Abstract

This study investigates the impact of loan delinquency on the organizational performance of microfinance institutions in Douala, focusing specifically on the NTARINKON COOPERATIVE CREDIT UNION (NTACCUL). The findings indicate that loan default rates, late payment rates, and the ratio of restructured loans significantly influence organizational effectiveness.

A majority of respondents (90%) acknowledged that higher loan default rates adversely affect performance, confirming a positive relationship between stringent management practices and enhanced organizational stability (β = 0.584, p = 0.031). Similarly, late payment rates were shown to significantly hinder debt recovery, with a consensus favoring strict collection policies (β = 0.682, p = 0.011). Furthermore, effective management of restructured loans emerged as crucial, with 93.3% of respondents emphasizing the importance of liquidity for performance (β = 0.562, p = 0.029).

In conclusion, the study highlights the necessity for microfinance institutions to adopt comprehensive risk management strategies that address these critical factors. Recommendations include implementing robust credit evaluation procedures, providing financial literacy training, and leveraging technology for timely payment reminders. Future research should broaden the scope to include more institutions and explore advanced credit risk assessment tools.

Overall, addressing loan delinquency is vital for enhancing the sustainability and performance of microfinance organizations in a challenging financial landscape.

CHAPTER ONE

INTRODUCTION

Microfinance institutions (MFIs) have become essential components of financial systems in developing countries, facilitating access to financial services for marginalized populations. According to Yunus (2007), MFIs empower low-income individuals by providing them with credit, savings, and other financial products that enable entrepreneurial ventures and poverty alleviation. However, the sustainability of these institutions is increasingly threatened by loan delinquency, which refers to borrowers’ failure to meet repayment obligations (Ledgerwood, 1999).

Globally, the implications of loan delinquency on MFIs are significant. Armendariz and Morduch (2010) argue that elevated delinquency rates can lead to increased operational costs, reduced liquidity, and diminished profitability. This situation is exacerbated in regions with high poverty rates, where borrowers may struggle to meet repayment schedules due to economic instability and income volatility (Gonzalez, 2010). Furthermore, a report by the Consultative Group to Assist the Poor (CGAP) (2015) indicates that effective risk management practices are crucial for MFIs to mitigate the adverse effects of delinquency, highlighting the need for robust financial literacy programs for borrowers.

In the African context, the challenges posed by loan delinquency are particularly pronounced. Research by Nkuembe et al. (2018) demonstrates that high rates of defaults can severely hinder the organizational performance of MFIs, limiting their ability to provide essential services to communities. The African microfinance landscape is characterized by a diverse range of institutions, each facing unique challenges related to loan recovery and borrower engagement (Bourguignon & Spadaro, 2019).

In Cameroon, the microfinance sector has experienced rapid expansion over the past two decades, with numerous institutions emerging to fill the financial gap for the underserved. However, the prevalence of loan delinquency remains a pressing issue. Ngoh and Ngu (2019) emphasize that high delinquency rates not only threaten the financial stability of MFIs but also impede broader economic development efforts in the region. The Cameroonian microfinance sector has been marked by a lack of effective risk management strategies and inadequate borrower education, contributing to the persistence of delinquency issues (Fokou, 2020).

Therefore, understanding the relationship between loan delinquency and organizational performance in Cameroon’s microfinance sector is crucial for developing effective strategies to address these challenges. This research aims to investigate the impact of loan delinquency on the organizational performance of microfinance institutions in Cameroon. By examining this relationship, the study seeks to provide insights that can enhance the effectiveness and sustainability of microfinance operations, ultimately contributing to economic development in the region.

1.1 Background of the Study

The significance of microfinance institutions (MFIs) in facilitating financial inclusion has become increasingly recognized, particularly in developing countries like Cameroon. With a considerable portion of the population lacking access to traditional banking services, MFIs provide essential financial support to small-scale entrepreneurs and low-income households. This support enables individuals to engage in productive activities, thereby enhancing their livelihoods and contributing to economic development (Munyua & Kamau, 2020).

However, MFIs in Cameroon face significant challenges, among which loan delinquency is critically prominent. Loan delinquency occurs when borrowers fail to meet their repayment obligations, leading to adverse effects on the financial health of these institutions. Recent studies indicate that high delinquency rates can result in increased operational costs and reduced liquidity, ultimately threatening the sustainability of MFIs (Tchouawou et al., 2022). Economic instability, limited financial literacy among borrowers, and inadequate risk management practices further exacerbate the issue of delinquency (Ngoh et al., 2023).

The implications of loan delinquency extend beyond the financial performance of MFIs; they also hinder the institutions’ capability to foster broader economic development. Elevated default rates can diminish the available funds for lending, constraining the capacity of MFIs to support new clients and community initiatives (Fonkou et al., 2021). Moreover, persistent delinquency can undermine stakeholder confidence, including that of investors and regulators, which may destabilize the microfinance sector (Ateba & Kengne, 2023).

In Cameroon, the microfinance sector is diverse, with various institutions encountering distinct challenges in managing loan delinquency. Factors such as inadequate borrower education, socio-economic conditions, and regulatory constraints significantly influence the delinquency landscape (Mokoginta et al., 2024). Thus, a comprehensive understanding of the dynamics surrounding loan delinquency and its effects on the organizational performance of MFIs is essential for crafting effective strategies to enhance their sustainability and impact.

This study aims to investigate the intricate relationship between loan delinquency and the organizational performance of microfinance institutions in Cameroon. By analyzing the factors contributing to delinquency and its repercussions on MFIs, this research will offer valuable insights that can guide policy decisions and operational practices, ultimately fostering the stability and growth of the microfinance sector in the region.

1.2. Statement of the Problem and Research

Microfinance institutions (MFIs) have become instrumental in fostering financial inclusion and economic development in Douala, Cameroon. However, the increasing rates of loan delinquency present a critical challenge that threatens the financial sustainability of these institutions. According to Nguimkeu (2023), loan delinquency not only undermines the operational capacity of MFIs but also adversely impacts their ability to provide essential financial services to low-income borrowers. This situation is particularly concerning for the National Cooperative Credit Union League (NTCCUL), which plays a significant role in the microfinance landscape of Douala.

Despite the recognition of loan delinquency as a pressing issue, research exploring its specific impact on the financial performance of MFIs in Douala remains limited. Studies by Osei-Assibey and Fosu (2023) indicate that various factors, including economic instability and inadequate borrower education, contribute to rising delinquency rates. Furthermore, Yasuda and Kato (2021) emphasize the importance of effective risk management practices in mitigating loan delinquency, yet many MFIs lack the necessary frameworks to address these challenges.

The high rates of delinquency not only jeopardize the financial health of individual MFIs but also threaten the broader economic stability of the regions they serve (Achenjang & Tchouawou, 2022). Therefore, it is imperative to investigate the specific dynamics of loan delinquency within NTCCUL, as this can provide valuable insights for developing targeted interventions and enhancing the overall performance of MFIs in Douala. This study aims to fill the gap in existing literature by examining the relationship between loan delinquency and the financial performance of MFIs, thus contributing to the formulation of effective strategies for improving loan repayment rates and ensuring the sustainability of microfinance services.

1.3. Research Questions

Main research question

What is the effect of loan delinquency on the organizational performance of micro finance institution in Douala, specifically NTACCUL?

Specific Research questions

1). What is the impact of the loan default Rate (LDR) on the organizational performance of NTACCUL Douala?

2). How does the late payment rate (LPR) influence the organizational performance Metrics of NTACCUL Douala?

3). What effect does the Restructured Loans Ratio (RLR) have on the organizational performance of NTACCUL Douala?

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