Abstract

Budgets are monetary expressions of target to be accomplished in a given year by an individual, organization or nation. It is a deliberate attempt to achieve superior targets over time with available and expected resources.

This study was carried out to investigate the effect of budgeting on the performance of MFIs in Cameroon, further broken down into the following specific objectives; to explore the relationship between budgeting and performance of MFIs Cameroon using UNICS Plc as case study, to determine the benefits derived by MFIS from proper budgeting and budgeting control practices and to investigate the challenges encountered by MFIs in adopting sound budgeting and budgetary control practices.  A descriptive research design shall be adopted.

The population for the study encompasses the management and the entire staff of the microfinance. Simple random sampling was employed in the selection of respondents from the organization, both primary and secondary data were used. Statistical Package for Social Sciences (SPSS) and Excel were employed to analyze the data. Tables and statistical diagrams like bar charts, and pie charts also aided in the data presentation. The regression model was specifically utilized in analyzing the data.

Despite this, the study showed that 57.9% of the respondents were of the opinion that all the above-mentioned steps are taken into account before the problems encountered during budget preparation are resolved. Hence, in order to solve the problem of budget preparation in UNICS Plc., the Organisation improves their accounting record, better their forecasting methods, involve key responsibility managers and even employ a budget co-ordination committee.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Many organisation recognize the need to have a developed and comprehensive budgeting budgetary control system in order to minimize budget variances, costs and maximize efficiency (Alesina & Perotti, 1996). Budgetary control is as crucial as cash itself and any theft, waste, excessive use or stock out could lead to the business poor performance.

The resources of an organization should be managed effectively and efficiently to achieve its purpose. This implies that the organization should be able to achieve its objectives by minimizing cost. Thus managing implies co-ordination and control of the efforts of the organization for achieving organizational objectives.

Alesina & Perotti, (1996) state that the process of managing is facilitated when management charts its future course of objectives in advance and takes decision in a professional manner, utilizing the individual and group efforts in a coordinated rational manner. One systematic approach for attaining effective management performance is budgeting. Budgets are monetary expressions of target to be accomplished in a given year by an individual, organization or nation. It is a deliberate attempt to achieve superior targets over time with available and expected resources. Such targets are influenced by the experiences of the past and expectation of the future (Atkinson, Banker Kaplan and Young, 2001; Carr, 2000).

Basically, a budget system enables management more effectively to plan, coordinate, control and evaluates its activities. It is a device intended to provide greater effectiveness in achieving organizational efficiency (Chenhall & Langfield, 1998). To be effective, however, the functional aspects must outweigh the dysfunctional aspects. Because a budget plan exists, decisions are not merely spontaneous reactions to stimuli in an environment of unclassified goals. It is pertinent to note that management activities are the driving force behind every organization and of course necessarily unavoidable (Hansen, David, Otley and Van der Stede, 2003).

These activities– planning, organizing, directing and controlling of economic resources, are schematized to reflect the nature and objectives of the organization and must be tailored towards the attainment of the overall organization’s predetermined objectives. Consequently, it is important to systematically and objectively assess the relevance, efficiency, effectiveness, impact and sustainability of the activities in the light of the budget. In this context, therefore, the concern is to use the budgetary procedures to evaluate management activities and organizational financial performance (Lazaridis & Try Fonidis, 2006).

Recent developments, such as a global market, technology advances and e-Commerce, shorter product life cycles and intense competition have transformed the business operating environment. As a result, various financial management systems, including budgeting, cost allocation methods, financial reporting systems and others have come under greater scrutiny. It is imperative that businesses that want to remain competitive have excellent control over their costs.

Otherwise these businesses may cease to operate in the near future, as they may not be able to compete effectively (Banham, 2000), and (Kaplan, 1988). Indeed, failure to draw – up, monitor, and adjust budgets to changing conditions  is  one  of  the  primary  reasons  behind  the  collapse  of  many  businesses (Lazaridis & Try Fonidis, 2006).

Generally an organizations objective is expressed in time frames as informed by its mission and visions. The planning horizon for organizations may vary depending on organization objectives and uncertainties involved. The most forward – looking budget is the strategic plan, which sets the overall goals and objectives of the organization (Kipkemboi, 2013).

Budgets  come  in  after  the  organization’s  strategic  and  action planning for organization has been done and organization needs to know how much money will be required to execute those actions. The major value of budgeting lies in aligning the plans and budgets to strategies. The future of budgeting lies in planning for value.

The budgeting process in manufacturing companies incorporates a policy in financial welfare. For instance, it indicates how money is distributed by the management to the different departments and key areas to focus on. This helps the management in planning and forecasting in order to reduce costs and unnecessary spending.  It also increases profits so that the company may fulfill its corporate vision and mission. This also enables the company to fulfill its debts if any and to ensure the company’s long term technical and financial viability (Gachithi, 2010).

1.2 Problem statement

Budgeting and budgeting control in an Organisation has benefits and consequences that go beyond the organization’s management and have more to do with financial dimension in general, key in which is financial performance. Budgeting enable   management to do better forecasting.  Vague generalizations about what the future may hold for the organization are not good enough for assembling a budget.

Firms‟ management must put their predictions into definite and concrete forecasts (Tracy, 2013).  Budgeting motivates managers and employees by providing useful yardsticks for evaluating performance. Budgets provide useful information for superiors to evaluate firm performance and inform financial allocation strategies across various components of a firm (Horngren, 2003). Over the years, companies have undertaken various attempts aimed at improving its budgetary process with the objectives of imposing greater fiscal discipline on management agencies of both private and public companies. Today most companies boast having a strong detailed and well laid budgeting process which the top executives uses as a tool to allocate revenue resources (Anderson, 1996). Budgeting is the process used by the management of MFIs to formalize its plans (Horngren, 2000).

Budgeting and Financial Performance are key financial processes in the microfinance sector. How to improve firm’s financial performance is an issue that concerns every manager in every business organization.  The high level of technology and process systems required by the fast-growing MFIS typically involves large financial investments. The initial purchases of machinery necessary for provision of quality services to customer, as well as the eventual replacements or upgrades of these machinery, means that MFIS have to engage in continuous investments. MFIs, therefore, need to consider comprehensive and adequate budgets and budgetary practices to realize substantial financial performance (Kenya’s Economic Outlook, 2011).

It is upon this scanty nature of the literature on the effect of budgeting and the financial performance of MFIs that this study is based. The MFIs were chosen due to its uniformity in the study aimed to establish the effect of these two variables, with a view to assess the effects of budgets on the financial performance of MFIs in the Buea Municipality.

1.3 Research Questions

1.3.1 Main Research Question

What is the effect of budgeting and budgetary on the performance of MFIs case study of UNICS PLC?

1.3.2 Specific Questions

1. What is the relation between budgeting and performance of case study of UNICS PLC?
2. What are the benefits of proper budgeting and budgetary control practices on the performance of MFIs case study of UNICS PLC?
3. What are the challenges encountered by MFIs in adopting sound budgeting and budgetary control practices?

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