CHAPTER ONE

INTRODUCTION

This introductory chapter of the study will be discussing the background of the study, research problem, research objectives, research hypothesis, significant of the study, scope and limitation of the research and the organization of the research.

1.1 Background of the study

The idea of credit unions were introduced in Cameroon in1963 by a roman catholic priest Rev father Anthony jansen from Holland who was then residing in a village residing in the northwest region called Njinikom. It is in this light that the first credit union started in Njinikom. Before embarking on the information of credit union, Rev Father had noticed and witnessed a problem amongst the villagers.

Most villagers held that act of hoarding to a high esteem as a means of securing their liquidity to no avail, insect usually ate them. It is in vain that they saw the need for villages to regroup themselves as well as their resources to meet their productive need. This idea extended to Bamenda town as well as other parts of the country.

In 1969 there were already 34 credit union in existence organized jointly by the mission and the government department in charge of cooperatives. 34 credit union the joint to form the league known today as CAMCULL acting as a regulating organ to its affiliate’s credit union. Its operates in all the regions of Cameroon with it’s headquarter in Bamenda. Today, it’s an umbrella organization for over 200 credit union with a total of 196922(urban and rural) members. Its provides a wide range of services to its members, it also manages savings that is  an amount of over 41000million FCFA its network consolidated balance is over 49840589FCFA.It is worth mentioning that credit unions are also subjected to law number 921006 of 14180106 and decree number 21455pm of 23/11/92 relating to rules and regulations governing cooperative societies as well as initiative groups.

Another credit union network named Renaissance cooperative credit unions RECCU-CAM ltd now exits in bamenda, north west regional chief town, according to the local English language newspaper, the SUN. it was officially registered on May 30, 2013 but its constituent assembly held earlier in bamenda on Saturday may 11. Mohammed Yunus founded the Grameen bank whose research pioneered the concept of providing micro banking services and non-collateralized loans or the poor in order to alleviate poverty

A credit union is a financial cooperative created for and by its members who are its depositors, borrowers and shareholders. Credit unions offers many banking services such as consumer and commercial loans (usually at lower than market interest rate), time deposit (usually at higher than market interest rate).Their financial services are low income earners and for small business owners.

It offers different type of services in practice; the terms are often used more narrowly to refer to loans and other services from providers that identify themselves as microfinance institutions. The turn to use new members to deliver very small loans to unpaid borrowers taking little or no collaterals. There are 3 types of microfinance which include;

CATEGORY 1: These are financial institutions that collect savings and deposits and lends them out to their members this category includes; association, cooperatives and credit union. There is no stipulated capital for category 1 institution instead COBAC(BANKING COMMITION OF CENTRAL AFRICAN STATE) text required the capital to be sufficient to cover and meet up with stipulated prudential norm. And example of category 1 institution is TIKO BANANA PROJECT COOPERATIVE CREDIT UNION LIMITED (TBPCCUL)

CATEGORY 2: These are institution that collect saving and deposit and later on lend them out to their third parties. These category groups are limited liability companies that function more like a micro bank. The minimum capital for such category 2 institutions are stipulated by the text is 50millionFCFA prove of such must be shown by the use of a bank statement from a commercial bank.

CATEGORY 3: These are other microfinance institutions. They give out loans to everyone who ones it (the are no affiliated to CAMCUULL).This is made up of lending institutions that do not collect savings and deposits they include the microcredit and project financial institutions. The minimum capital required for such is over 25millionFCFA for category 3.

The amount must be fully paid and evident to show in the form of a bank statement from only commercial banks as at the time of application for accreditation. This microfinance institution has an objective which is divided under article 5 of the uniform act include the following;

Firstly, to finance small and medium size enterprises in order to boost the economic growth of the nation.

Secondly, to reduce poverty by granting loans to households, this will go a long way to improve in the living standards of the citizens.

Tiko banana project cooperative credit union limited (TBPCCUL) falls under category 1 microfinance institutions. This is because it is own and controlled by its members.

Every financial institution is required to meet up with their desire of cash by keeping enough cash whenever there is any possible operation by the institution. According to Macon, Harris and Davidson (2012) cash is any medium of exchange which is immediately negotiable. It must be free of restrictions of any business purpose.

Cash have to meet prime requirement of acceptability and availability for instant use in purchasing and payment of debts. Acceptability to a bank or any financial institution for deposits is a common applied to cash items. This is a process of planning, controlling, and accounting for cash transactions and cash balances. To attain a sound management and cautious cash, all financial institutions must have a certain position of active elements, assets conserve in excellent quality security which can easily be transformed to cash without great losses.

Cash is essential in all financial institutions to compensate for expected and unexpected balance sheet fluctuations and to provide funds for growth. The recent cash crisis faced in financial institutions which led to the closure of some microfinance institutions such as First Investment for Financial Assistant (FIFFA) and Companies Financier de l’Estuaire (COFINEST) had brought to the forefront the need to review their existing cash management policies, practices and procedures.

Globalization today is more perceived through finance which marked the birth of micro finance institutions that spread experientially in serving the needs of all social classes, but in the same familiar way sometimes faces bankruptcy. This can be justified by mismanagement of cash as cash management is not limited to receipt and disbursement.

If it is easy to receive or to cash it is difficult to manage cash flow so as to avoid customer dissatisfaction. Although it is easy to manipulate employees, customers are strong partners and for this reason require a lot of attention. This is why good cash management is a necessary condition for resistance or for business growth. So generally cash management is to ensure the company’s liquidity.

In tough economic times where operating funds have become increasingly limited interest rate, interest rate is subjected to frequent changes cash position causing it therefore to be mastered properly. It is in this perspective that the theme of our work focuses on “the role of cash management on the profitability of micro finance institutions”.

1.2 Statement of Problem    

The key to survival of any micro finance institution is cash flow because, if cash does not flow in the institution at any adequate rate to maintain a level of working capital, then the company will struggle to survive as a result, the company might close down completely. Micro Finance Institutions have been facing cash management problems. Many MFIs do not perform many cash management policies and techniques simply because they feel the ones they adopt are ok.

Cash management is the lifeline of every business. The lack of cash management knowledge and skills prevent MFIs to adequately manage their cash flow. Over the years, TBPCCUL has been faced with the problem of not managing cash and cash payment problem to their members.

For example, TBPCCUL can give out 500,000 FCFA cash to their members as loans and as a result the customer pays 300,000 FCFA instead of 500,000 FCFA thereby leading to decrease of cash by 200,000 FCFA thereby leading to delinquency meaning customer did not repay the entire cash amount.

For TBPCCUL, to be able to recover all its loan amount TBPCCUL need to put in place strategies or procedures by both the loan officer and the board of directors to recover overdue loans amount granted to members.

The gap identified was that MFIs are not performing the basic cash management practices to foster their profitability. This practice is omitted in business largely due to lack of knowledge and skills to perform the task. Therefore the purpose of the study is to investigate the relationship between cash management and profitability in TBPCCUL and if they face challenges in implementing cash management techniques.

1.3 Research Questions

1. What is the role of cash management on financial profitability in TBPCCUL?
2. What is the role of cash management on economic profitability in TBPCCUL?

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