Abstract

Microfinance is a term used by many in different domains to fight poverty. Poverty is a syndrome that is affecting the developing countries and especially in sub Saharan Africa. Microfinance and entrepreneurship help as a combine tool to contribute in development.

This study will investigate the underlying issues small businesses are facing in their development. Particular attention will be given to the issue of financing business development where the various microfinance institutions in the Buea Municipality play an important role.

The main objective of this study is to assess the role played by microfinance institutions in the financing of small businesses considering primary source of data in the Buea municipality. The population of interest of this study are small business owners who have benefited from microfinance services, the 30 respondents were selected by means of simple random sampling for the study.

The statistical tool used is the Chi-square test which will be used to test the hypothesis and provide a basis for accepting or rejecting the null hypothesis. From the study carried out it is recommended that; the membership fee for new applicants should be reduced so as to incorporate the very poor into the system, the mode of repayment should be revised so that the poorest can borrow without collateral, also the Cameroon Government on its part should put in place a more stable and predictable environment to encourage nationals to keep their money with microfinance institutions and group lending should also be encouraged.

This study concludes that microfinance institutions play a significant role in the financing of small businesses in the Buea municipality and the clients who are taking loan from the MFIs use this amount to start a business than the other ones who use it for marriage, education house building purpose. This study is focused on four specific objectives.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The movement of microfinance institution in Cameroon has its roots in the year 1963 through the creation of the first cooperative in 1963 by a Dutch Catholic Father Alfred Jansen in Njinikom; North West region of Cameroon. This cooperative is the founding-father of CAMCCUL (Cameroon Cooperative Credit Union League). CAMCCUL is the biggest microfinance institution in Cameroon today (COBAC, 2000, 2006).

Financial and economic crisis of the 80s and 90s in Cameroon as the real ‘spring-board’ of the movement of the microfinance institutions in Cameroon. This crisis had social, regulatory, financial, economic and institutional impact on the microfinance environment in Cameroon. Socially, the crisis led to the lay-off of many qualified banking employees in Cameroon banking sector.

Being in quest of new jobs, these qualified employees set saving and Credit Cooperatives (COOPEC).The COOPEC was dealing with micro lending and micro savings. Financially and economically, the crisis generated a decline in customer’s trust in the traditional banking institutions in Cameroon. This lack of confidence in traditional banks made many customer’s to quit traditional banks for COOPEC.

The crisis caused also the collapse of many traditional banking institutions like Cameroon Bank (CAMBANK), Credit Agricole, Bank of America, Boston Bank, Manhattan Bank, First Investment Bank, and Paribas Bank. Legally, before 1998, the regulation of microfinance institutions in Cameroon was flexible. Prior to 1998, there is no distinction between rural cooperatives involved in poverty alleviation and commercial microfinance institutions involved in profit-making activities. The flexibility in the law generated a free-entry in the microlending and in the microsavings activities in Cameroon. Institutionally, the lay-off of qualified banking employees, lack the confidence by customers in the traditional banking institutions and the free-entry of COOPECs in banking activities led to the great increase and creation of microfinance institutions.

The laws of 1998 and 2001 on profit-making microfinance institutions and non-profit making finance institutions respectively did not stop that increase in the creation of COOPECs in Cameroon. The CEMAC/UMAC/COBAC regulation on microfinance institutions set in April 2002 and implemented from 2007 restructed the sector of microfinance institutions in Cameroon and henceforth led to close illegal, unqualified and unprofessional microfinance institutions.

This was done by MINFI as a national money authority in collaboration with COBAC. The number of microfinance institutions in Cameroon sphere decline form 652 MFIs in 2000 to 490 MFIs in 2006 and 412 MFIs in 2008 (COBAC, 2000, 2007) and MINFI(2008). However Cameroon today is estimated to have about 1000 microfinance institutions. There are three categories of microfinance institutions in Cameroon.

The first category consist of microfinance institutions that cater only to their members and does not accept deposits or give out loans to the general public, in the case of cooperatives and associations.

The second category also called mini banks are involve in the intermediation function between savers and borrowers in the economy as they accept money (micro savings) from customers and give out loans on interest bases.

The third category of microfinance institutions in Cameroon are NGOs (non-governmental organization). They offer only credit and are not allowed to mobilize savings, resources come from donors.

The theoretical link of microfinance and small business creation and growth is the fact that for any business creation and development, credit is an important thing. Absence of credit is a wall for investment and also for the economic growth. Access to credit can increase the adoption of new and advance technologies which allow potential and existing entrepreneurs to create as well expand their microenterprises thereby increasing their level of income and reducing poverty. Availability of credit increases the level of productivity in microenterprises as well as the physical asset and also improves the consumption of the poor.

Rural enterprises need capital which can be gotten from microfinance providers. Microfinance institutions provide two categories of services to micro entrepreneurs who are either potential or existing micro entrepreneurs. This includes financial and non-financial services. To potential micro entrepreneurs, the microfinance institution may offer financial services like micro credit, micro savings, micro insurance and money transfer while non-financial services like training may also be offered.

To existing entrepreneurs, the microfinance provide financial services like money transfer through mobile banking, micro insurance, micro credit and micro savings. Non-financial services like training, technical assistance, and analysis of the sector of activity (Leger Wood 1998) are offered by microfinance institutions in a bit to meet their original mission of poverty alleviation using small businesses in this case as a tool to achieve target.

1.2 Problem statement

Cameroon has valuable natural resources for a strong agricultural sector. This resource base should provide a platform for the development of small businesses, and contribute to the country’s fight against poverty. Business development however requires more than natural resources, and it is not clear what challenges and opportunities in development small businesses are facing in Cameroon. What markets are available? Is there sufficient access to technology and labour resources? Do firms have access to financial capital to fund development? This study will investigate the underlying issues small businesses are facing in their development. Particular attention will be given to the issue of financing business development, where the various microfinance institutions in the Buea municipality play an active role.

Microfinance institutions has for many years aimed to support Cameroon’s small businesses with micro-financing, but it is unclear whether their administrative practices support their efforts or create additional hurdles for small businesses in need of financing for the development of their businesses. This then illustrates the relationship between microfinance institutions and small businesses leaving in mind some research questions;

1.6 Research Questions

1. How does credit policy by microfinance institutions affects the financing of small businesses.
2. How does interest rate on loans affects the financing of small businesses?
3. How does loan repayment period by microfinance institutions affects the financing of small businesses?
4. What are the problems associated with the granting of loans to the financing of small businesses?

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