Abstract

This study assesses the impact of taxation on the financial performance of microfinance institutions (MFIs) in Fako Division, Cameroon. Microfinance institutions play a critical role in providing financial services to low-income individuals and small businesses, contributing significantly to economic growth. However, the taxation of these institutions may influence their financial sustainability, profitability, and ability to serve their clients. This research aims to examine how taxation policies affect the financial performance of MFIs in Fako Division, with a focus on their profitability, liquidity, and overall operational efficiency.

The research adopts a mixed-methods approach, combining quantitative analysis of financial data from selected microfinance institutions and qualitative interviews with key stakeholders, including MFI managers, tax authorities, and financial experts. The study reviews the current tax framework applicable to MFIs, analyzing tax rates, compliance requirements, and tax incentives, and assesses their direct and indirect effects on the institutions’ financial health.

Findings reveal that taxation has a significant impact on the financial performance of microfinance institutions in Fako Division. High tax rates and complex tax compliance processes reduce profitability and constrain liquidity, which negatively affects their ability to expand services and provide loans to their clients. Additionally, some MFIs experience challenges with tax evasion risks and penalties, further affecting their financial stability. The study also identifies that tax incentives provided by the government are insufficient to offset the financial burden imposed by taxation.

The research concludes that while taxation is necessary for revenue generation, it is essential for policymakers to design tax systems that support the growth and sustainability of MFIs. Recommendations include the introduction of tax relief measures, simplified tax compliance procedures, and targeted tax incentives to encourage investment in the microfinance sector. These measures would not only improve the financial performance of MFIs but also enhance their capacity to contribute to financial inclusion and poverty reduction in Fako Division.

Keywords
Taxation, financial performance, microfinance institutions, Fako Division, tax compliance, profitability, liquidity, tax incentives, financial inclusion.