Abstract

The service Centre carries out cash planning, it prepares cash budgets, tries to maintain some cash balance but it’s not optimum. The researcher recommended that there is a need for deploying a cash management system. The study was carried out to determine the Role Of Cash Management On The Profitability Of Micro Finance Institution.

The objectives of the study were; To examine the effect of cash management on the financial profitability of Micro Finance Institutions, and to determine the effect of cash management on the economic profitability of MFIs. The research design adopted in this study was the descriptive research design.

The study population included the staff of TBPCCUL. Simple random sampling was used to select respondents in the field. The questionnaires were used and administered to the employees working with TBPCCUL. Data from the questionnaire were analyzed.

Also, regression analysis was used to establish the relationship between cash management and the profitability of TBPCCUL. Regarding the study findings, it was revealed that cash management in TBPCCUL affects profitability levels. The findings also showed that the institution employs several cash management techniques in order to reduce the fraud of cash. The study also showed that profitability levels were high in the institution.

CHAPTER ONE

INTRODUCTION

This introductory chapter of the study will be discussing the background of the study, research problem, research objectives, research hypothesis, significance 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 was introduced in Cameroon in 1963 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 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 was already 34 credit unions 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 its headquarter in Bamenda. Today, it’s an umbrella organization for over 200 credit unions with a total of 196922(urban and rural) members. It 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, northwest regional chief town, according to the local English language newspaper, the SUN.

it was officially registered on may 30, 2013 but its constituent assembly was held earlier in Bamenda on Saturday May 11.    Mohammed Yunus founded the Garment 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 offer many banking services such as consumer and commercial loans (usually at lower than the market interest rate), time deposits (usually at higher than the market interest rate).

Their financial services are low-income earners and for small business owners. It offers different types 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 collateral. There are 3 types of microfinance which include;

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

Category two microfinance institutions are financial institutions that collect savings and deposits and later on-lend them out to their third parties. These category groups are limited liability companies that function more like a micro banks. 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 three microfinance institutions are other microfinance institutions that give out loans to everyone who ones it (they are no affiliated to CAMCUULL). This is made up of lending institutions that do not collect savings and deposits they include microcredit and project financial institutions.

The minimum capital required for such is over a 25millionFCFA for category 3. The amount must be fully paid and evidence to show in the form of a bank statement from only commercial banks 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, reducing poverty by granting loans to households, will go a long way to improve 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 for 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 that is immediately negotiable. It must be free of restrictions for any business purpose.

Cash has to meet the 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 commonly applied to cash items. This is a process of planning, controlling, and accounting for cash transactions and cash balances.

To attain 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 microfinance 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 rates, the interest rate is subjected to frequent changes in 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 microfinance institutions”.

1.2 Statement of Problem    

The key to the survival of any microfinance institution is cash flow because, if cash does not flow in the institution at an 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 prevents 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 a a decrease of cash by 200,000 FCFA thereby leading to delinquency meaning the 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 a 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

The study, therefore, seeks to attempt to provide answers to the following questions;

What is the effect of Cash management on the profitability of Microfinance in Cameroon?

In-Line with the study of William Baumol (2003), stated that cash should be managed and reflect the cost of volume relationship as well as the cash flows, this study specifically answers the following research questions;

1. What are the effects of cash management on the financial profitability of MFIs in Cameroon?
2. What is the effect of Cash management on the economic profitability of MFIs in Cameroon?

1.4 Objectives of the study

 1.4.1 Main objective

The main objective of the study is to determine the effect of Cash Management on the Profitability of Micro Finance Institutions in Cameroon.

1.4.2 Specific objectives       

The study is guided by the following specific objectives:

1. To examine the effect of Cash management on the the financial profitability of MFIs in Cameroon.
2. To determine the effect of Cash management on the economic profitability of MFIs I’m Cameroon.

1.5 Hypotheses

In other to meet the aforementioned objectives, the hypothesis of these studies is;

H1: Cash management influences the financial profitability of microfinance institutions in Cameroon

H2: Cash management influences the Economic profitability of microfinance institutions in Cameroon

Further Studies

ROLE OF CASH MANAGEMENT ON THE PROFITABILITY OF MICRO FINANCE INSTITUTION IN CAMEROON