The impacts/effects of microfinance on small and medium size enterprises (SMEs) in Cameroon
1.0 INTRODUCTION
1.1. Overview
This chapter gave attention to the background information to the problem, states the statement of the problem. It also stipulates research objectives and research questions. Finally, it provides the significance of the study. This chapter concentrates on the introduction which is categorized into the background information to the problem, statement of the problem, research objectives, and research questions. In the same vein, the chapter contains significance of the study.
Microfinance is not a new concept. It is dates back in the 19th century when money lenders were informally performing the role of now formal financial institutions. The informal financial institutions constitute; village banks, cooperative credit unions, state owned banks, and social venture capital funds to help the poor. These institutions are those that provide savings and credit services for small and medium size enterprises. They mobilize rural savings and have simple and straight forward procedures that originates from local cultures and are easily understood by the population (Germidis et al., 1991). These funds are to finance the informal sector SMEs [Small and Medium size Enterprises] in developing countries and it known that these SMEs are more likely to fail (Maloney, 2003). The creation of SMEs Small and Medium size Enterprises] generates employment but these enterprises are short live and consequently are bound to die after a short while causing those who gained job positions to lose them and even go poorer than how they were. It is not until recent that microfinance had gained recognition thanks to the noble prize winner Yunus Muhammad of the Grameen Bank. It should be noted that microfinance is not a panacea but it is a main tool that foster development in developing countries. It is known worldwide that the poor cannot borrow from the banks. Banks do not lend to them because they do not have what is required to be granted a loan or to be provided with the bank services. The lack of financial power is a contributing factor to most of the societal problems. These problems emanate from poverty and it is known that with poverty one is bound to suffer so many consequences ranging from lack of good health care system, education, nutrition. Microfinance has proved this bank concept to be wrong. They target the poor who are considered risky but the repayment rate turns to be positive as compared with the regular commercial banks (Zeller and Sharma, 1998). Researchers have viewed microfinance in different dimensions. Microfinance gives people new opportunities by helping them to get and secure finances so as to equalize the chances and make them responsible for their own future. It broadens the horizons and thus plays both economic and social roles by improving the living conditions of the people (Microfinance Radio Netherlands, 2010). These improvements are in a nutshell to alleviate poverty, and according to this project, it will be seen from the point of the development of SMEs [Small and Medium size Enterprises] and focusing mostly in the rural areas.
The UN millennium goal to alleviate poverty by the year 2015 is far from fetch despite the enormous works that microfinance institutions are doing to contribute in this domain (Hiderink and Kok, 2009). The main challenge facing the poor is to gain financial power to enable them boost their income generating activities (Yunus, 2003).1.2 Background to the problemSince independence, the government of Cameroon has embarked on several attempts aimed at promoting agricultural development in the country. In the first few years after independence in 1961, the government embarked on the policy of “Green Revolution”, which was aimed at encouraging the development of agriculture in the country (Simarski, 1992). Other efforts included the setting up of agencies like the National Fund for Rural Development (FONADER) and other rural agricultural extension programmes. In spite of all these attempts, much is still needed to boost this sector, which is considered very vital in the economic life wire of the state. A recent development in this sector has been the increasing involvement of NGOs[Non Governmental Organizations and the microfinance institutions in the process of enhancing the development of SME Small and Medium size Enterprises] particularly at the rural level. The question now is, why microfinance at this point in time? A Roman Catholic priest from Holland by name Rev. Father Anthony Jansen brought the notion of credit unions into the country. This was as a result of complaints that were coming up from farmers, petty traders and inhabitants in the locality in which he were living. Among the difficulties or complaints faced by these locals; was the issue that most of them often save their money by hiding in some parts of the house, in which case ants often eat them up; again some farmers sold their crops before harvest due to fear of the lack of storage facilities. It was then that, in 1963 the first credit union was formed such that farmers could have a bit of financial power to afford for better seedlings (www.camccul.org ). How then are these microfinance institutions of significance to the sustainable development of the country?Further still, why are farmers not cultivating in large scale to increase their wealth and improve on their living standard? It is important to look at this because even though the government promotes SMEs Small and Medium size Enterprises] in the rural areas through different institutions, microfinance institutions are not leaving any stone unturned to make sure that the acute poverty striking the rural population is redressed. Agriculture and SMEs Small and Medium size Enterprises] are the key sectors to the government and of course has a great influence in the socioeconomic development of the country but productivity and development keeps on dropping with a rising population.
1.3 Statement of problem
Cameroon has valuable natural resources for a strong agricultural sector. This resource base should provide a platform for the development of rural SMEs, and contribute to the country's fight against poverty. Business development, however, requires more than natural resources, and it is not clear what challenges and opportunities in development rural SMEs are facing in Cameroon.
· What markets are available?
· Is there sufficient access to technology and labour resources? · Do firms have access to financial capital to fund development?
This study will investigate the underlying issues rural small firms are facing in their development. Particular attention will be given to the issue of financing firm development, where the major microfinance institution in Cameroon, CamCCUL,[ Cameroon Cooperative Credit Union League] plays an active role.CamCCUL has for many years aimed to support Cameroon's SMEs Small and Medium size Enterprises] with micro-financing, but it is unclear whether their administrative practices support their efforts or create additional hurdles for rural firms in need of financing for the development of their businesses.The specific questions that shall guide the research in this project are:· Do farmers have access to the financial resources they need for developing their businesses?
This study is intended to investigate the problems and opportunities that rural small businesses face in their development efforts, with a particular interest in the role that microfinance institutions may be playing. In addition to gaining a more general understanding of the challenges facing developing rural firms, the study will identify how NGOs are contributing to the development of rural small businesses and why rural small businesses succeed or fail in their efforts to acquire financing for their development. This study is focus on the resource needs of developing rural small and medium size firms, and how micro-finance may be contributing to rural firms' development, and thus the sustainable development of rural agricultural infrastructure in Cameroon. The specific objectives in this study are:
· To investigate the extent in which CamCCUL helps its members in developing their small or medium size businesses.
1.5. Significance/Justification of Study
In trying to justify why the current study is important, it is vital to mention that researchers have found this area of study very important to the development of the socio-economic activities in developing countries and their contributions to the development of small and medium size businesses in Cameroon. Extensive research has been carried out on the role of the financial management aspects. This research will therefore focus on CamCCUL which has not been exploited in terms of its contributions to the development of small and medium size businesses and particularly in the farming domain. A study of this nature is equally very important because it is going to enlighten the government and the public on the role CamCCUL is playing in the SMEs sector since it is in partnership with some international NGOs and with the government.
Microfinance as a whole provides the rural population a means to have access to financial services in their localities to boost their living standards in a sustainable manner in line with the millennium development goals of alleviating poverty in developing countries. They can contribute in the fight against poverty by improving the agricultural sector which is the main source of living to the inhabitants of such developing nations. Thus it will pave a way forward for potential NGOs wishing to help in the sustainable development of SMEs to understand the difficulties they may come across and how they can succeed in their endeavors.It will facilitate the researcher to be awarded a Bachelors Degree in Banking and Finance in the University of Buea.
1.6. Scope and delimitation of study
CamCCUL is a league of all credit unions scattered in the entire geographical landscape of the Cameroon with its main objective of providing financial services to the poor which cannot be done by macro financial institutions and as such helping in poverty alleviation and alleviating poverty. To cover all the regions in the entire country will be impossible because of the limited time frame. For this reason, the research will be limited to activities in the, North West and the South West regions of Cameroon.
The impact of microfinance on SMEs Small and Medium size Enterprises] in this area will be analyzed, looking at its contributions, and in what form, and of course the response of entrepreneurs to the contributions of this institution to them.
CHAPTER ONE
1.0 INTRODUCTION
1.1. Overview
This chapter gave attention to the background information to the problem, states the statement of the problem. It also stipulates research objectives and research questions. Finally, it provides the significance of the study. This chapter concentrates on the introduction which is categorized into the background information to the problem, statement of the problem, research objectives, and research questions. In the same vein, the chapter contains significance of the study.
Microfinance is not a new concept. It is dates back in the 19th century when money lenders were informally performing the role of now formal financial institutions. The informal financial institutions constitute; village banks, cooperative credit unions, state owned banks, and social venture capital funds to help the poor. These institutions are those that provide savings and credit services for small and medium size enterprises. They mobilize rural savings and have simple and straight forward procedures that originates from local cultures and are easily understood by the population (Germidis et al., 1991). These funds are to finance the informal sector SMEs [Small and Medium size Enterprises] in developing countries and it known that these SMEs are more likely to fail (Maloney, 2003). The creation of SMEs Small and Medium size Enterprises] generates employment but these enterprises are short live and consequently are bound to die after a short while causing those who gained job positions to lose them and even go poorer than how they were. It is not until recent that microfinance had gained recognition thanks to the noble prize winner Yunus Muhammad of the Grameen Bank. It should be noted that microfinance is not a panacea but it is a main tool that foster development in developing countries. It is known worldwide that the poor cannot borrow from the banks. Banks do not lend to them because they do not have what is required to be granted a loan or to be provided with the bank services. The lack of financial power is a contributing factor to most of the societal problems. These problems emanate from poverty and it is known that with poverty one is bound to suffer so many consequences ranging from lack of good health care system, education, nutrition. Microfinance has proved this bank concept to be wrong. They target the poor who are considered risky but the repayment rate turns to be positive as compared with the regular commercial banks (Zeller and Sharma, 1998). Researchers have viewed microfinance in different dimensions. Microfinance gives people new opportunities by helping them to get and secure finances so as to equalize the chances and make them responsible for their own future. It broadens the horizons and thus plays both economic and social roles by improving the living conditions of the people (Microfinance Radio Netherlands, 2010). These improvements are in a nutshell to alleviate poverty, and according to this project, it will be seen from the point of the development of SMEs [Small and Medium size Enterprises] and focusing mostly in the rural areas.
The UN millennium goal to alleviate poverty by the year 2015 is far from fetch despite the enormous works that microfinance institutions are doing to contribute in this domain (Hiderink and Kok, 2009). The main challenge facing the poor is to gain financial power to enable them boost their income generating activities (Yunus, 2003).1.2 Background to the problemSince independence, the government of Cameroon has embarked on several attempts aimed at promoting agricultural development in the country. In the first few years after independence in 1961, the government embarked on the policy of “Green Revolution”, which was aimed at encouraging the development of agriculture in the country (Simarski, 1992). Other efforts included the setting up of agencies like the National Fund for Rural Development (FONADER) and other rural agricultural extension programmes. In spite of all these attempts, much is still needed to boost this sector, which is considered very vital in the economic life wire of the state. A recent development in this sector has been the increasing involvement of NGOs[Non Governmental Organizations and the microfinance institutions in the process of enhancing the development of SME Small and Medium size Enterprises] particularly at the rural level. The question now is, why microfinance at this point in time? A Roman Catholic priest from Holland by name Rev. Father Anthony Jansen brought the notion of credit unions into the country. This was as a result of complaints that were coming up from farmers, petty traders and inhabitants in the locality in which he were living. Among the difficulties or complaints faced by these locals; was the issue that most of them often save their money by hiding in some parts of the house, in which case ants often eat them up; again some farmers sold their crops before harvest due to fear of the lack of storage facilities. It was then that, in 1963 the first credit union was formed such that farmers could have a bit of financial power to afford for better seedlings (www.camccul.org ). How then are these microfinance institutions of significance to the sustainable development of the country?Further still, why are farmers not cultivating in large scale to increase their wealth and improve on their living standard? It is important to look at this because even though the government promotes SMEs Small and Medium size Enterprises] in the rural areas through different institutions, microfinance institutions are not leaving any stone unturned to make sure that the acute poverty striking the rural population is redressed. Agriculture and SMEs Small and Medium size Enterprises] are the key sectors to the government and of course has a great influence in the socioeconomic development of the country but productivity and development keeps on dropping with a rising population.
1.3 Statement of problem
Cameroon has valuable natural resources for a strong agricultural sector. This resource base should provide a platform for the development of rural SMEs, and contribute to the country's fight against poverty. Business development, however, requires more than natural resources, and it is not clear what challenges and opportunities in development rural SMEs are facing in Cameroon.
· What markets are available?
· Is there sufficient access to technology and labour resources? · Do firms have access to financial capital to fund development?
This study will investigate the underlying issues rural small firms are facing in their development. Particular attention will be given to the issue of financing firm development, where the major microfinance institution in Cameroon, CamCCUL,[ Cameroon Cooperative Credit Union League] plays an active role.CamCCUL has for many years aimed to support Cameroon's SMEs Small and Medium size Enterprises] with micro-financing, but it is unclear whether their administrative practices support their efforts or create additional hurdles for rural firms in need of financing for the development of their businesses.The specific questions that shall guide the research in this project are:· Do farmers have access to the financial resources they need for developing their businesses?
This study is intended to investigate the problems and opportunities that rural small businesses face in their development efforts, with a particular interest in the role that microfinance institutions may be playing. In addition to gaining a more general understanding of the challenges facing developing rural firms, the study will identify how NGOs are contributing to the development of rural small businesses and why rural small businesses succeed or fail in their efforts to acquire financing for their development. This study is focus on the resource needs of developing rural small and medium size firms, and how micro-finance may be contributing to rural firms' development, and thus the sustainable development of rural agricultural infrastructure in Cameroon. The specific objectives in this study are:
· To investigate the extent in which CamCCUL helps its members in developing their small or medium size businesses.
1.5. Significance/Justification of Study
In trying to justify why the current study is important, it is vital to mention that researchers have found this area of study very important to the development of the socio-economic activities in developing countries and their contributions to the development of small and medium size businesses in Cameroon. Extensive research has been carried out on the role of the financial management aspects. This research will therefore focus on CamCCUL which has not been exploited in terms of its contributions to the development of small and medium size businesses and particularly in the farming domain. A study of this nature is equally very important because it is going to enlighten the government and the public on the role CamCCUL is playing in the SMEs sector since it is in partnership with some international NGOs and with the government.
Microfinance as a whole provides the rural population a means to have access to financial services in their localities to boost their living standards in a sustainable manner in line with the millennium development goals of alleviating poverty in developing countries. They can contribute in the fight against poverty by improving the agricultural sector which is the main source of living to the inhabitants of such developing nations. Thus it will pave a way forward for potential NGOs wishing to help in the sustainable development of SMEs to understand the difficulties they may come across and how they can succeed in their endeavors.It will facilitate the researcher to be awarded a Bachelors Degree in Banking and Finance in the University of Buea.
1.6. Scope and delimitation of study
CamCCUL is a league of all credit unions scattered in the entire geographical landscape of the Cameroon with its main objective of providing financial services to the poor which cannot be done by macro financial institutions and as such helping in poverty alleviation and alleviating poverty. To cover all the regions in the entire country will be impossible because of the limited time frame. For this reason, the research will be limited to activities in the, North West and the South West regions of Cameroon.
The impact of microfinance on SMEs Small and Medium size Enterprises] in this area will be analyzed, looking at its contributions, and in what form, and of course the response of entrepreneurs to the contributions of this institution to them.