Abstract

It has been observed that despite the important role they played by credit unions, their growth in the Fako division remains sluggish. This study therefore examines the factors influencing the growth of credit unions in the Fako division, south region of Cameroon.

Using descriptive analysis and a Poisson on a sample of 40 branches of credit unions in the Fako division, the analysis indicates that increased competition positively impacts membership and branch expansion but negatively affects loan accounts. In contrast, stronger cultural and social norms hinder growth across all metrics.

Financial literacy and robust governance structures enhance membership, branches, and loan accounts. Additionally, higher educational levels correlate with greater credit union growth, with pronounced effects as education progresses from primary to postgraduate levels. Experience also plays a role, with more years correlating to growth.

To address these findings, several policy recommendations are suggested: promote competition in the financial sector to drive innovation in credit unions; implement programs to enhance cultural norms that support credit union participation; invest in financial literacy initiatives to educate the public about credit union benefits; strengthen governance structures for enhanced transparency and accountability; and prioritize educational opportunities for credit union staff and members to improve skills and knowledge.

CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

As significant financial organisations that support community development and financial inclusion, credit unions have grown in importance. To comprehend the success and sustainability of credit unions, it is essential to look at the factors that influence their growth. The factors influencing credit union expansion have been the subject of several recent studies.

The number of members is one crucial element that shows how well credit unions can draw in and keep members. According to research, larger credit unions are more able to offer their members financial services and are more resilient to shocks to the economy (Berger & Udell, 2022; Li & Shen, 2023).

The amount of a credit union’s membership has a big impact on its expansion. From 18,500 in 2020 to 21,200 in 2023, the average size of credit union membership in the United States has grown (NCUA, 2023). The ability of larger credit unions to draw in and keep more members boosts their ability to deliver financial services efficiently (Berger & Udell, 2022).

According to research, credit unions with a bigger membership base—those with over 50,000 members, which accounts for about 12% of US credit unions—are better equipped to meet the requirements of their members and are more resilient to economic shocks (Shen & Wang, 2021). These credit unions can provide a greater variety of goods and services, which boosts member satisfaction and fosters further expansion.

Another important factor influencing growth is the makeup of a credit union’s loan portfolio. Credit unions’ financial stability and expansion prospects are improved by having a high-quality, well-diversified loan portfolio (Adams & Amel, 2021; Chen & Zhang, 2022). 35% of car loans, 25% of mortgage loans, 20% of consumer loans, and 20% of commercial loans made up the typical credit union’s loan portfolio in 2023 (NCUA, 2023). Credit unions can efficiently manage risk by providing a variety of loans to different sectors and companies. Furthermore, keeping an excellent loan portfolio with timely repayments and low default rates (less than 1% in 2023) guarantees the availability of money for additional lending and enhances the credit union’s standing in the community (NCUA, 2023).

The expansion of credit unions is also significantly influenced by financial performance metrics. The sustainability and growth of credit unions are significantly influenced by metrics including return on assets (ROA), capital sufficiency, and asset quality (Hanspal, 2021; Gao & Li, 2022).

The capital-to-asset ratio was 11.2%, the non-performing loan ratio was 0.60%, and the average return on assets (ROA) for US credit unions in 2023 was 0.90% (NCUA, 2023). Furthermore, credit union performance and growth are influenced by the governance structure, which includes the leadership, composition, and decision-making procedures of the board (Carbo-Valverdee et al., 2022; Zhang & Wang, 2024).

The expansion and sustainability of credit unions are significantly influenced by financial performance metrics. Important factors that affect a credit union’s capacity to grow and provide efficient services to its members include return on assets (ROA), capital sufficiency, and asset quality (Hanspal, 2021; Gao & Li, 2022).

The average return on assets (ROA) for US credit unions in 2023 was 0.90%, demonstrating profitability and effective resource usage that allows credit unions to reinvest in their business and draw in new members (NCUA, 2023). With an average capital-to-asset ratio of 11.2% in 2023, adequate capital levels guarantee the credit union’s capacity to withstand unforeseen losses and foster future expansion (NCUA, 2023). Furthermore, preserving strong asset quality—which is demonstrated by a 2023 non-performing loan ratio of 0.60%—protects the credit union’s financial health and enhances its lending capacity (NCUA, 2023).

Credit unions’ growth trajectory is greatly influenced by their governing structure. Credit union success and growth are influenced by effective governance methods, such as board composition, leadership, and decision-making procedures (Carbo-Valverde et al., 2022; Zhang & Wang, 2024). About 80% of credit unions have boards with at least five members who have a range of backgrounds and experiences. These members can guarantee accountability and transparency, offer strategic direction, and make well-informed decisions that help the credit union achieve its expansion goals (NCUA, 2023). More than 90% of credit unions have strong leadership, which promotes a culture of innovation, member-centricity, and risk management—all of which are essential for long-term success (NCUA, 2023).

Socio-economic factors can significantly impact credit union growth. Factors such as income levels, education, and employment rates affect the demand for financial services and the ability of individuals to become credit union members (Seneviratne & Sun, 2021; Li & Chen, 2022). In 2023, the average household income of credit union members in the US was $78,000, with 70% of members having a bachelor’s degree or higher national diplomas (NCUA, 2023). Understanding these socio-economic dynamics is crucial for credit unions to tailor their products and services to meet the needs of their target market.

Credit unions are member-owned financial cooperatives that have gained significant importance in enhancing financial inclusion and serving the banking needs of individuals and communities (Chakravarty & Stein, 2021; Ito & Shimizutani, 2022). These institutions provide an alternative to traditional banking by offering accessible and affordable financial services to their members (Agarwal & Hauswald, 2020; Demirguc-Kuntet al., 2023).

Fako division, located in the south west region of Cameroon, is home to over 20 credit unions that have contributed to the local economy and the well-being of its residents (Kenfacket al., 2022).

The growth of credit unions in the Fako division has been influenced by various factors that need to be understood and addressed for sustainable development. Financial performance indicators, such as return on assets (ROA), capital adequacy, and asset quality, play a vital role in credit union growth and sustainability (Hanspal, 2021; Gao& Li, 2022). In 2023, the average ROA for credit unions in the Fako division was 0.85%, the capital-to-asset ratio was 10.8%, and the non-performing loan ratio was 0.75% (Kenfacket al., 2023).

The governance structure of credit unions in the Fako division, including board composition, leadership, and decision-making processes, also influences their growth and performance (Carbo-Valverdeet al., 2022; Zhang & Wang, 2024). Approximately 75% of credit unions in the Fako division have boards with at least five members, and over 85% have strong leadership that fosters a culture of innovation and member-centricity (Kenfacket al., 2023).

Socio-economic factors, such as income levels, education, and employment rates, significantly impact the demand for financial services and the ability of individuals to become credit union members in the Fako division (Seneviratne& Sun, 2021; Li & Chen, 2022). In 2023, the average household income of credit union members in Fako division  Municipality was $4,200, with 60% of members having a secondary education or higher, and an employment rate of 75% (Kenfack et al., 2023).

1.2. Statement of the Problem

Numerous aspects impact the expansion of credit unions in the Fako division, including their capacity to draw in and keep members, manage their loan portfolio, generate financial performance, set up efficient governance frameworks, and react to socioeconomic changes.

For the municipality of Fako division to develop sustainable credit union growth, it is imperative to comprehend these factors to develop effective strategies and policies (Berger & Udell, 2002; Adams & Amel, 2005; Hanspal, 2012; Carbo-Valverdee et al., 2008; Seneviratne & Sun, 2013; Acharya et al., 2022; Nguyen et al., 2023).

Over 97,000 people are members of the 46 registered credit unions in the Fako division as of right now, according to recent data (Nkundabanyanga & Atingi-Ego, 2018; Acharya et al., 2022). These credit unions contribute significantly to community development and financial inclusion, but they may encounter several obstacles to growth that compromise their viability and efficacy.

The lack of outreach and knowledge among the various groups in the municipality is one of the main issues that credit unions in the Fako division are facing. Only 42% of people in the Fako division were aware of the services and advantages provided by credit unions, according to a 2022 poll (Nkundabanyanga & Atingi-Ego, 2018; Nguyen et al., 2023). This ignorance may restrict credit unions’ ability to expand as

Access to capital is another critical factor influencing the growth of credit unions in the municipality. A recent study revealed that only 60% of the credit unions in the Fako division have access to sufficient capital to support their lending activities and expand their operations (Berger &Udell, 2002; Acharya et al., 2022). Insufficient capital may result in restricted lending capacity and an inability to meet the financial needs of existing and potential members.

Regulatory and legal constraints can also pose challenges to credit union growth.

A 2021 analysis found that compliance with regulatory requirements and adherence to legal frameworks account for 25% of the operational costs of credit unions in the Fako division (Hanspal, 2012; Nguyen et al.,2023). These constraints may limit their ability to innovate, expand their product offerings, and effectively compete with other financial institutions operating in the municipality.

The adoption of technology is crucial for the growth and efficiency of credit unions, but a 2023 study revealed that only 35% of the credit unions in the Fako division have fully integrated modern technologies into their operations (Nkundabanyanga & Atingi-Ego, 2018; Acharya et al., 2022). Outdated or manual systems may result in inefficiencies, slower processing times, and reduced member satisfaction.

Weak governance structures and inadequate management practices can also impede credit union growth. A 2022 assessment found that 40% of the credit unions in the Fako division have ineffective decision-making processes, lack strategic planning, and have insufficient leadership (Carbo-Valverde et al., 2008; Nguyen et al., 2023). These issues can hinder the ability of credit unions to respond to evolving market dynamics and seize growth opportunities.

Credit union expansion may also be hampered by social and economic concerns. Over the last three years, the average inflation rate in the Fako division has been 7.5%, which may affect credit unions’ financial stability and future growth (Seneviratne & Sun, 2013; Acharya et al., 2022).

Additionally, according to a 2021 survey, 55% of people in the Fako division lack financial literacy, which could restrict their use of credit union services (Nkundabanyanga & Atingi-Ego, 2018; Nguyen et al., 2023). municipality, and what effects do these elements have on their capacity to draw in and keep members, oversee their loan portfolio, turn a profit, set up efficient governance systems, and react to socioeconomic changes?

The aforementioned analysis makes it abundantly evident that, despite the credit unions’ increasing role in directly and indirectly fostering financial inclusion and job opportunities in the Fako division, the sector’s growth is still slow due to several internal and external factors.

Some credit unions, such as the Buea P&T and Police Credit, Victoria Customs, and National Ports Authority credit unions, have seen tremendous growth, but others, like Kumba Town, Tole Tea, Bomaka, Missellele, and CDC Metes-Moliwe credit union, are still having difficulty reaching a wider audience, becoming more sustainable, and having a greater impact.

The literature currently in publication identifies many factors that influence the expansion of credit unions, including customs and social norms, competition from other financial institutions, governance and management practices, member financial literacy, membership size, loan portfolio diversification, return on equity (ROE), return on asset (ROA), capital adequacy ratio, and degree of membership engagement. Their relative significance and interactions within the framework of the Fako division are still unknown, though.

Therefore, the purpose of this study is to look into the factors that influence the growth of credit unions in the Fako division. It will do this by analysing the effects of institutional, social, regulatory, and economic factors as well as by identifying the main factors that encourage and hinder credit union expansion and, in turn, growth.

1.3.Research Questions

1. To what extent does competition from other financial institutions affect credit union growth in the Fako division?
2. Do social norms affect the growth of credit unions in the Fako division?
3. How does financial literacy influence credit union growth in the Fako division?
4. Does governance structure have any role in credit union growth.?

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