ABSTRACT

Challenges faced by financial institutions in supporting small and medium size enterprises in Cameroon. CASE study of Buea subdivision. This study seeks to examine the relevance of book keeping on SMEs in the Buea Municipality, the study adopted survey research design with a total sample size of 100 in the Buea municipality, a stratified random sampling technique was used for study. Primary data was collected for the study using a 100 questionnaire as method of data collection. Found, data was equally presented in tables and chart. The result of the finding revealed SMEs operator lack financial management e, high cost of hiring a What Does SMEs have challenges in accessing credit in?educational training should be done by the operators of small businesses, furthermore, it was discovered that book keeping has a significant effect on performance of SMEs in the Buea municipality. To what extent has these challenges affected their operations. The study also recommended that that SMEs What alternative sources of funding are SMEs resorting to and how viable are these?

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Small and medium enterprises (SMEs) make important contributions to economic and social development of any country (Kilonzo and Ouma, 2015). ILO (2008) reported that about 80% of the labour force in Japan and 50% of workers in Germany are employed in the SME sector. With respect to developing countries, SMEs made a significant contribution to the gross domestic product of Uganda (20%), Kenya (19.5%), and Nigeria (24.5%).  As in most developing countries, small and medium-scale enterprises equally form a significant part of the economic growth in Cameroon (34%). Nevertheless, they face a number of problems, including access to finance from formal sources, which is often considered the most challenging problem (MFPED, 2008). In terms of numbers, small and medium size enterprises constitute a vast majority of business establishments and are usually responsible for the majority of employment opportunities created. They account for about two third of the private sector turnover (Ntsika, 2002). It is estimated that SMEs contribute 56% of private sector employment and 36% of the Gross Domestic Product (GDP) worldwide (Arianoff, 2010).

SMEs play a key role in transition and developing countries. They typically account for more than 90% of all firms outside the agricultural sector (OECD, 2004). In Cameroon particularly, Small and medium-sized enterprises constitute 99.8% of businesses, and employ above 72.6% of the working population, (SMESEH, 2018). In addition, they constitute a major source of employment and generate significant domestic and export earnings. As such, SMEs development emerges as a key instrument in poverty reduction efforts (OECD, 2004). The growth and sustainability of SMEs becomes a big concern to most economies. However, their operational peculiarities still leave much to be desired in the corporate world. Such peculiarities include the role and omnipresence of the owner, simple and informal character of the information system, the apparent lack of vision and strategy, low level of labourspecialisation, the highly centralised mode of management, operating purely in local markets and limited delegation of power (Julien, 1988; Torres, 2003). These peculiarities make SMEs completely different from large enterprises with corporate structures. It is worth noting that some of these SMEs are succeeding very well although others keep going out of business every day. Examining the financial management practices of these businesses becomes very vital.

Considering that SMEs contribute so much in the economic development of underdeveloped and developing economies, there is increasing need for these enterprises to operate economically, efficiently, effectively, sustainably and ethically. To achieve this, financial management practices has potentially a crucial role to play in improving the quality of planning, control and decision-making. The attainment of this role relies more on quality of information generated from the financial management accounting systems. Unfortunately, little research has been done in this domain to unveil the role of financial management practices in SMEs especially in developing economies. Whilst acknowledging that this is an under-researched area, in developing economies previous contributors to the financial management literature Zotorvie, 2017; Kazooba, 2006; and Mabaguta;2002),  have suggested that SMEs are often failing to leverage adequately the potential of management accounting for helping them achieve their financial objectives, including profitability and liquidity. In addition, owners who often take decisions without adequate financial management information or analysis manage most SMEs.

In many countries, SMEs are still seen as the major engine of growth in employment and output over decades Kilonzo and Ouma, 2015. In developing countries, they are seen as a major self-help instrument for poverty eradication due to the ease of entry and exit. Most of them are not registered as corporate bodies but as sole proprietorship.  This makes registration procedures quite simple and easier than the other forms of business registration. Partly due to this phenomenon, SMEs has outnumbered all the other forms of business and could be found almost everywhere across the world.

Considering the relevance of SMEs as discussed before, the growth and development of any economy largely depends on how well and organized small and medium enterprises are managed. In this respect, the adoption of some corporate governance practices, management accounting practices, financial accounting practices, and financial management practices such as types of financial records keeping, cash flows, working capital, accounts payables, credit management, saving and investment habits, as well as credit management, could be a fundamental contributing factor to the growth and development of small and medium size businesses in developing economies. Pieterson, 2012.

Though SMEs are making positive contributions to economic growth and development in Cameroon, the rate of failure is high. According to (RGE2, 2016) the SME sector employs about 54% of the Cameroon workforce. Despite this significance, past statistics indicate that three out of every five businesses fail within the first few years of operation (CAMERCAP-PARC, 2016). According to MINEPAT, (2016).  Less than 27.7% of SMEs in Cameroon survived the first 5 years.  A national survey by The National Institute of Statistics, Cameroon (2015) showed that over 75% of newly created SMEs in Cameroon did not survive beyond 3 years. Also according to survey by NIS (2019) the survival rate of SMEs in the South West Region is 20.5% which indicates that about 80% of SMEs in this region do not survive beyond 3years.

Therefore the general problem facing small and medium business owners in Cameroon is that they are not able to sustain their businesses beyond 5 years despite measures put by the government like the creation of the Authorised Management Centres AMCs for supervising in enterprise management and training, the Small and Medium-Sized Enterprise Promotion Agency (APME) responsible for improving the competitiveness of SMEs through the provision of consultancy and support services like providing tax advice; the Cameroonian Bank for Small and Medium-Sized Enterprises (BC-PME) whose primordial mission is to fund SMEs. This fact raises concern on their general performance and therefore, their management practices.

According to the report presented by Doing Business (2019), Cameroon’s business climate is risky as it is ranked in the 166^th position out 190 countries involved in the study. The report observed that there are significant disincentives in the business environment in Cameroon which includes payment of taxes and duties, expensive and irregular electricity supply, poor transport infrastructure, lack of protection of minority investors, difficulties in transfer of ownership, problems resolving insolvency, difficulties in obtaining building permits . This hostile business environment threatens the survival of enterprises and is often responsible for the closure of many businesses. Pierre, Foleu, Abdulnour, Nomo and Fouda 2015, also observed that the business environment in Cameroon is considered to be among the main causes of business failure and poor competitive capacity of SMEs. They identified factors constraining the survival and growth of SMEs in Cameroon, which include corruption, difficulties in obtaining financing, the country’s economic situation, the time taken for customers to pay and the country’s legal environment.  It is expected that by the year 2035, Cameroon would have transformed into a newly industrialized nation and SMEs are seen as a key element in the country’s 2010 Poverty Reduction and Strategy Paper (PRSP) (Monetary Fund 2010). If the country has to make this leap, then the SMEs are expected to play a key role in this transformation considering the numerous position in the business landscape of Cameroon. Supporting the sustainability of SMEs is vital for the entire economy. Therefore, there is need to look for strategies to reduce the failure rate by carrying out studies such as this one that could identify the causes of this economic virus.

Financial management is one of several functional areas of management which is central to the success of any small business (Meredith, 2006).

Financial management is the management of finances of a business in order to achieve the financial objectives of the business. McMahon et al. (2008) defines financial management based on mobilizing and using sources of funds. Financial management is concerned with raising the funds needed to finance the enterprise’s assets and activities, the allocation of these scarce funds between competing users, and with ensuring that the funds are used effectively and efficiently in achieving the enterprise’s goal. Financial management as used in this study is composed of five (5) constructs namely; working capital management, investment, financing, accounting information systems and financial reporting and analysis. Ross et al (2009) indicated three kinds of decisions the financial manager of a firm must make in business; these include the financing decision, and decisions involving short-term finance and concerned with the net working capital, investment and financial reporting. Similarly, Ang (2002) indicated three main financial decisions including the investment decisions, financing decisions and dividend decisions.

1.2 Problem Statement

Many researchers have put forward the fact that lack of managerial expertise and capital are the major problems inhibiting the development of SMEs in most underdeveloped and emerging economies (Abang, 2012; Maziriri&Mapuranga, 2017). Other researchers have identified high competition, technological development, market globalization, increase employees’ turnover rate and liquidity as some of the challenges faced by SMEs (Johnson & Kaplan, 1987; Oro &Hieldl, 2015). A cross section of SMEs is family owned with management structure based on family lineage, tribal, cultural or other social affinities (Abang, 2012). Hence, the entities are usually void of corporate culture and tend to follow strictly the ideologies of the founder. In the same line, Ackah and Vuvor (2011) identified the lack of capacity in terms of qualified personnel as a cause of their eminent failure within few years of existence. While accepting with the previous researchers, this study strongly holds that even with limited resources and tight global competition among large firms, SMEs could still survive if proper financial management practices are used. There is therefore need to study the financial management practices adopted by these entities and their effect on performance.

Kamilah (2014) points out the lack of adequate working capital, poor management skill and inadequate use of essential business and management practices as some of the many reasons for discontinuity of business among SMEs besides rapidly changing market conditions. In his view, the use of financial and non-financial management practices that can provide crucial information to managers is vital to ensure the effectiveness and efficiency of SMEs businesses. The wisdom to determine adequate working capital and other crucial information for decision-making still lie on proper financial managementpractices. In the same vein, Hopper, Koga &Goto (1999) in their research among Japanese SMEs, argue that failure to adopt management accounting practices (i.e. cost management systems) in a comparable way to larger businesses with profit focus may be a factor leading to the currently high failure rate of SMEs. This claim is consistent with Reid and Smith (2002) who argue that efficient information processing plays a vital role in the success of smaller enterprises. Efficient information processing depends on the type and application level of financial management practices (FMPs).

SMEs usually have only limited access to resources and are less able to take advantage of economies of scale (Oro &Hieldl, 2015). In order to compete with large enterprises having huge resources, it is crucial for SMEs to manage their scarce resources using proper information and control systems (Mitchell & Reid, 2000). FMPs may support SMEs in this aspect by meeting general management information needs (Johnson & Kaplan, 1987). However, given resource constraints of SMEs, the hiring of specialised management accountants or even general fulltime accountants is hard knob to crack (Oro &Hieldl, 2015). For the same reason, there is usually partial or complete lack of management and accounting skills, caused by inadequate training among the SME staff or the owners (Mitchell & Reid, 2000). Therefore, financial management decision-making tools and systems are both less sophisticated and less formalised or not used at all by SMEs (Quinn, 2011). The owner (manager) thus lacks valuable information for management planning and control. Decisions in most cases are based solely on personal opinion (Cassar& Holmes, 2003). The quality of financial management information is one of the root causes of business failure among SMEs. When the owner (manager) runs the enterprise without due consideration of relevant and reliable financial management information generated from past operations of the enterprise, using FMPs systems, the path to success may become very slim.

The growth and development of any economy depends largely on how well organised the small and medium enterprises are, and this is linked to best practices with respect to financial managementpractices such as types of financial records keeping, cash flows, working capital, accounts payables, credit management, saving and investment habits, types of loans as well as process of payment of their loans in their business activities (Pieterson, 2012). Even though the success and growth of SMEs depends also largely on government’s policy on the general operations of SMEs, yet executing the best practices throughout the existence of the life span of the business has been the best interest of the SMEs. There have been drawbacks because the small and medium enterprises face many challenges in the perspectives of lack of collateral, poor bookkeeping, poor accounts preparation, as well as poor sound financial management practices (Attom, 2012).  Best practices are the moving wheels in every institution, company or organization.

Small and medium-sized enterprises in Cameroon constitute over 99.8 % of businesses, and employ above 72.6% of the working population, (SMESEH, 2018). However, less than 27.7% of SMEs in Cameroon survived the first 5 years of existence (MINEPAT, 2016). A national survey by the National Institute of Statistics, Cameroon (2015) showed that over 75% of newly created SMEs in Cameroon did not survive beyond 3 years. A similar study in 2016 shows that the overall failure rate of SMEs stands at 72.2% for enterprises created between 2010 and 2015 (CAMERCAP-PARC/Study on SMEs’ failure in 2016). Therefore, the general challenge faced by managers and owners of SMEs in Cameroon is that they are not able to sustain their businesses beyond 5 years despite measures put in place by the government to assist the operation of these enterprises. Some of such measures include the creation of Authorised Management Centres (AMCs) for supervising enterprise management and training; Small and Medium-Sized Enterprise Promotion Agency (APME) responsible for improving the competitiveness of SMEs through the provision of consultancy and support services ( such as providing tax advice); Cameroonian Bank for Small and Medium-Sized Enterprises (BC-PME) whose primordial mission is to fund SMEs.

According to Nfor (2016), the business environment in Cameroon is considered to be among the main causes of business failure and poor competitive capacity of SMEs. He identified factors constraining the survival and growth of SMEs in Cameroon, which include the following: corruption, poor taxation system, lack of capital, lack of managerial expertise, lack of competitive strength, difficulties in obtaining financing, the country’s economic situation, the time taken for customers to pay and the country’s legal environment. In the vein, report by Doing Business (2019) noted that Cameroon’s business climate is risky as it is ranked in the 166th position out of the 190 countries studied. The report observed that there are significant disincentives in the business environment in Cameroon which includes payment of taxes and duties, expensive and irregular electricity supply, poor transport infrastructure, lack of protection of minority investors, difficulties in transfer of ownership, problems involving insolvency, difficulties in obtaining building permits, just to mention a few. This hostile business environment threatens the survival of enterprises and is often responsible for the closure of many businesses. Furthermore, it is expected that by the year 2035, Cameroon would have transformed into a newly industrialized nation and SMEs are seen as a key element in the country’s 2010 Poverty Reduction and Strategy Paper (PRSP) (Monetary Fund, 2010). If the country has to make this leap, then the SMEs are expected to play a key role in the transformation process. Therefore, there is absolute need to diagnose the causes and possible solutions to SMEs business failure in Cameroon. This study however, posits that the major cause of Cameroon SMEs failure may be attributed to poor or entire neglect of financial managementpractices. In this light, and considering that most of the enterprises in the country fall in this category, the study becomes increasingly vital.

SMEs constitute a large number of establishments in most developed and developing economies around the world (Kamilah, 2017). In Cameroon for example, the public sector employees are only 196,000 out of a population of 19 million (Abang, 2012). The rest of the working force is therefore engaged in the private sector, dominated by SMEs. Statistics from the Ministry of SMEs in Cameroon as presented in ECCAS Regional Conference Brazzaville, Congo (2015), show that out of the 93,969 enterprises in Cameroon, 87,422 are SMEs. The business sector in the country is composed of 95% SMEs (Sotamenou, 2014).  Financing and managing Small and Medium-size Enterprises (SMEs) and Small and Medium-size Industries (SMIs) has been a perennial headache in Cameroon given its vastness and the huge number of actors involved (Cameroon Tribune, 31/7/2013). Given that the sector concerns almost everything and everybody, coupled with its weight in job and wealth creation, the government of Cameroon created the Ministry for Small and Medium-size Enterprises, Social Economy and Handicrafts on December 8, 2004 and other evolutions thereafter testify government’s consciousness of the place of the sector in economic development of the country. Despite these, the challenges of the sector are still enormous and need careful diagnosis.

Regardless of the position occupied by SMEs in most economies, empirical evidence still show that their performance in terms of GDP contribution is below expectation. Azian et al., (2013) pointed out the lack of managerial capabilities, shortage in financing and human resources as some key barriers in the management of SMEs.  Majority of SMEs tend to fail because of the lack of planning, marketing knowledge, absence of managerial skills and competency of capabilities (Kamyabi, 2011). Abang, (2012) confirmed the same facts.

1.3 Research question 

• How does the challenges in accessing credit in SME?
• To what extent has these challenges affected their operations?
• What alternative sources of funding are SMEs resorting to and how viable are these?

1.4 OBJECTIVE OF THE STUDY

• To identify the challenges in accessing credit in SME
• To examine these challenges affecting their operations
• To assess alternative sources of funding are SMEs resorting to and how viable are theses

1.5 Hypotheses of the study

H_O1:  there are no challenges face by small and medium size enterprise.

H_1: there are challenges face by small and medium size enterprise.

H₀2 there do not exist challenges required that affect operation.

H_2:2 there exist such challenges required for operation.

H_O3 there are not alternative source of finance for SMEs.

H₃3 there is an alternative source of finance for SMEs