Abstract

This study on the Determinants of Interest Rates On the Growth and Sustainability of Manchok Cooperative Credit Union Limited (MACCUL) was focused on determining the effect of interest rates on the growth and sustainability of microfinance institutions. Specifically, it was aimed at determining the effect of interest rates on the growth of MACCUL and in examining the effect of interest rate on the sustainability of MACCUL.

The study adopted the purposive sampling technique to obtain a sample size of 20 respondents constituting of the management and employees of MACCUL. The major source of data used in the study was the primary data which was obtained with the aid of research questionnaires and an interview guide. Content analysis was used to analyze the data obtained with the aid of Microsoft Excel 2016 and SPSS version 21.

Results revealed that a significant positive relationship exists between growth, sustainability, and interest rates (R= 0.363, p-value < 0.05), thus implying that interest rates is inversely related to the growth and sustainability of MACCUL. The study also determined that the political environment affected the microfinance industry and the findings showed that the majority (83%) felt that the political environment did affect MACCUL.

The study, therefore, concluded that MACCUL’s interest rates were determined greatly by its desire for growth and sustainability. Consequently, MACCUL members will always prefer low rates of interest to high rates, so if interest rates were high, MACCUL will risk its growth and sustainability. Based on the findings of the study, some recommendations were made such as the fact that MACCUL should be sensitive and flexible enough to know when not to allow growth and sustainability to be the sole determinants of its interest rates.

CHAPTER ONE

INTRODUCTION

1.1 General overview

The growing need for financial services and Banking products in Cameroon has necessitated the birth, growth and development of microfinance institutions in Cameroon as a result of the liberalization of the finance sector of the Cameroon economy.

This liberalization of banking in Cameroon, created a competitive environment for banking companies in the provision of credit facilities to groups and individuals and making it possible for people at different income levels to save their monies with banks and other financial institutions at low costs (interest rates) like MACCUL which have as general objectives the provision of microcredit and other financial services.

MACCUL just happens to be one among many other micro-financial institutions offering very similar products, operating in the same very challenging environment with a lot of political instability created by the ongoing crisis within the English-speaking territories of the nation. This leads to a lot of unexpected instability in the performance of financial transactions giving rise to a lot of complexity relating to the granting of loans procedure, interest rates, and repayment periods.

Despite a large number of microfinance institutions in Cameroon, many fail to survive and grow as a result of their inability to satisfy the needs of their members (customers) through the provision of adequate and efficient financial services at affordable prices, like the granting of loans, manner of reception of members, nature of deposits and other services they offer.

The growth and survival of MACCUL in Cameroon depend on their ability to create credit by giving out loans, accepting customers’ deposits, payments of salaries, and other financial transactions.

More credit or funds will only be created when loans are given out to customers at highly affordable prices (interest rates), and good repayment periods. Interest rates charged by MFI’S on loans and other services account for one of the reasons why most microfinance institutions in Cameroon cannot survive the competition and go bankrupt. This reduces the number of funds and may also cause microfinance to engage in the selling of some of its assets in order to meet up with its obligations to its members and finally end up being liquidated.

MACCUL being microfinance with well-developed products and services, have few major concerns, which accounts for its success over the years. It is the desire of MACCUL to ensure its sustainability and growth as well, and they will fail in that if they do not prioritize the issue of interest rates.

We say an institution is growing when it realizes an increase in customers, an increase in an investment portfolio, an increase in physical size, an increase in budgets and surpluses. Interestingly, growth should always come together with sustainability.

Any growth not backed by sustainability will always lead to the downfall of any institution. MACCUL lasting more than a decade with increased customers, products, and size is evidence of growth and sustainability.

Micro Finance institutions have been on the rise over the past two decades. The industry has become very profitable and everybody wants to belong to an MFI due to its advantages, with the major advantage being its loan portfolio and its prices.

MACCUL rising amidst a lot of other Micro Finance Institutions is faced with a lot of competition and hence has to pay close attention to the issue of interest rates while it ensures its growth and sustainability. Customers or members most often belong to an MFI because of the prices at which it sells its products and buys its products.

The MFI also runs mainly on the returns generated on its products. This makes the issue of interest rates paramount to any financial institution. Workers need to be paid, office stationary’s need to be bought, union Bill’s need to be settled and a lot of expenses need to be met.

The finance generated through interest rates goes a long way to handle these expenses. So poor management of interest rate and its spreads tend to be very detrimental to the growth and sustainability of MACCUL.

In today’s financial situation in Cameroon, there is a rising demand for loans more than ever before and every loan seeker pays close attention to the interest rates charged. So if the management of MACCUL just like every other microfinance institution neglects this issue of interest rates, it will be its downfall. Interest rates also influence liquidity management which is the major cause of a bank run and a bank panic. So like the nucleus is to a flower, so is the interest rate to MACCUL.

Writing on determinants of interest rates on the growth and sustainability of MACCUL is of paramount importance to the financial sector in Cameroon and a sensitive issue that cannot be ignored. MACCUL is registered under CAMCULL and possesses a capable team that sticks to the COBAC regulations regarding interest rates charged by microfinance institutions in Cameroon and Central Africa. This COBAC regulation prevents customer exploitation and creates an easy system of follow-up and feedback to make sure MACCUL performs within it given guidelines.

1.2. Statement of the problem

In Cameroon today, the need for MACCUL cannot be underlooked since they go a long way in the provision of micro banking products and services and support all types of members or customers irrespective of their social and financial status.

It is the aim of MACCUL to sell its products at a breakeven price i.e. selling its products at a price that will only cover the cost of production and yield no profit but sustain survival. The ability of MACCUL to make enough revenue to sustain itself solely depends on its ability to charge interest rates and give interest rates to customers on a satisfactory basis.

The loan portfolio of MACCUL is their most important asset. Hence, MACCUL being a growing MFI depends on its ability to manage its loan portfolio efficiently. The loan portfolio is made up of the different types of loans offered by the Manchok Cooperative Credit Union.

The returns (interest rates) on these loans are what ensure the survival of the financial institutions, as well as their profitability. Customers are attracted to buy financial services based on the cost of these services. A high cost is less attractive to customers and a low cost is more attractive.

Another very vital aspect is the interest MACCUL pays the customer for the usage of their accounts (money). It’s not all about loans. MACCUL receives interest on loans and pays interest on customer’s savings. Because of the desire to increase in size, Manchok turns to charge very high-interest rates on loans and give out relatively lower interest rates to customers for their savings.

1.3. Research Questions

The research questions will be divided into two parts

1.3.1. Main Research question

What are the determinants of interest rates on the growth and sustainability of MACCUL?

1.3.2. Specific research questions

1. What are the determinants of interest rates on the growth of MACCUL?
2. What are the determinants of interest rates on the sustainability of MACCUL?

1.4. Objectives

The objectives of this research project will be classified into two parts.

1.4.1. Main Objective

To examine the determinants of interest rates on the growth and sustainability of MACCUL.

1.4.2. Specific Objectives

1. To determine the effect of interest rates on the growth of MACCUL.
2. To examine the effect of interest on the sustainability of MACCUL.