country. Later in 2019 BoG revoked the licenses of hundreds of MFIs that were insolvent or dormant, without realistic prospects of bouncing back as part of the restructuring of the financial sector. The purpose of this exercise was to restore confidence in the microfinance sector and salvage depositors’ funds. The extent to which the goal has been achieved is yet to be investigated. This study aims at identifying the effects of delicensing on microentrepreneurs in the La Nkwantanang-Madina municipality. This study interviewed 450 microentrepreneurs to ascertain their perceptions about the delicensing, how it has affected their business, and their willingness to patronize microfinance services. The study initially used stratified sampling in selecting microentrepreneurs, while the snowball technique was used to overcome the challenges of getting clients of defunct MFIs. Logistic regression was used to identify the relationship between willingness to patronize microfinance and their perception towards the delicensing exercise. Ordered logit regression was used to find the relationship between the confidence level and their demographic characteristics and type of microfinance client or non-client. T-test of different means was used to compare microentrepreneurs’ perceptions before and after the restructuring. The study found that delicensing has reduced the perception of risk in the MFIs, created a positive perception in MFIs, and also somewhat increased the confidence in the sector. Additionally, it was realized that perception about the delicensing positively affected the microentrepreneurs’ willingness to use microfinance services. The study recommended that a customer services desk should be created to provide information and address customers’ problems relating to microfinance services. The study also recommends BoG collaborate with Apex Bodies to conduct monthly or quarterly spot monitoring checks to ensure adherence to practices and report to the BoG. Additionally, recommend the extension and scale-up of the Coronavirus Alleviation Program Business Support Scheme and Ghana Cares Guarantee scheme program beyond the pandemic to lighten the financial constraints that microentrepreneurs encounter.