ABSTRACT

The study seek to investigate innovations and performance of Microfinance Institutions in Buea Municipality. It focuses on product innovations, process innovations. The general objective of the study was to determine the effects of innovations and the performance of microfinance institutions in Buea Municipality. Specific objectives included to examining the effects of product innovations, and process innovations on the performance of microfinance institutions in Buea Municipality. The study was guided by the theory of Demand-Supply theory of innovation, Diffusion innovation theory. A total of 50 employees working with microfinance Institutions in Buea municipality were purposively sampled with the use of structural questionnaire. After carrying out descriptive analysis of the data, the Mean and standard deviation method was use to analyse the data. From the findings, it is seen that product innovations, process innovations positively influence performance of Microfinance Institutions in Buea municipality. This shows that an increase in a unit of product innovations and process innovations will contribute to an increase in the performance of MFIs in Buea Municipality. The study recommended that in order to enhance the performance of MFIs; the management of MFIs ought to focus on product innovation and process innovation. This will positively improve the performance of microfinance institutions in Buea municipality.

CHAPTER ONE

INTRODUCTION

1.1: Organization of the study

The study is structured as follows; Chapter one is the introductory chapter covers the background, statement of the problem, research questions which the study seeks to answer, the objective of the study, the hypothesis which will be tested, delimitation of the study as well as the significant of the study. Chapter two reviews the work of other authors in regard to the study from the theoretical perspective to the empirical perspective. Chapter three deals with the methodology of the study, from the research design adopted, via the method of data collection, specification of the models employed, and estimation techniques used to arrive at the result. Chapter four focuses on data analysis, presentation, interpretation and discussion of results obtained. Finally chapter five summarizes the findings, gives recommendations draws a conclusion on the study, give limitations of the study and makes suggestions further studies                                                                                  

1.2: Background of the study        

  For most firms, successful innovations are engines of growth (Cohen, 1997). Innovation is described as the technological by which, firms masters and implement design, and the production of goods and services that are new to them regardless of whether they are new to the competitors, country or the world (Mytelka, 2000). Innovation is the continuous technological of upgrading by employing new knowledge or the new combination of existing knowledge that is new to the local area (Spielmen, 2005). The microfinance industry has every sign of an innovation in it take-off phase with Mohammed Yunus and the Grameen Bank of Bangladesh in the 1970s by granting microcredit, provision of small, unsecured loans, to mostly women for enterprise development. These innovations however enabled the microfinance institutions to attain it dual mission of sustainability and growth (the welfariests and institutions). The characteristics aspects of microfinance innovations or managerial innovation were developed in the 1970s and 1980, thirty years later the industry experience a phenomenal growth rate and it has diffused to most developing countries in the world. Practitioners of microfinance have referred to microfinance innovation or managerial innovation as the last hope for the poor. It estimated that by 2005, more than 67million households were served by microfinance programs (Armend &Morduch, 2005). Earliar in 2004, approximately 665million clients accounts, at over 3,000 institutions were serving clients poorer than those served by the commercial banks. Of these accounts, 120 million were with institutions normally understood to practice microfinance (Christen et al. 2004). It also included postal saving banks  (318 million accounts), state agricultural and development banks (172 million accounts),financial cooperatives and credit unions (35million accounts) and specialized rural banks (19 million accounts).The highest concentration was in India (188million representing 18% of the population) while the lowest were in Latin America and the Caribbean (14 million representing Historical, Microfinance started in Bangladesh and parts of Latin America in the mid-1970sto provide credit to the poor (seen as an important tools to reduce poverty)particularly for women, by access to small loans, who was generally excluded from formal financial services (Schwarz, 2011).The model gain popularity and has since been extended to low and high income countries. Banco Sol in Bolivia and Bank Rakyat in Indonesia are two examples of this. Daley-Harris (2006) reports that, between December 1997 and December 2005, the number of microcredit institutions increase from 618 to 3,133 in developing nations.  Similarly, the number of recipients (84% of whom are women) rose from 13.5 million to 113.3 million during the same period (Grameen Banks, 2017) though with main objectives to alleviate poverty, microfinance is yet to achieve its objectives. There is however certainty as microfinance institutions have sought to innovation as a solution since innovation is one of the fundamental instruments of growths strategies to enter new markets, extend its services to the poor and needy, to increase the existing market share and to provide the company with a competitive edge. Also motivated by increasing competition in global financial market, microfinance institution have started to grasp the important of innovation, since swiftly changing technologies and severe global competition rapidly erode the value added of existing products and services. Thus, innovations constitute an indispensable components of the corporate strategies for several reasons including to apply more productive manufacturing technologic ales, to perform better in the market, to seek positive reputation in customer perception and as a result to gain sustainable competitive advantage which all contribute to increase profitability in the form of profitability and returns. Technological innovation is the introduction of a goods or service that is new or significantly improved regarding it characteristics or intended uses; including significant improvements in technical specificities. In Cameroon, the concept of innovation and profitability lacks a lot of empirical literature with little or no information relating to this area of study. Most studies that exist brings highlighted aspects such as operational expense ratio, portfolio at risk, and staff productivity as major determinants of productivity for MFIs (Nwasi &Ngambi, 2014). Poor profitability of microfinance in Cameroon is also associated with decision making and operational technological known by Wamba, Bengono &Teulon (2018) as governance issues.  This is further compounded by the fact that the boundaries between microfinance and commercial banking activities are becoming blurred, microfinance services in Cameroon have been left at the mercy of Non-Governmental Organization (NGOs). With increase competition with commercial banks, MFIs become more profit orientated drifting away from its original mission. Formal microfinance activities can be traced back in 1963 following the creation of the first cooperative savings and loans institutions at Njinikom, North West region of Cameroon by the Roman Catholic clergy (Fotabong, 2010). Until 1990s, the development of microfinance institutions in Cameroon remain very weak when the president passed a law Number. 092/053 of 19 December 1990s relating to the freedom of association and law number. 092/006 of 14^th August 1992 relating to cooperatives, companies and common initiative groups were enacted. Banking crisis of the late 1980s is another contributing factor that led to the growth and developments of microfinance in Cameroon. Some top executives who lost their jobs or dismissed during the crisis formed corporative credit unions that functioned like mini-banks. Though most of these institution had their origins from the North West and Western regions of the country, most of their branches are highly concentrated in Yaoundé, Douala, Bafoussam, and Bamenda. Most villages and some semi urban areas are yet to feel a touch of MFIs thus hampering their initial promise of poverty alleviation. This is due to poor road infrastructures , little or no supply of facilities to alleviate poverty for examples according to product life circle theory by Vermont, (1966), a product goes through five stages in life were at some point unless modification are done, the product become absolute and irrelevant and drops the profitability. It is important that business invest high  on market research programs in order to identify changes in customer needs as the product advanced through it productive life. To, global poverty and malnourishment rank among the largest humanitarian problems in the world. An estimated 805 million, or 11.3% of the world’s population, were classified as chronically undernourished in 2012 -2014 (FAO, 2014). This problem is the most pronounced in sub-Saharan Africa where 23.8% of the population is undernourished. Poverty rank as the principal reason for malnourishment (Riggins &Weber, 2016).  To enhance international development, the United Nations (UN) announced the millennium development goals, aimed to eradicate poverty by 2015 (Arifujjaman &Rahman, 2007). To achieve this goal, the UN counts to the microfinance as one and sure way to fight against poverty as well as the microfinance industry in the form of financial development that is now being considered as most of the important and an effective mechanism for poverty alleviation. The emergence of microfinance in past three decades is viewed as a critical component in the fight against global poverty (Mosley, 2001). Microfinance is define as the provision of financial services to poor or low-income clients, including consumers and entrepreneurs who will otherwise not be served by traditional financial institutions (ledgerwood, 2000). According to Mosley (2001), microfinance makes a considerable contribution to the reduction of poverty through its impact on income and has a positive impact on asset level. That’s is why, the UN declared 2005 as the international year of microcredit. Microfinance institutions are the main financing sources for poor and low-income households around the world. They provide financial services to this world’s poor in hopes of moving individual and families out of poverty. This institutions provide financial services to the poor who are excluded by formal financial systems, to enable them to sustain a living and engage in economic activities through entrepreneurial activity and small business which together have impacts on country economic development (kipesha, 2013). In this regard, microfinance industry serves as an umbrella term that that describes the provision of banking services by poverty-focused financial institutions to poor part of the population that are not being served by mainstream financial services providers (Sehgal, 2008). MFIs plays also a very important role in the economy. More precisely, MFIs have a two-fold mission which is social and economic by helping the customers to have active financial lives, intermediate a large part of their income, seek ways to save, borrow and insure and focus first on the day to day need (Bernd, 2007). To achieve this mission, the microfinance sector, as for any other financial institutions, has a great task to adopt and adapt the information. Microfinance Act was enacted recently, and it is aimed at regulating the sector. MFIs will now be subjected to through commercial banking services and MFIs are expected to comply with these new guidelines which attract fines for every one broken. Code of conduct and ethics were non – existent and everyone was doing business the best way they knew how; it was free for all microfinance institutions plays an important role in the economic development of poor communities. Access to credit enables the household to accumulate wealth and asset which allow them to cope better. Microfinance face many challenges. Operating and financial expenses are high, and on average revenues remain lower than in other global region. Substantially, the focus of these institutions has gradually changed from emphasis on the very poor to the enterprise, as the demands on these institutions to become financially sustainable have increase. MFIs are important actors in the financial sector, and they are well –positioned to grow and reach the millions of potential clients who currently who did not has access to mainstreams financial services Technological, product refinements, and ongoing efforts to strengthen the capacity of African MFIs are needed to reduce cost, increase outreach and boost overall profitability. Currently, interest and knowledge about the microfinance hard grown substantially

1.3 STATEMENT OF THE PROBLEM

Microfinance innovation [product, process and technology] have eased way of doing business for financial institution including microfinance institutions [Ongwen, 2015].various scholars around the world have examined the management of innovation on profitability. This is seen in the studies of Kariuki (2010), Mugo (2012), Chemitei (2012), and Mwangi (2014). But however, some of these studies did not link these innovations to profitability of microfinance institutions. In Cameroon, studies carried out in related to microfinance managerial innovation and performance failed to show the effect   of these innovation on the profitability of microfinance institutions. Innovations have brought about greater outreach and sustainability, especially with the adoption of technology. Leading financial institutions such as commercial banks are very innovative in their institutionalization, product, process and technology which have resulted in improving performance and profitability (Talom & Tangeh, 2019).  However, this has been the case with   Microfinance Institutions in Cameroon and Buea   Municipality in particular. It remains largely unclear whether MFIs in Buea Municipality are adequately innovative in running their businesses given that they are face by the challenge of limited growth and expansion, which is as a result of low profitability.  And growth are related in that a firm cannot grow if it fails to post sound profitability. This is understood by the fact that MFIs in Buea Municipality continued to witness low profitability in terms of performance which is generally low, poor quality of loan portfolios, lack of financial independence, unequal distribution of MFIs and it services within the municipality with high concentration of Molyko. Shu (2014) reported the only 48% of the MFIs are can be seen in semi urban area in Cameroon. In February, 2012, the Ministry of finance paid salaries of over 300 civil servants in confines due to lack of funds and promised to reimburse depositors in a bid to contain the protest from the customers (Fotabong, 2012).  Djamaman (2012) reported a drop in 2012 and cumulative none preforming and insiders loans to the turn of 3.6 billion. This poor profitability has caused COFINEST SA and Credit du Golfed which were place under liquidation in 2012 by COBAC after three years of provisionary administration to finally shut their doors (Djamaman, 2012). Recently, Credit Mutuel is at the verge of collapsing due to the dead of its only main sponsor (Business in Cameroon, 2016).It should be noted that MFIs have been around for decades and have primarily have been serving the low cadre members of the society. It is against the backdrop of dynamics in the world today and advancement of technology in the financial sector, in addition to commercial banks providing microfinance services. MFIs in Buea Municipality have found themselves in an awkward position in terms of competition. This has threatened their very existence.  These institutions employed thousands of Cameroonians who are breadwinner in thousands of households across the country. As such in the event that MFIs post poor profitability and downsize their staff or close their doors, There many Cameroonians especially Buea Municipality who will directly and indirectly affected. More so, these institutions pay taxes to the government and poor profitability would translate to reduce tax revenue. This would definitely affect the revenue collection by the government. I t is evident from the studies carried out by various scholars around the world as stated above that managerial innovation has greatly affects the profitability of MFIs and other financial institution. In Cameroon and particularly in Buea Municipality ,studies carried out in relation to microfinance and managerial failed to show the effect of these innovations on the profitability experience by microfinance institutions in Buea Municipality that this study was carried out to fill these gaps and examine how managerial innovations affects the performance of Microfinance Institutions in Buea Municipality. It shall thus provide answers to following research questions                                                                               

1.4 Research Questions:

The main research questions are:

>What are the effects of innovation on the performance of microfinance institutions in Buea Municipality? South West Region of Cameroon

Specific research questions:

>What is the effect of product innovation on the performance of MFIs in Buea Municipality? 

>What is the effect of technology innovation on the performance of MFIs in Buea Municipality?

>What is effect of process innovation on the performance of MFIs in Buea Municipality?

1.5   Research Objectives

Main objective:

>Is to determine the effect of innovations on the performance of microfinance institutions in Buea Municipality

Specific objectives:

>examine the extent to which product innovations affects the performance of MFIs in Buea Municipality

>Determine the effects of technology innovation on the performance of MFIs in Buea Municipality

>Evaluate the effects of process innovation on the performance of MFIs in Buea Municipality

1.6    Hypotheses of the Study: 

In line with the research objectives, the following two null hypotheses were tested for the study: 

Ho1: There is no significant effects of product innovation on the performance of MFIs in Buea Municipality

Ho2: Technology innovation have no significant effect on the performance of MFIs in Buea Municipality

Ho3: There is no significant effect of process innovation on the performance of MFIs in Buea Municipality