Abstract

The main objective of this study was to examine the Effect of Cash Management on the Organisational Performance of Microfinance Institutions within the Buea municipality. Cash management dimensions such as cash planning, cash Budgeting and cash collection were examined to have a deeper understanding from our empirical literature observation.

The study used a cross sectional research design to collect primary data using a structured design questionnaire. 67 questionnaire were distributed out to employees of MFIs. Census sampling technique was used for the study. Method of data analyses adopted for the study was both descriptive and inferential.

OLS linear regressions model was used for data analysis. The findings of the study showed that cash planning, cash budgeting and cash collection were found to have a positive and significant effect on performance of MFIs in the Buea municipality, but just cash budgeting is significance because the P-value of 0.01 which is less than the threshold of 0.05.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Cash refers to money in its physical form, such as banknotes and coins issued by a central authority and it facilitates transactions and economic activities and it can equally be saved and stored for future use and cash is considered as the most liquid assets after  prepaid expenses and accrued revenue. According to Kenneth Rogoff (2016): Cash is a major contribution to various societal problems. He believes that cash facilitates tax evasion, corruption, terrorism, drug trade, and human trafficking, citing the massive amount of cash in circulation, $1.4 trillion in US dollars. He advocates for eliminating large-denomination bills to curb crime and tax evasion, suggesting this world increases government tax revenue and argues that phasing out cash would give central banks more flexibility to implement negative interest rates, enhancing macroeconomic stability. He also sees digital payments as a more efficient and safer alternative to cash, noting that even criminals prefer digital transactions for their convenience and safety and he acknowledges that a cashless society raises concerns about individual freedoms and civil rights, potentially allowing governments to track citizens’ transactions. According to John Maynard Keynes (1936):  he discussed the role of cash and liquidity in the economy. He highlighted the various motives for holding cash which are; transactions motive which is holding cash for every day transactions and business needs, Precautionary motive which is holding cash as precautionary measure for unexpected expenses or emergencies and Speculative motive which is holding cash to take advantage of speculative opportunities, such as investing in assets.

Cash management has attracted increasing attention mostly in businesses and firms or companies. The term cash management has been defined in different ways by different scholars. According to Barret (1999) cash management has a series of processes used by an organization to obtain the maximum benefit from its flow of cash funds, sound cash management involves better timing of expenditure decisions, earlier collection and banking of revenue and accurate forecast of cash flows. According to Pandey (2008): Cash management involves managing cash flows into and out of a firm, as well as managing cash balances held by firm at a point in time, ensuring that the firm has sufficient cash to meet its financial obligation, managing cash shortfalls through financing options and maximizing returns on excess cash. Generally, Pandy’s work highlights the importance of effective cash management in maintaining a firm’s financial stability and supporting its long term-term growth objectives. According to Christine V. Zavgren (1983): He focused on predicting corporate failure using financial ratios, including those related to cash management. She included a cash ratio in her model to evaluate a company’s liquidity and ability to meet its short-term obligations. This ratio assesses a company’s cash balance in relation to its financial health. Also, she developed a bankruptcy prediction model that incorporated seven key financial ratios, including inventory turnover, receivables turnover, cash position, short-term liquidity, returns on investment, financial leverage, and capital turnover. Zavgren’s research highlighted the significance of effective cash management in preventing corporate failure. Her model demonstrated that poor cash management, along with other financial factors, can contribute to a company’s bankruptcy prediction.

However, Micro finances also has concern on cash management because it is a financial service which offers to individuals of lower economic backgrounds. Micro finance started with micro credit, whereby they practice providing small loans to those who do not have a steady source of income, collateral or any history. Upon the creation of micro credit by Bangladesh social entrepreneur Muhammed Yunus in 1983, Yunus established Grameen Bank in Bangladesh. The goal of this institution was to initially provide small loans to entrepreneurs.

Yunus vision for microcredit was brought when he witnessed women who made village basket weavers in Bangladesh making two cents a day. He decided if the women were able to fall back on a loan, they would be able to improve their profits. After issuing them a loan, following the group model, the women were able to pay back the loan and keep their business running.

Yunus received the Nobel peace prize for his efforts with Grameen Bank. The bank currently has 2500 operational locations and employs 22000 individuals. However, they are currently 10,000 microfinance institutions. Moreover, this study will present the cash management technics which will contributes in achieving and successful cash management according to Home and Wachowitz (2012), cash management is very vital for production firms whose assets are mostly composed of current assets. Cash management also directly affects the profitability and liquidity of firms (Raheman and Nasr 2013). This centers mostly on measuring the effects of cash management on performance of microfinance just as it focuses on establishing, if any the association between liquidity and profitability of firms. Cash management is a broad term that refers to the collection, concentration and disbursement of cash. The main aim is to manage the cash balances of an enterprise in such a way that maximizes the availability of cash not invested in fixed assets or inventories so as to avoid the risk of insolvency, (Mitnick). Factors monitored as part of cash management includes a company’s level of liquidity, its management of cash balances and its short-term investment strategies (Brock et al.2008). Many companies are having negative cash flows which results to cash mismanagement.

Classen and Van Hottoren (2012) hold that cash management can be defined as “theories and methods for handling liquid capital” Larsson discusses; cash management consists of example: handling liquid capital and cash flow. Larsson holds that many organisations neglect their work with cash management. This neglect arises from the shortcoming of example efficient payment routines, and trade receivables.

Equally, the “2009 Best practice handbook of European cash management” looks at cash management implementation trends and challenges. According to this handbook, cash management is a system that comes to reduce working capital requirements over a longer term by improving efficiencies and gene rating cost savings in the management of cash flows and overall liquidity. So for businesses to overcome financial and liquidity crises both internal and externally, they should effectively look at their existing cash management structures and procedures.

According to Roseberg (2010), cash management is very necessary for both new and growing businesses. Also, Partel (2010), cash management is important for business profitability, future planning and sustainable. So, the putting in place of cash flow management will enable the management of micro finances to sustain their business and thus lead to financial performance. Despite the strategies, they however encountered some contemporary cash management challenges such as poor management, lack of resources, and instability in the market.

In Africa, the implementation of cash management is sophisticated. A work by Kwane (2007) that was centered on the fact that, the putting in place of a cash balance policy ensures prudent cash budgeting and investment of surplus of cash. Therefore, reducing the time cash is tied up in the operating cycle improves business profitability and market value as well as business performance. Proper cash management will enable the owners of microfinance to meet up with cash disbursement, minimizing funds committed to cash balance as well as to meet up with cash balance. The various ways through which a company can manage cash includes; planning budgeting, collection and disbursement of cash.

Moreover, the idea of cash management is not different like that in Cameroon. In Buea, there exist many micro finances. The operations of these finances’ corporate to the growth of the area. They however face some challenges which are; inadequate infrastructural development, high taxes, inadequate donor funding, bad debts challenges and also the absence of good record keeping. Therefore, the researcher sets out to establish factors behind this stagnation in the growth of microfinance institutions in Buea with a particular interest in the cash management practices employed and their effects on the microfinance Organisational Performancetaking five microfinance institutions under the first category of microfinance institutions in Buea. Also, Microfinance institution offer a range of financial services to low-income individuals and groups. Some of the key sub-concepts include; Microcredit which are  Small loans provided to low-income individuals or groups to support income generating activities. Muhammad Yunus (2007), Pioneered microcredit through Grameen Bank, providing small loans to poor women in Bangladesh. Micro savings which are Financial services that allow individuals to save small amounts of money, providing a safe and secure way to manage finance. Stuart Rutherford (2009), highlighted the importance of micro savings in his book “ The Poor and Their Money”. Micro insurance: Insurance services designed for low- income individuals or groups, providing protection against risks such illness, death, or natural disasters. Craig Churchill and Michal Mutul (2012), edited a book on “protecting the poor, A micro insurance Compendium “, exploring the role of micro insurance in protecting low-income households. Islamic Microfinance: Shariah-compliant financial services for low-income individuals or groups, providing an alternative to conventional microfinance. Mohamed Abdel-Gadir Adam (2015), Discussed the potential Islamic Microfinance in promoting financial inclusion and poverty reduction. Digital Microfinance: The use of digital technologies, such as mobile phones and online platforms, to deliver microfinance services. Susanne Lister (2018), Explored the potential of digital microfinance in expanding financial inclusion and improving the efficiency of microfinance services.

Cash Budgeting dates back to ancient civilizations, where people tracked incomes and expenses to manage resources effectively. In ancient Mesopotamia, Egypt, and Greece, people use clay tablets, papyrus, and other materials to record financial transactions. Luca Pacioli (1445-1517). In the 15^th century, introduced double entry book keeping a system that revolutionalised financial record keeping. In the 20^th century, businesses and individuals began using cash budgeting as tool for financial planning and management. With adverse of computers and software’s cash budgeting became more accessible and efficient, enabling people to track finances and make informed decisions. Today, cash budgeting is an essential skill for individuals, businesses and organisations to manage finances effectively and achieve financial goals.

Cash Planning dates back to ancient civilization where merchants and traders tracked finances to manage resources. Luca Pacioli (1445-1517). In his introduction of double entry bookkeeping in the 15^th century revolutionalised financial record-keeping and lay the ground work for modern cash planning. As businesses grow and became more complex, cash planning evolved to meet the needs of industrialisation and global trade. The development of modern accounting and financial management principles further refined cash planning techniques. The advert of computer software’s and digital tools has made cash planning more accessible, efficient and accurate.

Cash collection dates back to ancient civilization where people used various forms of currency and bartering systems. In ancient times people used commodities like stone, precious metals shells as form of currency. Microfinance institutions have evolve significantly in their approach to cash collection over the years. Historically, microfinance institutions relied on group meetings and physical cash collection but with technological advancement and changing borrower needs, they have shifted towards digital payment methods. Early days of microfinance emerged as a poverty-reduction tool in the 1970s, pioneered by Grameen Bank Mohammed Yunus. Initially, Microfinance used group based lending model, where borrowers will meet regularly to repay loans and discuss financial matters.

According to Cull Demirguc-Kunt, and Morduch (2007), the performance of microfinance institutions can be measured by their financial sustainability, outreach, and impact on clients. According to Hartarska (2005): The performance of microfinance institutions is measured by their ability to achieve financial sustainability and outreach to clients. According to Mersland and Strom (2009): The performance of microfinance institutions can be evaluated by their financial performance, social performance and efficiency that is and governance in microfinance institutions. According to Schreiner (2002): The performance of microfinance institutions is measured by their ability to provide financial services to the poor and vulnerable populations. Aspects of outreach, is a frame work for discussion of the social benefits of microfinance. Microfinance institutions face various challenges and opportunities that can impact their performance and social outreach. Some of the key factors affecting microfinance institutions include: According to Tanyiyim, Everestus (2024), several factors influences the performance of microfinance institutions in Buea as seen below; Institutional Characteristics that is the size, maturity, and legal status of the microfinance institution. Governance that is Board composition and stakeholder involvement in Financial Management, that is loan management, credit decisions, and risk management. Regulatory environment that is compliance with regulation and laws.Technological Integration. Adoption of digital technologies to improve efficiency and financial outreach

Effective cash management is crucial for MFIs’ performance in the that; proper cash management enables Microfinance Institutions to meet short-term obligations, ensuring sustainability and operational efficiency. Inadequate cash flow management can lead to liquidity issues, hindering MFIs’ ability to provide essential financial services. Equally, cash management techniques positively correlate with profitability. Microfinance Institutions with robust cash management practices tend to perform better financially, as they can optimize their resources and minimize financial losses. Also, well-implemented cash management allows MFIs to streamline their operations, reducing delays in loan processing and improving customer satisfaction. This, in turn, enhances their overall operational efficiency. Similarly, effective cash management involves identifying potential risks and implementing controls to mitigate them. By doing so, MFIs can minimize financial losses and maintain stability. Furthermore, cash flow statement analysis is essential for assessing MFIs’ financial strength and vulnerability. By monitoring cash flows, MFIs can identify areas for improvement and make informed decisions to ensure financial stability. To achieve optimal cash management, MFIs should consider implementing internal control frameworks, such as the Committee of Sponsoring Organisations of the Treadway Commission (COSO) model. This framework emphasizes the importance of establishing a strong control environment, conducting thorough risk assessments, and implementing robust control activities.

1.2 Statement of the Problem.

For years now, the Organisational Performance of some microfinance has been dropping. They have reduced their employment capacity; send away workers, less diversification decrease in profit and a reduction in the return on capital employed. So the researcher has been wondering why the situation is the way it is and she started looking for what could have been the reasons for this poor financial performance. Furthermore, the researcher finds out that in microfinance institutions, the poor organizational performance observed in this microfinance institutions are as a result of poor cash management practices in these institutions. For instance, in cash planning, they could be facing problems like, having a huge estimation of the amount of cash they will have in the next month, did not have a proper plan for the expected cash inflows and outflows. For the cash budgeting, the problem observed is that the fail to practice sound cash forecasting to know when they will experience the peeks and slumps of the business circle. As it was found out by Mong (2011:33-34) that only 28% of the small business drew up cash budget. On the part of cash collection and disbursement, the researcher noticed that this microfinance institutions face issues of bad debt as well as debtor’s payment period and creditor’s payment period. As it is asserted that sound receivables and payment timing is the business success.

Cash management technics are adopted by organisations in order to ensure effective investment of cash and in order to achieve profitability both in the short run and long run (Dodds 2009). Despite the adoption of this cash management technics, most organisations still go bankrupt due to poor cash management. Cash is the primary indicator of organizational health, hence the life blood of every organization. Cash needs to be monitored, protected, controlled and put to work (Marie, 2001). Efficient cash management is far beyond preserving bankruptcy but it improves the profitability and reduces the risk the microfinance is exposed to (maness and John 2002). According to San Jose et al. (2008, p.103) basic cash management involves developing and undertaking administrative measures aimed at establishing the optimal level of cash, that will allow the company to make and receive payments in such a way that the normal operation of the company are preserved. They include setting up an optimal cash level, cash flow for forecasting and optimizing the cash cycle, controlling bank operation daily.

Effective cash management is crucial for microfinance institutions to maintain financial stability, ensure operational efficiency, and provide quality services to their clients. Most banking institutions in Cameroon used poor cash management method and lack of financial performance, that’s why a lot of them failed, hence banking institutions has to follow the principles of cash management systems and accounting standards in order to increase the satisfaction of their customers. The researcher therefore seeks to ascertain whether this poor Organisational Performance observed in this microfinance is as a result of the poor cash management practices among them. Also, weak governance structures, lack of transparency, and poor oversight can lead to poor decision-making and mismanagement. Also, failure to identify, assess, and mitigate risks can expose MFIs to financial losses and reputational damage. Furthermore, poor loan appraisal, inadequate credit scoring, and insufficient loan monitoring can lead to high default rates and portfolio deterioration. Also, manual processes, inadequate technology, and inefficient branch networks can increase operational costs and reduce productivity. And failure to understand and meet client needs can lead to low client satisfaction, high dropout rates, and reduce loan repayment. Insufficient access to funding, high funding costs, and inadequate liquidity management can limit MFI growth and sustainability. Also, failure to comply with regulatory requirements can results in penalties, fines and reputational damage. Equally, inadequate staff training, low staff morale, and high staff turnover can negatively impact MFI performance. In the same light, economic downturns, natural disasters, and political instability can affect MFI performance and client repayment capacity.

If this problem persist, Microfinance institutions will face several consequences due to lack of cash management which are: Liquidity Risks, Insufficient cash to meet client demands for loans or withdrawals, leading to reputational damage and loss of client trust. Operational Inefficiency: Ineffective cash handling processes can result in increased costs, wasted resources, and reduced productivity. Increased Risk of Theft and Fraud: Poor cash management increases the risk of theft, fraud, or misappropriation, which can lead to financial losses and damage to the institution’s reputation. Non-Compliance with regulations, Failure to maintain adequate cash reserves or follow cash management regulations can result in non-compliance, leading to penalties, fines, or loss of license. Reduced Client Satisfaction: Inability to provide timely and efficient cash services can lead to client dissatisfaction, reduced loyalty, and ultimately, loss of business. Increased Costs: Poor cash management can result in increased costs due to emergency cash injections, overtime, or other measures to address cash shortages. Reputational Damage, Repeated instances of poor cash management can damage the Microfinance institution’s reputation, leading to reduced trust and confidence among clients, investors, and stakeholders. That is why the study is aimed at looking at the effect of cash management on the organizational performance of Microfinance Institutions in Buea MFIs).

1.3 Research Questions.

1.3.1 Main Research Question

What is the effect of cash management on the organisational performance of microfinance institutions in Buea ?

1.3.2 Specific Research Questions

1. What is the effect of cash planning on the organizational performance of microfinance institutions in Buea?
2. How does cash budgeting affect the organisational performance of microfinance institutions in Buea?
3. To what extent does cash collection affect the organizational performance of microfinance institutions in Buea?

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