Abstract

This research paper examines the impact of the microfinance sector on small/micro enterprises in Ghana. The study uses 2007 BEEPS data and employs the financing constraints approach used by several other researchers in the study area to study if the presence of microfinance institutions has been successful in alleviating financing constraints associated with small enterprises. This is done by comparing investment sensitivity to internally generated funds (cash flow) in enterprises with and without access to microfinance institutions. The study also uses a Propensity Score Matching method to reinforce/support the results obtained from the financing constraints approach. The results obtained from the analyses indicate that small/micro enterprises in areas with adequate MFIs have investment less sensitive to the availability of internal funds due to the fact that they have better access to external funds. This result thus shows that the microfinance sector is alleviating financing constraints in the country.

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