Microfinance sector decline is becoming a growing concern in Ghana as the industry loses ground within the broader financial system, raising red flags about financial inclusion, household resilience, and access to credit for small businesses. Data from the Bank of Ghana (BoG) show that the sector’s share of the overall banking industry has fallen sharply from about 15 percent in 2017 to 8.0 percent by 2024. This microfinance sector decline reflects more than a numerical contraction; it signals a weakening role for institutions that traditionally serve low-income households and microenterprises.
For years, microfinance institutions (MFIs) have been positioned as a bridge between the formal banking system and underserved populations. Their shrinking footprint therefore has implications that extend beyond balance sheets, touching livelihoods, informal businesses, and trust in the financial system itself.
Why the microfinance sector decline matters
The microfinance sector decline matters because it directly affects access to financial services for segments of the population that are often excluded from commercial banking. Microfinance institutions play a critical role in mobilising small deposits, extending microloans, and supporting petty traders, artisans, and small-scale farmers.
When the sector contracts, households with limited collateral face fewer borrowing options, often turning to informal lenders who charge higher and less transparent interest rates. For the economy, this weakens grassroots entrepreneurship and slows the circulation of credit at the base of the financial pyramid.
The Bank of Ghana has been explicit that the decline represents a setback to financial inclusion, not just a market correction.
Structural weaknesses behind the microfinance sector decline
According to the central bank, the microfinance sector decline is rooted in long-standing structural problems. These include fragmented operations, weak capital bases, governance failures, and persistent operational inefficiencies. Many institutions have struggled to scale sustainably, relying on short-term funding while extending longer-term loans.
High and often indiscriminate interest rates have further eroded public trust. Instead of serving as affordable credit providers, some MFIs drifted away from their developmental mandate, prioritising profit over inclusion. This mission drift has undermined confidence, particularly given the deposit-taking nature of microfinance businesses.
For depositors, these weaknesses heighten the perception of risk, contributing to withdrawals and reduced engagement with the sector.
Impact of the microfinance sector decline on households
For households, the microfinance sector decline translates into fewer safe and accessible savings and credit options. Microfinance institutions often operate closer to communities than traditional banks, offering flexible products tailored to irregular income patterns.
As confidence dips, households may avoid placing deposits with MFIs, limiting their ability to save securely. This weakens financial resilience, especially for low-income earners who rely on small savings buffers to manage shocks such as medical expenses or seasonal income gaps.
The contraction of the sector therefore risks widening inequality in access to financial services, even as the broader banking industry remains stable.
Small and micro-sized enterprises are among the biggest casualties of the microfinance sector decline. Many of these businesses depend on microloans to finance inventory, working capital, and short-term expansion. Commercial banks often view them as high-risk due to limited documentation and inconsistent cash flows.
With fewer MFIs operating effectively, small businesses face tighter credit conditions, slower growth, and reduced capacity to absorb economic shocks. This has knock-on effects for employment, as microenterprises account for a significant share of informal jobs in Ghana.
In this context, the decline of microfinance weakens the broader ecosystem that supports entrepreneurship at the grassroots level.
Regulatory response to reverse the microfinance sector decline
In response to the microfinance sector decline, the Bank of Ghana has introduced stricter regulatory reforms, including higher minimum capital requirements. Under the new guidelines effective from January 29, 2026, microfinance institutions, community banks, and credit unions are required to raise their minimum capital to GH¢50 million by the end of the year.
The central bank views this as a necessary step to strengthen balance sheets, improve governance, and restore confidence. Better-capitalised institutions are expected to operate more efficiently, protect depositors, and align more closely with regulatory standards.
However, the reforms may also accelerate consolidation, as smaller and weaker players struggle to meet the new thresholds.
While the new capital requirements aim to stabilise the system, they could deepen the microfinance sector decline in the short term by forcing undercapitalised institutions to exit the market. This may temporarily reduce access to services in some communities.
Over the longer term, however, regulators argue that a smaller but stronger microfinance sector could rebuild trust and play a more sustainable role in financial inclusion. The success of this reset will depend on effective supervision, improved governance, and a renewed focus on the sector’s developmental mandate.
The microfinance sector decline from 15 percent to 8.0 percent of the banking industry is a warning signal for Ghana’s financial inclusion agenda. It highlights deep-rooted weaknesses that have eroded confidence and reduced the sector’s relevance to households and small businesses. While regulatory reforms offer a path to recovery, the challenge will be balancing stability with access, ensuring that efforts to clean up the sector do not leave the most vulnerable further excluded from the financial system.