Abstract

This study explores the effect of financial innovation on the performance of deposit-taking microfinance institutions (MFIs) in Buea, Cameroon. Financial innovation, particularly in the form of new products, services, and technological advancements, is a key factor influencing the operational performance of financial institutions. This research investigates how innovations, such as mobile banking, digital payment systems, and novel financial products, impact the overall performance and sustainability of deposit-taking MFIs in Buea.

The research utilizes a mixed-methods approach, incorporating both quantitative and qualitative data. Primary data were collected from managers and staff of selected deposit-taking MFIs through structured questionnaires and interviews. Secondary data on financial performance indicators such as return on assets (ROA), return on equity (ROE), and deposit growth rates were also analyzed. The study examines the correlation between financial innovation and key performance metrics to identify significant patterns and trends.

Findings from the research reveal a strong positive relationship between financial innovation and the performance of deposit-taking MFIs. The introduction of mobile banking and digital payment platforms has led to increased operational efficiency, improved customer service, and enhanced financial inclusion. These innovations have reduced transaction costs and expanded the customer base, which in turn has led to higher deposit mobilization and improved profitability. Additionally, the creation of new, innovative financial products has allowed MFIs to better meet the needs of diverse customer segments, contributing to increased market share and customer retention.

Despite these benefits, the study highlights several challenges faced by MFIs in adopting financial innovations, including the high cost of technological infrastructure, regulatory barriers, and limited digital literacy among clients. These challenges must be addressed to maximize the positive impact of financial innovation on performance.

In conclusion, financial innovation plays a crucial role in enhancing the performance of deposit-taking microfinance institutions in Buea, Cameroon. By continuing to innovate and addressing the associated challenges, MFIs can improve their competitiveness, financial sustainability, and contribution to financial inclusion in the region.

Keywords: financial innovation, deposit-taking microfinance institutions, performance, Buea, Cameroon, mobile banking, digital payments, financial inclusion