Abstract

This study assessed “the effect of Leadership Styles on Organizational performance in MFIs in Buea. The specific objectives were; to assess the impact of autocratic leadership on employee performance, to examine the relationship between democratic leadership and organizational performance and to analyze the influence of transformational leadership on organizational performance in MFIs.

To achieve the study’s objectives, a survey research design was adopted. Data used for the study were collected through questionnaires from fifty employees of MFIs. The study has used both descriptive and inferential statistics using simple regression analysis.

Findings show that Autocratic leadership has a positive and significant impact on organizational performance in MFIs in Buea. Findings further show that Democratic leadership significantly influences organizational performance in MFIs Buea; Also, transformational leadership significantly impacts organizational performance in MFIs. The study concluded that leadership styles have a significant positive effect on organizational performance in MFIs in Buea.

The study therefore recommends that management micro financial institutions in Buea should implement the different types of leadership styles but should focus more on democratic and transformational leadership because they have a high positive and significant effect on organizational performance while though democratic leadership style is negative their effect on organizational performance still remind significant so, they need to be reviewed.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

According to Orodho (2003), the background of a study provides the historical, theoretical, and empirical context from which the research problem is derived, offering clarity on why the study is necessary. Organizational performance is a key determinant of an institution’s sustainability and success, encompassing financial outcomes, employee productivity, and customer satisfaction (Kaplan & Norton, 1996). It reflects how effectively an organization meets its objectives through strategic decision-making, resource management, and operational efficiency. Globally, performance in financial institutions is assessed through profitability, customer retention, service quality, and institutional growth (Venkatraman & Ramanujam, 1986). Leadership plays a vital role in determining these outcomes, as it influences organizational behavior, shapes culture, and directs decision-making. Leadership, as defined by Northouse (2021), is the process through which an individual influences and directs a group toward achieving a common goal. Leadership styles whether transformational, democratic, or autocratic have varying effects on organizational productivity, innovation, and employee engagement across industries and regions.

In developing economies, the leadership-organizational performance nexus becomes even more crucial due to institutional instability, resource constraints, and the dual mission of social impact and financial viability. Transformational leadership is credited with fostering innovation and long-term strategy, while democratic leadership promotes collaboration and employee satisfaction, all of which are essential for institutional resilience (Bass & Riggio, 2006). Conversely, autocratic leadership, though often effective in enforcing discipline and efficiency, may suppress employee morale and limit creativity (Goleman, 2000). The financial sector, particularly microfinance institutions (MFIs), faces unique leadership challenges due to its hybrid nature balancing profit with development goals. In such contexts, leadership style directly affects financial management, staff motivation, and service quality (Judge & Piccolo, 2004). Nevertheless, many studies in developing countries still adopt generic frameworks without considering localized leadership dynamics that are shaped by cultural and structural factors (Hofstede, 2001). Consequently, there is limited empirical research addressing how leadership styles function in the distinct environments of developing financial sectors.

In the context of Cameroon, leadership within financial institutions remains largely autocratic or transactional, driven by centralized decision-making, rigid hierarchies, and limited employee involvement (Tchouassi, 2011). Although transformational and democratic leadership models are gaining global traction, many Cameroonian microfinance institutions still adopt leadership strategies based on personal experience rather than research-informed practices (Asongu, 2015). This has significant implications for organizational performance, particularly in Buea, a region with a growing number of MFIs responding to increasing financial inclusion demands. Historically, Cameroon’s financial institutions have struggled with governance issues, employee turnover, and inconsistent customer service, all of which are tied to leadership quality. Within MFIs, performance is measured not only by profitability but also by the institution’s ability to retain staff, satisfy clients, and maintain sustainable growth. Yet, scholarly attention on how leadership styles influence these outcomes in Cameroon’s microfinance sector remains limited.

Given these complexities, this study seeks to examine the influence of autocratic, democratic, and transformational leadership styles on the performance of MFIs in Buea, Cameroon. By analyzing their effects on financial sustainability, employee productivity, and customer satisfaction, the research aims to provide context-specific insights into leadership strategies that can drive institutional success in Cameroon’s microfinance sector. This study contributes to bridging the gap between theoretical leadership models and their practical application in developing financial institutions.

1.2 Statement of the Problem

According to Orodho (2003), the statement of the problem identifies the gap between the current state of knowledge and what is expected, presenting the specific issue the research seeks to address. In today’s competitive and dynamic financial environment, leadership plays a pivotal role in determining the performance and sustainability of institutions. As outlined by Kaplan and Norton (1996), organizational performance encompasses critical indicators such as financial outcomes, employee productivity, and customer satisfaction.

Within microfinance institutions (MFIs), these performance indicators are vital given their dual objective of promoting financial inclusion and ensuring institutional viability. Leadership, therefore, becomes a key driver of how effectively MFIs can balance these priorities (Northouse, 2021).

Despite the growing importance of MFIs in Cameroon’s financial landscape, particularly in regions like Buea, many of these institutions continue to struggle with poor employee engagement, high customer dissatisfaction, limited innovation, and inconsistent financial growth. These issues have been linked to the prevailing leadership styles, which are often autocratic or transactional in nature, relying heavily on top-down decision-making (Tchouassi, 2011). While transformational and democratic leadership models have been shown globally to enhance organizational performance through participative decision-making, innovation, and staff motivation (Bass & Riggio, 2006), their application in Cameroonian MFIs remains minimal and under-researched. Moreover, existing studies in Cameroon have largely generalized leadership effects across sectors, with little focus on how specific leadership styles influence various dimensions of performance within microfinance institutions (Asongu, 2015).

This lack of context-specific empirical data creates a knowledge gap in leadership effectiveness within MFIs, making it difficult for institutional leaders to adopt evidence-based leadership strategies. Compounding this is the overreliance on informal leadership practices rather than structured models grounded in research. As a result, the sector continues to witness inconsistent performance levels, staff turnover, and declining customer trust.

Therefore, this study seeks to investigate the influence of autocratic, democratic, and transformational leadership styles on the organizational performance of MFIs in Buea, Cameroon focusing specifically on financial sustainability, employee productivity, and customer satisfaction. The findings will help to bridge the leadership-performance knowledge gap in Cameroonian MFIs and guide the adoption of more effective leadership practices tailored to the local context.

1.3 Research Questions

1.3.1 Main Research Question

What is the effect of leadership styles on organizational performance in microfinance institutions in Buea?

1.3.2 Specific Research Questions

1. How does autocratic leadership influence organizational performance in microfinance institutions in Buea?
2. To what extend does democratic leadership affect organizational performance of microfinance institutions in Buea?
3. How does transformational leadership influence organizational performance of microfinance institutions in Buea?

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