Impact of Microfinance Closures on Smallholder Farmer Productivity in Ghana: A Financial and Livelihoods Perspective

The closure of over 300 Microfinance Institutions (MFIs) in Ghana during financial sector reforms (FSR) from 2017 to 2019 disrupted financial services for smallholder farmers (SHFs), who relied on these institutions for credit, insurance, and business development services (BDS). This study assesses the impact of these closures on SHF productivity through the Financial Intermediation Theory (FIT) and the Sustainable Livelihoods Framework (SLF). A survey of 601 SHFs - 301 from closed MFIs and 300 from active MFIs - across three regions in Ghana was analyzed using independent samples t-tests and standardized mean differences (SMDs) for effect size estimation (Cohen’s d). Results showed significant declines in access to loans, insurance, and BDS utilization (p < 0.001) among SHFs affected by MFI closures. However, the effect on agricultural productivity was minimal, indicated by small effect sizes for rice (-0.1888 to -0.2731) and maize (0.0878 to 0.1071). Farmers mitigated financial disruptions by leveraging prior financial literacy, social networks, and alternative financing sources. The findings highlight SHFs' resilience, emphasizing the need to strengthen alternative credit mechanisms, enhance agricultural insurance, and improve BDS and financial literacy programs and community-based financial models. These insights align directly with the Sustainable Development Goals (SDGs) 1, 2, and 8.