Contemporary Internal Challenges and Financial Sustainability: Evidence from Microfinance Institutions in Ghana

Abstract

This paper investigated the relationship between contemporary internal challenges and financial sustainability of microfinance institutions in Ghana. The objective of this paper was to assess the level of contemporary internal challenges and financial sustainability and subsequently investigate how the internal challenges influence the level of financial sustainability. Institutional framework, capacity building and funding and credit delivery management were used to measure the internal challenges. The study sought to contribute to quantitative estimation of the relationship between these variables given the sound theoretical foundation with no empirical evidence to support or disaffirm the theory in the Ghanaian context.  The study used mean scale and standard multiple regression analysis to address the research problem and achieve the objective. A 40 microfinance institutions across Ghana and sample size of 384 staff of these institutions were used via multi-stage sampling technique. It was found that microfinance institutions have high level of contemporary internal challenges with weak financial sustainability. Moreover, it was revealed that all the three internal challenges had significant negative influence on the level of financial sustainability. It was concluded that the level of contemporary internal challenges are threats to financial sustainability of microfinance institutions in Ghana.

It is recommended that microfinance institutions should critically review their financial sustainability indicators, seek for external financial support and minimise overreliance on customers' deposit. Management should practically develop and implement policies to strengthen institutional framework, capacity building and credit delivery. Bank of Ghana should develop policy on compulsory savings and reserves by all microfinance institutions with Bank of Ghana to minimise consequence of losing customers' deposit on liquidation.