Abstract

In an attempt to achieve high levels of performance, MFIs have undergone a number of challenges. Financial innovation in this sector has been a relevant topic since the mid-’90s. Nowadays, also due to the present financial system situation, it comes to further relevance.

Despite the relevance of financial innovation and the ever-changing world, it’s hard to list all financial innovations specifically. The adequate performance of financial institutions is of crucial importance to their customers.

MFIs like many other financial service industries, facing a rapidly changing market, new technologies, economic uncertainties, competition, and demanding customers have created an unprecedented set of challenges. The study sought to establish the effects of Mobile money transactions on the financial performance of the MFIs in Cameroon.

The study objective was to determine the effects of mobile money transactions on the financial performance of MFIs in Cameroon. The study target population was chosen within one of the cities in the southern part of the country (Buea). The study used a descriptive survey design. The data collection was primary data and the collected data was analyzed using descriptive statistics and multiple regression analysis.

From the findings, the significance value was .004 which is less than 0.05 thus the model is statistically significant in predicting how mobile money transactions, capital ratio, liquidity ratio, efficiency ratio, expenses management ratio, and bank size affect the financial performance of MFIs.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Microfinance institutions can be traced back as long as the middle 1800s when the theorist Lysander Spooner was writing over the benefits from small credits to entrepreneurs and farmers as a way of getting the people out of poverty.

The today use of microfinancing has its roots in the 1970s. In 1974 an economics lecturer at the University of Chittagong, Bangladesh, lent $27 to a group of impoverished villagers. 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 in 1983 to make very small loans – perhaps $15 a time – to the poor and uncreditworthy.

Since then it has loaned about $3 billion to more than six million of the very poorest in Bangladesh and across the Asian sub-continent. The bank’s impact research suggests that each year, only 5% of their clients (Grameen bank) are lifted out of poverty.

The Grameen bank is now experimenting with a holistic approach where basic medical care is available at the same place the customer would go to repay an installment of the loan and offering adult education. It funds 20 000 students loans a year and provides 50 000 scholarships for schooling. It is also trying to find ways of helping creditors survive a disaster, whether it is a personal accident or a major flood.

Realizing microfinance’s prominent role in development validates the importance of studying how mobile banking might improve microfinance. Microfinance is a term for financial services that are provided to poor people, and is most commonly associated with microloans, but can include savings accounts, insurance, and other financial services.

Traditional banks, as opposed to MFIs, make loans, but many poor people were unable to get loans from banks, as banks generally do not a loan in the small amounts that a poor person could afford. Traditional banks do not offer smaller-sized loans due to the higher cost of managing the loan per dollar lent.

Thus, millions of poor people worldwide were unable to get loans from financial institutions and were left completely without financial services. In 1974, Mohammed Yunus, who is commonly recognized as the founder of microfinance, gave a loan of $27 to a group of villagers, and they successfully repaid him, and an idea and a movement were born in order to fill the gap of access to financial services (Perkins, 2008).

The idea of microfinance is that access to small loans that poor people can afford to pay off can help them escape from poverty as they use the loans to invest in small businesses and then generate income for themselves. Another function of microfinance is to help poor people smooth their income, by saving or repaying loans when times are good, and borrowing when there are unexpected shocks.

The benefits of microfinance are evidence by the high demand that poor people have for receiving loans. The MIX market monitors over 1100 MFIs that serve over 74 million clients who have a collective $38 billion in loans, according to the MIX Market in 2009 (Microfinance Information Exchange, 2009).

Mobile money was first launched in Cameroon in 2011. The Cameroonian subsidiaries of telecommunication leaders MTN and Orange pioneered the concept and officially launched it in 2012. The circumstances which prompted its launching were similar to those of most developing countries, particularly concerning the small numbers of members of the population who held bank accounts.

As had been the case in the other countries in which the concept had been launched, many households and Mobile money in Cameroon had been effectively excluded from the traditional banking system and without access to funding in the formal sector.

Although the services which mobile money provides in Cameroon do not include financing now, its introduction had significantly increased the financial inclusion rate (29%) by 2017, from 9% in 2012. As a direct consequence, many citizens have been able to ply trades and launch startup enterprises, which have resulted in indirect employment for over 5000 people.

The introduction of mobile money has enabled Cameroonian households to incur reduced costs by saving and reduce the risk of loss and theft which had accompanied saving in the past, the mobile money service in Cameroon is provided through a partnership between commercial banks, MFI, and mobile network operators (MTN Cameroon, Orange Cameroon, CAMTEL, and Nextel) because only MFIs, MFI is allowed to issue electronic money, and the mobile network operators own the telecommunication infrastructures and technologies to deploy the platform. This regulating arrangement of convenience is the status currently prevailing in Cameroon and will surely deter the significance of the MM in the long run.

Although its importance is affected by factors related to regulation, infrastructures, and customs, Mobile Money appears to be the solution to the multiple problems, namely, liquidity, means of payments, debt collection, working capital, and financing faced by Mobile money.

1.2 Problem of the Statement

Mobile money operator faces unique challenges due to the nature of their operations. Their need for payment and transactional services are not always served by banks. This is due to a lack of capacity to qualify them to access financial services from financial institutions since they experience a low capital base and lack of collateral property to secure loans. They also do not find it very cost-effective to embrace banking services because their target customers are mostly unbanked.

Additionally, they lack proper mode of receipts and payments, debt collection procedures, and access to finance and this makes them be faced with problems associated with liquidity and working capital management (Higgin et al, 2012). This scenario is likely to have an effect on the growth and performance of Mobile money. The inception of mobile phone financial transactions has changed how business is being done. It has made financial transactions to be easy and faster and at the same time provided a saving avenue for those without bank accounts.

However, Kanyi and Maharaj (2011) observe that despite the exponential growth in the use of mobile money in East Africa, only few studies have focused on its impact on the financial performance of Mobile money. This means that the effect of using mobile money on the performance of MFI’s has not been effectively assessed.

Consequently, there was a need to study how this financial innovation has affected the performance of Mobile money. Therefore, this study will seek to determine the effect of mobile money transactions on the performance of Microfinance Institution in Cameroon by seeking answers to the following questions;

What is the effect of Cash deposits, Cash transfer,s and Cash withdrawals on the performance of Community Credit Company?

1.3 Research Objectives      

The objective of this study will be divided into main and specific objectives

1.3.1 Main Objective

The main objective of this study is to determine the effects of Mobile Money Transactions on the performance of microfinance institutions in Cameroon.

1.3.2 Specific Objective

The specific objectives of this study include:

1. To investigate the effects of Cash deposits, Cash transfer,s and Cash withdrawals on the performance of Community Credit Company.
2. To make recommendations based on the findings.

1.4 Research Hypothesis

One hypothesis will be formulated and tested in this research which holds that

H0:  Cash deposits, Cash transfers, and Cash withdrawals do not seem to have a significant effect on the performance of Community Credit Company.

H1:  Cash deposits, Cash transfers,s, and Cash withdrawals seem to have a significant effect on the performance of Community Credit Company.