AN INVESTIGATION ON THE ROLE OF COMMERCIAL BANKS ON THE SOCIO-ECONOMIC DEVELOPMENT OF CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Commercial banks play a crucial role in the economic advancement of developing nations, where investment across various sectors is pivotal for overall development. These banks play a dual role by gathering and mobilizing people's savings, which are subsequently directed towards industrial ventures. Investors secure loans from these banks to finance their projects, and specialized funds are allocated to support these initiatives. Additionally, commercial banks act as guarantors for industrial loans when dealing with international agencies, attracting foreign capital for investment in emerging economies.  However, the process of augmenting economic wealth, particularly the acquisition of capital goods to enhance productivity, relies significantly on the involvement of commercial banks. Consequently, banks possess the capacity to influence critical savings opportunities for citizens and the socio- economic development of a country. Institutions, particularly those with robust banking sectors, acknowledge the imperative role they play in facilitating continuous economic growth.

Furthermore, commercial banks often finance infrastructure projects, such as roads, bridges, and energy facilities. By increasing efficiency and connectivity, these investments support economic growth. Similarly, they play a crucial part in fostering the expansion of SMEs, which are frequently the foundation of the economy. Banks assist SMEs in growing their businesses and creating jobs through providing financial services, such as loans and advisory services.

Additionally, In Cameroon, the primary sources of funding for supporting domestic economic activities include commercial banks, development banks, and micro-finance institutions. However, other financial entities like pension funds, unit trusts, and insurance companies contribute to domestic investment by providing a platform for raising local savings(Karl, 2018). However, the participation of non-banking financial institutions in funding domestic investments is constrained, as they are legally mandated to allocate a minimum of 35 percent of their total assets to the domestic economy (International Monetary Fund, 2016). Consequently, many of these institutions prefer offshore investments, often with South African institutions. This places greater reliance on commercial banks in Cameroon to offer domestic credit that can spur economic growth. While there is an expectation for commercial banks in Cameroon to drive economic growth by extending credit to crucial sectors, the actual impact of banks on the economy remains uncertain. Similarly, commercial banks in the country, has expressed concerns over the escalating household credit. This credit is predominantly characterized by installment plans, overdrafts, and other loans and advances, frequently used to finance non-productive luxury imports (Ray, 2014).Therefore, a survey will be conducted on an investigation on the role of commercial banks on the socio-economic development of Cameroon

1.2 Statement of the Problem

Commercial banks being a profit-driven financial institutions that are privately owned, engage in activities such as receiving deposits from the public, safeguarding them, and providing loans to individuals. Similarly, these banks  offer various services, including providing investment advice, offering guidance on financial markets, handling foreign exchange transactions, issuing travelers' checks, job creation, poverty reduction, and overall improvement in living standards. They also serve as guarantors, standing behind customers to settle debts when they are unable to pay. On the other hand, a major economic crisis that struck Cameroon in the 1980s had an impact on several industries, including commercial banks. The crisis was brought on by a sharp decline in the value of goods and services sent abroad, which in turn caused daily commodity prices to rise significantly. However, the Cameroonian government responded to this economic crisis by enacting a reform program that centered on liberalizing foreign trade and reorganizing the public finance system. This attempt contributed to the economic recovery that occurred in the late 1990s. However, the Structural Adjustment Program (SAP) of the Cameroonian government came under fire for allegedly failing to address the high rate of poverty in the nation, which dramatically increased in the late 1980s and early 1990s.

Additionally, in April 2006, Cameroon embraced the Highly Indebted Poor Countries (HIPC) debt reduction initiative, marking a crucial development milestone. Upon reaching the HIPC completion point, Cameroon received over 1400 billion FCFA in financial resources. These funds, being unrestricted, are intended to bring about sustainable improvements in living conditions and substantial reductions in poverty. Hence, it is in the light of these that the study seeks an investigation on the role of commercial banks on the socio-economic development of Cameroon.

1.3  Objectives of the Study

The main purpose of this study is to investigate on the role of commercial banks on the socio-economic development of Cameroon. Specifically, the study will;

1.Determine the extent to which commercial banks contributed to financial inclusion in Cameroon

2.Assess the role of commercial banks in providing financial support to SMEs for business development

3.Assess the impact of commercial banks on the socio-economic development of Cameroon

1.4 Research Questions

The following questions have been prepared for the study:

1.        To what extent have commercial banks contributed to financial inclusion in Cameroon?

2.        How effectively do commercial banks play a role in providing financial support to SMEs for business development?

3.        What is the impact of commercial banks on the socio-economic development of Cameroon?

1.5  Significant of the Study

This study will give employees the opportunity to state their individual perceptions toward employee relations and its effect on their effectiveness and performance in the organization. Further more, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to an investigation on the role of commercial banks on the socio-economic development of Cameroon.

1.6 Scope of the study

The scope of this study is boarded on an investigation on the role of commercial banks on the socio-economic development of Cameroon.  Empirically, this study will determine the extent to which commercial banks contributed to financial inclusion in Cameroon, assess the role of commercial banks in providing financial support to SMEs for business development and  the impact of commercial banks on the socio-economic development of Cameroon

Geographically, the study will be delimited to residents of  Yaoundé, Cameroon.

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.8 Definition of Terms

Commercial Banks: refers to a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses.

Socio-economic: refers to the interaction between social and economic factors,