INVESTIGATING ON THE ROLE OF MICROFINANCE INSTITUTIONS IN PROMOTING ENTREPRENEURSHIP IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Impoverished people are shut out of the official financial system globally. This is due to the fact that this system consists of a network of organizations that provide their services to well-off individuals that they deem creditworthy. However, because of the enormous costs involved, even in cases when the services are offered to the impoverished or low-income earners, they are typically out of reach. This issue was pertinent during the global economic crisis of the 1970s, which resulted in the failure of numerous commercial banks worldwide. Furthermore, this issue was pertinent during the global economic crisis of the 1970s, which resulted in the failure of numerous commercial banks worldwide. As a result, in 1976, Professor Mohamed Yunus, who oversaw the Rural Economics program at Bangladesh's Chittagong University, started the Grameen Bank project, which provided small loans mostly for agricultural use in rural areas. Due to its tremendous success, the Grameen Bank project was only converted into an independent bank in 1983, mostly serving the rural populace. Unlike the majority of government-subsidized rural credit programs, these loans required repayment, were self-financing, and were available to clients who mostly sourced their funding from the unorganized sector. The concept of microcredit originated and then developed into microfinance. Microfinance is defined as the provision of financial and non-financial services such as saving, loan and insurance, to the poor or low-income earners, as well as to those excluded from the formal financial system.in addition, the concept of microfinance spread-out rapidly over the years. Most institutions were opened like ACCION International in Latin America in 1961 founded by Joseph Blatchford which developed it network of microfinance later in 1983 called Red ACCION, and has so far helped build 63 MFI’s in 32 countries on four continents (ACCION international by Wikipedia, 2015).Beyond that,because informal savings have always been deeply ingrained in African society, the influence is considerably larger there. Local names for these savings groups include the Ajoh in Nigeria, the Tontines and Njangi in Cameroon, the Pari in Mali, the Susu in Ghana, and many more (Gwasi N, Marcel T, Ngambi, 2014). This tendency greatly triggered the rapid expansion that faces the microfinance sector in Africa presently.The availability of contemporary micro financing in Cameroon dates back to 1963 where Janson, a Dutch Catholic father in Njinikom-Bamenda, opened the first Cooperative credit union on the territory. Later on, the law of 1990 granting freedom of association and the 1992 law on Cooperative Societies and Common initiative groups, created a boom in the sector, as many microfinance institutions came to existence following the decree, some of which are still operating today (Batchadji, 2014).

Furthermore, because of the nature of Small and Medium Enterprises (SME) operations and the fact that the majority of them, particularly small businesses operate informally, there is for need financial services that are customized to their specific needs in order to survive. However, these services are hardly provided by the official financial system. Since 95% of Cameroonian enterprises fall under this category, this is significant. The primary goal of microfinance is to reduce poverty, and this goal will seldom be met if these organizations solely provide loans for consumer use, as is the case with consumer loans. Therefore, a survey will be conducted in order to investigate on the role of microfinance institutions in promoting entrepreneurship in Cameroon

1.2 Statement of the Problem

Among venture capital, finance is thought to be the riskiest, particularly in the early stages of a startup. For the growth of micro and small business owners, it has been a vital tool for marketing their concepts into goods and services. However, their inability to get sufficient funds has hindered their progress and contributed to their illness. Due to this, developing nations' economies are struggling, which raises the rate of unemployment, poverty, and low living standards. It has led poor nations to set up microfinance banks, which give these micro-entrepreneurs tiny loans in the form of microcredit. Because they don't meet the harsh lending requirements of commercial banks, these microentrepreneurs are unable to obtain formal funding from them.

Additionally, the private sector of Cameroon is far better off than the public, in terms of performance and contribution to economic development. Moreover, it is clear that SMEs make up the greater portion of the private sector, with their ever-increasing importance in economic development and poverty alleviation. They do, however, confront a significant obstacle when trying to obtain financing from the official sector. Approximately 70% of SMEs in Cameroon do not have access to sufficient finance, according to a 2005 World Bank assessment. The matter is pertinent, particularly in light of the majority of Cameroonian financial institutions' excess cash. This can be due to the banks' lack of reliable information on these SMEs and the unpredictability of their cash flows, which puts them in a risky situation and makes most banks hesitant to invest in them. Even in cases where funding is available, SMEs' clients may not always feel at ease with the terms of the credit and, if approved, the funds may be used for purposes other than those specified in the contract. Because of this, microfinance institutions are in the best position to address this issue through the services and methodology they provide. They do this by providing both financial and non-financial services to their SMEs clients, and because of their natural proximity to their clients, they can monitor loans more affordably. However, this is not always the case as most of these institutions have drifted from their original purpose, making some to collapse (COFINEST, FIFA) having serious repercussions and others to upscale (NFC, CCA) at the detriment of smaller enterprises. Thus, it is in the light of these that the study seeks to investigate on the role of microfinance institutions in promoting entrepreneurship in Cameroon

1.3 Objectives of the Study

The main purpose of this study is to investigate on the role of microfinance institutions in promoting entrepreneurship in Cameroon. Specifically, the study will;

1.Examine the role of microfinance institutions in poverty alleviation in Cameroon

2.Ascertain the role of microfinance institutions in promoting entrepreneurship in Cameroon

3.Investigate the challenges faced by microfinance institutions in promoting entrepreneurship in Cameroon

1.4 Research Questions

The following questions have been prepared for the study:

1.What are the role of microfinance institutions in poverty alleviation in Cameroon?

2. What are the role of microfinance institutions in promoting entrepreneurship in Cameroon?

3. What are the challenges faced by microfinance institutions in promoting entrepreneurship in Cameroon?

1.5 Significance of the Study

This study will help the government in creating policies that support SME and microfinance-driven economic development. Additionally, it will reveal to the media houses on the need to educate the public on the utmost importance of microfinance institutions in promoting microbusiness ventures, thus increasing overall public confidence in the sector and mobilizing savings.Furthermore, 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 investigating on the role of microfinance institutions in promoting entrepreneurship in Cameroon.

1.6 Scope of the study

The scope of this study is boarded on investigating on the role of microfinance institutions in promoting entrepreneurship in Cameroon. Empirically, this study will examine the role of microfinance institutions in poverty alleviation, in promoting entrepreneurship in Cameroon and investigate the challenges faced by microfinance institutions in promoting entrepreneurship in Cameroon. Geographically, the study will be delimited to business owners in 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

Microfinance: refers to as the provision of financial and non-financial services such as saving, loan and insurance, to the poor or low-income earners, as well as to those excluded from the formal financial system

Entrepreneurship: refers the ability and readiness to develop, organize and run a business enterprise, along with any of its uncertainties in order to make a profit.

Small And Midsize Enterprises (SMEs): are businesses that maintain revenues, assets, or a number of employees below a certain threshold.