Abstract

The focus of the study was to evaluate liquidity management and growth of MFIs in Cameroon. The purpose of the research was to establish liquidity and growth of MFIs in Cameroon and the relationship between, liquid assets and growth,short term liabilities and growth of MFIs in Cameroon.

The methods used to collect data were through primary data through the use of the questionnaire, text books, research reports, and publication of different scholars. The primary data and existing literature revealed and different aspects of liquidity management and growth clearly brought out.

The findings of the study revealed that if liquidity is well managed, the costs associated with it such as loss of public confidence; high administrative costs, close of business will be dealt with. The need for sound liquidity management strategies is particularly critical since measures should be properly implemented.

Conclusions drawn from the study showed that there was a positive relationship between liquidity management and growth of the institution. If liquidity management is properly managed the costs associated with it will be minimized and this will drastically increase the growth of the microfinance institutions. Liquidity management may be a relatively complicated aspect of management, its inclusion as a strategy is likely to reap rewards in terms of growth.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Cameroon has a population of nearly 20 million and 86 percent of its working population is self-employed. Close to 1.5 million people nearly 90 percent of the non-farming active population is employed in micro- and small enterprises, representing a significant market for microfinance. Microfinance in Cameroon has been built on the foundation of entrepreneurial clients. MFIs consistently report that their institutional success is due to their hard-working clients.

The closure of banks and bank branches as well as the drive for prudent operations and efficiency of the banking industry has cut off the fast growing micro and small enterprise sector and the low income population generally from access to financial services. This gave microfinance institutions the chance to fill the gap and expand rapidly from the mid-1990sonward.

Microfinance was viewed as the most obvious vehicle for delivering financial services to the urban and peri-urban low-income earners as well as to the rural population (MFPED, 2000).  The microfinance sector provides financial services to only a minority of around 150.000 clients. Most poor people rely on the informal sector to manage their money. A recent study (MFPED/UNDP, 2000) revealed that of all people borrowing money 79% obtained credit from informal sources in comparison to 21% borrowing from commercial banks.

More or less everyone saves some cash at home or with a close family member or friend, though the poorest may experience periods when they cannot do so. Among group based devices Rotating Savings and Credit Associations (ROSCAs) are especially popular in Cameroon. Even within FINCA Village Banks members have established their repayment ROSCA.

Despite an obvious need for safe opportunities to save small amounts of cash, there are only few deposit collectors operating and those that are there, lack the degree of standardization and professionalism found among them.

The poor and not-so-poor have almost no access to moneylenders of any sort, a fact that contributes to the widespread popularity of the MFIs (Bagazonzya and Mbabazi 2000; Rutherford 1999).

The 2003 revisions to the PEAP also analyzed the challenges in the microfinance industry. These included capacity building, outreach, product mix, agriculture finance, regulation of unregulated and unsupervised microfinance providers (known as “tier 4” institutions), savings mobilization, commercial bank down-scaling, interest rates, credit references, impact assessment, and industry consolidation.

The inclusion of such a thorough analysis in the national poverty eradication plan illustrates the seriousness with which microfinance is treated by the government in Cameroon. (Reynolds and others, Global Entrepreneurship Monitor, 2003).

Liquidity management is out to ensure that institution maintains sufficient cash plus liquid assets to meet withdrawal and disbursement demands and pay expenses. Asset-liability management (ALM) is the process of planning, organizing, and controlling asset and liability volumes, maturities, rates, and yields in order to minimize interest rate risk and maintain an acceptable profitability level. Simply stated, ALM is another form of planning. It allows managers to be proactive and anticipate change, rather than reactive to unanticipated change. This is important in the activities of MFIs. This also helps a MFI to identify its future funding requirements and any potential risks (Fiedler, Brown, and, Moloney, 2002).

Failure or poor management of liquidity risk and credit risk affect the quality of loan portfolio and SACCOs that have managed liquidity risk and credit risk adequately their loan portfolio quality and performance is sound and healthy and vice versa.

1.2 Statement of the Problem

The closure of banks and bank branches as well as the adoption of more stringent lending policies among commercial banks left almost all micro and small entrepreneurs and poor households without access to financial services.  Llanto. M.Gilberto (2001).

The microfinance industry, which over the past years came under pressure to fill this gap and become self-sustaining, has to some respect succeeded in doing so. A significant number of MFIs have taken important steps towards professionalization and transformation into well organized, well-managed and commercially viable institutions that provide financial services to an increasing number of clients with proven poverty reducing impact.

As the micro finance industry has evolved and rapidly expanded in Cameroon, questions about sustainability and outreach have come to the Floor. For example, Morduch (1990) and Cull et al (2006) ask whether micro finance can meet the full promise of reducing poverty without going subsidies. They also observe that high repayment rates recorded by MFIs cannot be transacted easily into profitability.

Buckley (1997) questions whether MFIs are any different from past small holder rural and co-operative finance of the 1960s and 1970s, suggesting that they may not be sustainable without either substantial donor subsidies or a shift toward less poor clients.

1.3 Research Questions

1.3.1 Main Question

Thus the main question resulting from the above is how do management of liquid assets and liabilities contribute to the growth of MFIs in Cameroon?

Liquidity management deals with the management of liquid assets and liabilities

1.3.2 Specific Research Questions

Thus, this generates the following specific questions that can be attributed to the above question:

1. How do liquid assets affect the growth of MFIs in Cameroon?
2. How do short-term liabilities affect the growth of MFIs in Cameroon?
3. How do liquidity management problems affect the growth of MFIs in Cameroon?

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