CHAPTER ONE

INTRODUCTION

Background Of Micro-Finance In The Cameroon Economy

Cameroon is the third world or developing country and like most developing countries agriculture is its main activity and it employs like 80% of the working population and also contributes about 75% of the GDP of Cameroon.

Due to the underdeveloped nature of Cameroon, a majority of the population cannot be served by commercial banks due to survey. With this shortcoming to the poor, the idea of microfinance was introduced in Cameroon.

Microfinance is not a new concept but back in the 19th century, money lenders were informally performing the role of now formal financial institutions. The informal financial institutions constitute; Cooperative credit unions, state-owned banks, and social venture capital funds.

These institutions are said to provide savings and credit services for small and medium-size businesses in developing countries and it is known that such businesses are likely to fail (Maloney 2003).

The first microfinance was founded by Muhammed Yunus in Bangladesh in 1976 known as Grameen bank. Microfinance in Cameroon originated around the 1980s due to the severe economic and banking crises.

Microfinance renders both financial and non-financial services; financial services include micro-insurance and money transfer; non-financial services include training, advising, and counseling. Microfinance in Cameroon takes several forms for example self-organized groups, cooperatives, non-governmental organizations (NGOs). All microfinance has as their main objective to provide financial services to the poor who have been excluded from conventional banking (commercial banks).

As a result, this empowers the poor by giving them autonomy. Since 1992, 46 billion FCFA has been given as loans to more than 650000 people by 81 MFIs and of this amount, 40% was given to boost the production storage and marketing in Agro pastoral activities (Wikipedia 2011).

The majority of the population deals with MFIs than commercial banks and it has about 520000 customers with deposits of 95 billion FCFA   (www.camccul.orgaboutus,2007).   Some commercial banks in Cameroon include Credit Communataire d’Afrique (CCA), UNICS, Community Credit Company (CCC), and Dominion Finance.

1.2 Statement Of Problem Of Study

Cameroon as a third-world country falls under the category of heavy indebted poor countries (HIPC). As such majority of the population lives below the poverty line thus making it difficult for these persons to be served by commercial banks.

With these problems at hand, microfinance institutions have a very important role to play. MFIs are out for poverty alleviation; that is try to serve the poor and those excluded from commercial banks conventional banking.

Therefore, given that micro-finance are out for poverty alleviation and the majority of the population of Cameroon is poor MFI has a very sensitive role to play in Cameroon. The problem here is to know if microfinance will be able to adequately serve the poor population in Cameroon. The topic is aimed at providing evidence that MFIs are an important arm in alleviating poverty in Cameroon.

However, this research is aimed at providing answers to the following research questions.  To what extend do loans (credit) provided by microfinance institutions affect the economy of Cameroon?

1.3 Objectives Of The Study

The main objective of this study is to examine the impact of microfinance institutions on the Cameroon economy. The specific objectives include:

1. Identifying the problems facing the Cameroon economy.
2. To examine the impact of Microfinance credit in the Cameroon economy.
3. Making necessary recommendations based on the findings.

1.4 Research Hypothesis

The hypothesis is the proposition, condition, or principle that is assumed without belief in order to draw logical consequences subject to empirical verification. Hence to better verify the above objectives, we assume the following objective. The hypothesis is as follows:

Ho: Microfinance institutions have a significant impact on the economy of Cameroon.

H1: Microfinance institutions do not have any significant impact on the economy of Cameroon.