Evaluation of debt recovery strategies of micro-finance institutions in the Greater Accra Region of Ghana

Abstract

Debt recovery is crucial if micro-finance institutions are to achieve self-sufficiency and sustainability. The main purpose of the study was to evaluate the effectiveness of debt recovery strategies used by microfinance institutions in Accra. The study specifically investigated the strategies put in place by the institutions to minimize risk of loan non-repayment; assessed the strategies adopted by the institutions to recover debt from clients; and examined the level of effectiveness of the debt recovery strategies used by the institutions. A structured questionnaire was used to gather data from employees of the selected microfinance institutions. Ten microfinance Institutions in the Greater Accra region of Ghana were sampled. Overall, 60 employees were sampled comprising 10 management staff and 50 credit officers. The study found that the institutions adopted a number of strategies including demand for collateral security; early disbursement of loan; extensive screening of clients etc., to reduce the risk of loan default. The institutions also used seizure of collateral; deductions from savings; deduction from guarantors' income; and legal actions to recover loans in default from clients. The debt recovery strategies of institutions were effective in improving overall operational efficiency and profitability. The study recommends that microfinance institutions improve on their effectiveness in debt recovery in order to remain viable within the microfinance environment.