Abstract

Microfinance is currently being promoted as a key development strategy for promoting poverty reduction and empowerment of people economically. This is because it has been potential to effectively address poverty by granting financial services to households who are not served by the formal banking sector. This study research the effect of MFIs on poverty reduction. The study focused on Community Credit Company PLC BUEA South West Region as a case study, a local provider of Microfinance services.

It intended to cover credit facilities provided by the MFIs and clients’ perception of income improvement and reduced poverty level. The study used a descriptive research design, the main source of data collection method used was a structured questionnaire targeted to the company’s management and some of the clients.

The study revealed that CCC PLC as a Microfinance institution has been able to fight to reduce poverty to a certain level by providing microfinance services to different groups, women or active poor, enable the household to increase their living standard through an increase in their income compare to non-borrower, also enable them to engage in more profitable and economic activities than non-borrowers.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Micro Finance Institutions exist in order to provide financial services to society in the most convenient way, like the formal Financial Institutions like banks. It provides credit as well as deposits, savings, insurance to its clients

Poverty is a condition in which a person of a community is deprived of the basic essentials and necessities for a minimum standard of living (Yunus, 2003)

Microfinance can be a critical element of an effective poverty reduction strategy. Improved access and efficient provision of savings, credit, and insurance facilities, in particular, can enable the poor to smooth their consumption patterns, manage their risks better, gradually build their assets based, develop their micro-enterprises, enhance their income earning capacity, and enjoy an improved quality of life.

Through the impact brought up by microfinance, it has culminated in the flourishing of Microfinance Institutions [MFIs] in the South West region in particular and in Cameroon in general.  MFIs have been defined as “an organization that provides financial services to the poor” [ CGAP, 2012], it’s clear that MFIs are very important to any country wishing to have growth and stable economy hence reduce the level of poverty.

The introduction of MFI in Cameroon is seen as the best alternative source of financial services for low-income earners as a means to raise their income, hence reducing their poverty level and contributing to the country’s economy [ Kessy & Urio, 2006 ].

Micro Finance Institutions [MFIs] are useful as they reduce poverty through increased income and standards of living, empower women, develop the business sector through growth potentials, and develop a parallel financial sector.

Since the government has so many functions to perform so as to ensure that the economy grows well then the establishment and the growth of MFIs in Cameroon has been a better method to reach poor individuals who were not easy to be reached hence providing them with an opportunity of improving their living standard.

Also, over-emphasis on financial sustainability over social objectives and a failure of many MFIs to work with the poorest in the society has been seen as other challenges toward accomplishing the purposes of MFIs on poverty reduction.

Microfinance is a form of financial development that has primarily focused on alleviating poverty through providing financial services to the poor. Most people think of microfinance; if at all, as being about micro-credit i.e. leading a small amount of money to the poor.

Microfinance is not only this, but it also has a broader perspective which also includes insurance, transactional services, and importantly savings (Barr, 2005). According to Sida (2005), poverty has multiple and complex causes.

The poor are not just deprived of basic resources, they lack access to information that is vital to their lives and livelihoods, information about market prices for goods they produce, about health, about the structure and services of public institutions, and about their rights.

They lack political visibility and voice in the institutions and power relations that shape their lives. They lack access to knowledge, education, and skills development that could improve their livelihoods. They often lack access to markets and institutions, both governmental and social that could provide them with needed resources and services. They lack access to information about income earning opportunities.

1.2 Problem Statement

Poverty reduction has been a major concern for succeeding governments in the world because it is believed to be the universally accepted way of archiving economic growth in the country. Efforts in fighting poverty in Cameroon can be traced from dependence.

Mostly the poor person in the rural areas is not reflected in the microeconomic interventions and because of this, poverty is growing rapidly. Challenged with this problem, governmental organizations have and are still looking for better ways to reduce the high level of poverty, especially in Africa.

Focusing on Cameroon, the government of Cameroon on their part has used several strategies such as promoting a stable macro-economic framework, strengthening growth by diversifying the economy, and promoting the growth of microfinance institutions. Evidently enough, microfinance institutions have been a tool for fighting several economic challenges, poverty inclusive, however, little research work has been done to actually determine the effect of microfinance institutions in poverty reduction in Cameroon, therefore the reason for the research.

The economic crisis in Cameroon in the mid-1980s, this is a situation where the economic performance of society is declining as measured by falling GDP growth, falling export earnings, investment, accumulation of debts increasing unemployment and poor living condition. In the the 1986 to 1987 financial year, the economy contracted considerably 2.8%, and -8.6 in 1988.

This decline was persistent and in fact, aggravated until 1994. This motivated the researcher to carry out research and see where the country will be in the years ahead in terms of investment. Considering the great role that microfinance institutions play in the reduction of poverty, research on it cannot be ignored if Cameroon is becoming industrialized by the year 2030.

Previous studies were conducted in urban areas. According to statistics provided by the the formal Planning National Development and Vision 2030 Ministry, the Poverty Level in Cameroon is estimated at 64.1% above the national average of 45.9% placing the country among the poorest countries. This calls for research to be conducted in Cameroon to know the poverty level and where the country will be before 2030.

It is for this reason that the researcher conducted research on the effects of microfinance services on poverty reduction in Buea South West Cameroon in consideration of the main microfinance services, is Micro-Credit, Savings, training,, and microinsurance.

1.3 Research Questions

The study was guided by the following Research Questions

1. How do Micro Finance Institution Services contribute to poverty reduction amongst Buea inhabitants of Buea?
2. Do MFIs services have any effect on poverty reduction in Buea?
3. What are the lending models use by MFIs to advance credit to clients?
4. Does CCC PLC meet the objectives of MFIs in South West Buea?

1.4 Objective of the study

The general objective of this study is to access the contribution of Micro Financial Institutions (MFIs) to poverty reduction in South West Region, to be précised Buea

1.4.1 Specific Objectives

1. The study was carried out in order to attain the following specific objectives
2. How do MFIs Services contribute to poverty reduction in South West Region
3. To access how CCC PLC has been able to reduce poverty among its members.
4. To access the lending model used by Micro Finance Institutions to advance credits to clients.

1.4.2 Hypothesis

Null hypothesis

H.0 Micro Finance Services does not contribute to poverty reduction in South West Buea

H.1 Microfinance institutions do not have any significant impact on poverty reduction in Buea

Alternative Hypothesis

H.2 Micro Finance Services contribute greatly to poverty reduction in South West Buea

H.3 MFI has a significant impact and has contributed greatly to poverty reduction in South West region of Buea

 

Further Readings

ASSESSING THE EFFECTS OF MICROFINANCE INSTITUTIONS ON POVERTY ALLEVIATION IN LIMBE MUNICIPALITY, CAMEROON