The Effects of Microcredit on Profitability and the Challenges on Women Owned SMEs: Evidence from Northern Ghana

Abstract

Women owned enterprises have limited access to capital as traditional banks shy away from them due to the high risk associated with lending to SMEs. Hence, several Microfinance Institutions (MFIs) sprung up with the aim of providing credit to SMEs especially women entrepreneurs. In this paper, the effect of microcredit from these MFIs on profitability of women owned SMEs is examined with data from 199 women entrepreneurs in the Tamale Metropolis of Ghana. The enterprises were randomly selected from five Microfinance Institutions and categorized based on their economic activities using stratified sampling. Semi structured interview checklist was used to survey the women owned SMEs whilst questionnaires were administered to the Microfinance Institutions. A paired sample t-test was employed to determine the changes in Gross Profit over time after which effect of size was also determined. The results indicate a significant increase in the average monthly gross profit over time.