Abstract

To conclude, this study focused on the effect of treasury management on the performance of commercial banks the case of Afriland first bank Buea Cameroon using a convenience sampling method over 70 questionnaires were distributed and analyzed using a regression analysis in which the results rejected the null hypothesis which states that treasury management does not significantly influence the performance of commercial banks.

Among the influence factors we not that more care should be given to the funding strategy because it’s the elements that induces banks to a better performance but still the investment the other components of treasury management should be carefully handled due to their negative effects on the performance of the commercial banks.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Finance is a term for matters regarding the management, creation, and study of money and investments. It involves the use of credit and debt, securities, and investment to finance current projects using future income flows. Because of this temporal aspect, finance is closely linked to the time value of money, interest rates, and other related

Topics.

For most firms, successful innovations are engines of growth (Cohen, 1997). Financial Innovation is described as the technological by which, firms master and implement design, and the production of goods and services that are new to them regardless of whether they are new to their competitors, country or the world (Mytelka, 2000). Financial Innovation is the continuous technological of upgrading by employing new knowledge or the new combination of existing knowledge that is new to the local area (Spielman, 2005).

The microfinance industry has every sign  an innovation in its take-off phase with MuhammedYunus and the Grameen          Bank of Bangladesh in the 1970s by granting microcredit, provision of small, unsecured tons to mostly women for enterprise development. These financial innovations however enabled the microfinance institutions to attain its dual mission of sustainability and growth (the welfarists and institutionalists).

The characteristic aspects of the microfinance innovations were developed in the 1970s and 1980s; thirty years later the industry experienced a phenomenal growth rate and it has diffused to most developing countries in the world.  Practitioners of microfinance have referred to microfinance financial innovations as the last hope for the poor. It is estimated that by 2005, more than 67 million households were served by microfinance programmes (Armend&Morduch 2005).

Earlier in 2004, approximately 665 million client accounts, at over 3,000 institutions were serving clients poorer than those served by the commercial banks. Of these accounts, 120 million were with institutions normally understood to practice microfinance (Christen et al., 2004). It also included postal saving banks (318 million accounts), state agricultural and development banks (172 million accounts), financial cooperatives and credit unions (35 million accounts) and specialised rural banks (19 million accounts).

The highest concentration was in India (188 million, representing 18% of the population) while the lowest were in Latin American and the Caribbean (14 million, representing 3% of the population) and Africa with 27 million, representing 4% of the population (Christen et al., 2004) Historically, Microfinance started in Bangladesh and parts of Latin America in the mid-1970s to provide credit to the poor (seen as an important tool to reduce poverty) particularly for women, by  giving access to  small loans, who were generally excluded from formal financial services(Schwarz, 2011).

The model gain popularity and has since been extended to low and high income countries. Banco Sol in Bolivia and Bank Rakyat in Indonesia are two examples of this. Daley-Harris(2006) reports that, between December 1997 and December        2005, the number of micro-credit institutions increased from            618 to  3,133 in developing nations. Similarly, the number of recipients (84% of whom are women) rose from 13.5 million to 113.3 million during the same period (Grameen Bank, 2017). Though with main objective to alleviate poverty, microfinance is yet to achieve its objectives.

There is however certainty as Microfinance Institutions have sought to financial innovations as a solution since innovativeness is one of the fundamental instruments of growth strategies to enter new markets, extend its services to the poor and needy, to increase the existing market share and to provide the company with a competitive edge .

Also motivated by the increasing competition in global financial markets, Microfinance Institutions have started to grasp the importance of financial innovation, since swiftly changing technologies and severe global competition rapidly erode the value added of existing products and services.

Thus, financial innovations constitute an indispensable component of the corporate strategies for several reasons including to apply more productive manufacturing technological to perform better in the market, to seek positive reputation in customers’ perception and as a result to gain sustainable competitive advantage which all contribute to increase profitability in the form of profitability and returns.

Technological financial innovation is the introduction of a good or service that is new or significantly improved regarding its characteristics or intended uses; including significant improvements in technical specifications, components and materials, incorporated software, user friendliness or other functional characteristics (OECD Oslo Manual, 2005).

Product and financial innovations are closely related to the concept of technological developments (Gunday&Kilic, 2009). Product innovation is inevitable if businesses are to remain relevant and sustainable. There are various theories that have been developed that tend to bring out the relationship between product innovation and organizations profitability.

For example, according to the product life cycle theory by Vermon, (1966), a product goes through 5 stages in life where at some point unless modifications are done, the product becomes obsolete and irrelevant and drops the profitability. It is important that businesses invest highly on market research programmes in order to identify changes in consumer needs as the product advances through its productive life.

He argues that like any living being, products go through various stages in their productive lives from invention, maturity to decline stage forming a unique cycle in the product life. These stages are characterized by specific features which determine the length of time a product spends in one stage depending on the marketing strategies applied (Kulkarni, 2009). If not nurtured through continuous improvements the products decline and die naturally like any living being.

With this understanding, product innovations are expected to be a continuous and deliberate strategic approach if organizations especially MFIs expect to sustain profitability and growth (Palmer, 2000). This theory has proven that products do not survive forever. Aggressive marketing strategies have to be applied to prolong product life in any stage of the product life cycle. These innovations strategies may include differentiation strategies, modifications via technology and product positioning techniques (Schilling & Hill, 1998).

In Cameroon, the concept of financial innovation and profitability has a lot of empirical literature with little or more information relating to this area of study. Most studies that exist bring highlighted aspects such as operational expense ratio, portfolio at risks, and staff productivity as major determinants of profitability for MFIs (Nwasi&Ngambi, 2014). Poor profitability of Microfinance in Cameroon  is  also  associated  with  decision  making  and  operational technological known by Wamba, Bengono&Teulon (2018) as governance issues.

This is further compounded by the fact that the boundaries between microfinance and commercial banking activities are becoming blurred, microfinance services in Cameroon have been left at the mercy of Non-Governmental Organization (NGOs). With increase competition with commercial banks, MFIs become more profit orientated drifting away from its original mission.

Formal microfinance activities can be traced back in             1963 following the creation of the first cooperative savings and loans institution at Njinikom, North West region of Cameroon by the Roman Catholic clergy (Fotabong, 2010). Until 1990s, the development of microfinance institutions in Cameroon remain very weak when the president passed a law N°. 09/053 of 19 December 1990 relating to freedom of association and law N°. 092/006 of 14th August 1992 relating to cooperatives, companies and common initiative groups were enacted.

Banking crisis of the late 1980s is another contributing factor that led to the growth and development of microfinance in Cameroon. Some top executives who lost their jobs or dismissed during the crisis formed cooperative credit unions that functioned like mini-banks.

Though most of these institutions had their origins from the North West and Western regions of the country, most of their branches are highly concentrated in Yaounde, Douala, Bafoussam and Bamenda. Most villages and some semi urban areas are yet to feel a touch of MFIs thus hampering their initial promise of poverty alleviation.

This is due to poor road infrastructures, little or no telephone coverage, and lack of electricity supply and low level of security. This is particularly sad as close to 50% of the country’s population live in rural areas and an estimated more than 60% is dependent on agriculture and farming for their livelihood (Fotabong, 2012). Also, lack of a well-defined technological of operations, provision of the same product year in, year out, limited technology, high operation cost is some of the causes of low profitability in MFIs in Cameroon.

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