Microfinance and Rural Household Development: A Ghanaian Perspective

Though at the theoretical level, micro-credit is said to play a significant role in poverty reduction, empirical work on the role of micro-credit in poverty reduction is mixed with some studies indicating high levels of employment and income generation and others suggesting a worsening of poverty with micro-credit. Does micro-credit really get to the poor? Does it enhance or impede their productivity? Based on a study of 139 households in one rural area in the Upper West Region of Ghana, we find that: (a) Beneficiaries of micro-credit divert a significant portion of such loans into household consumption – albeit with moderate impact on house-hold productivity and welfare and (b) Micro-credit has modest impact on rural community development.