ABSTRACT

Agriculture has been and still remains the backbone of many developing countries. It plays a key role in providing raw materials for the industrialized and less developed world. Nonetheless, it is challenged financially resulting in the use of rudimentary technology subsequently leading to low production. Amidst the issue, microfinance contributes great towards agricultural modernization and increased production in Cameroon. This study seeks to investigate the effects of being a member of a microfinance institution on agricultural productivity. Specifically, the study was aimed at investigating the effects of loans by MFI on agricultural productivity, examining the effects of training on agricultural productivity and to examine the effects of remuneration plans on agricultural productivity. In this study, the descriptive survey research design was used with the main instrument for data collection being the questionnaires. This study used a simple random sampling technique to select 30 farmers who are registered with a microfinance institution. The data collected was analyzed using descriptive and inferential statistic with the Statistical Package for Social Sciences (SPSS) version 25 and Microsoft Excel 2016 as tools for analysis. The results were then presented in tables and figures. Using the Ordinary Least Square regression technique, the study revealed that loans and remuneration plans have a positive relationship with agricultural productivity. On the other hand, training proved to have a significant negative effect on agricultural productivity. It was therefore conclude that being a member of a microfinance institution has a significant positive effect on agricultural productivity. The researcher therefore recommended that microfinance institutions should improve their services to include technical training that will impact new skills on the farmers, finally, the government was recommended to subsidize the activities microfinance institutions for them to be able to reach out to farmers,

Key words: Microfinance institution, agricultural productivity, loans, training, Remuneration

CHAPTER ONE

GENERAL INTRODUCTION

1.1            Background to the Study

Since 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 country. A recent development in this sector has been the increasing involvement of NGOs and the microfinance institutions in the process of enhancing the development of the agricultural sector 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 and inhabitants in the locality in which he was 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 agricultural productivity 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 MFIs 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.

The history of microfinance is closely linked with poverty reduction. Although the beginning of cooperative savings and credit activities can be traced back as far as in 1849 with the foundation in Rhineland of the first cooperative society of saving and credit by Raiffeisen, it is truly with Yunus in 1976 with the creation of the Gramen Bank that one can situate the birth of “modern microfinance” (Blondeau, 2006). Just like many other African countries, the microfinance sector’s springboard in Cameroon was the banking system restructuring engaged by the Ministry of Finance (MINFI) and the Banking Commission for Central Africa (COBAC). The expansion of MFIs in Cameroon during the 1980s can highly be explained by the gap left by the restructuring of the banking sector in most developing countries, which was characterized by the restraining or rationing of credit opportunities. Cameroon was not an exception.

 In Cameroon, the history of microfinance dates back to more than one century in its traditional form popularly known as “Njangi or Tontine”. The introduction of “modern” microfinance in Cameroon started in 1963 by a Catholic priest Father Alfred Jansen, in Njinikom in the North-West Region of Cameroon (Creusot, 2006). This idea of Credit Unionism spread all over the North-West and South-West regions of Cameroon and by 1968, 34 credit unions that were already in existence joined together to form the Cameroon Cooperative Credit Union League (CamCCUL) Limited. CamCCUL is therefore the umbrella organization of cooperative credit unions and the largest MFI in Cameroon and the Communauté Économique des États de l’Afrique Centrale (CEMAC) sub-region. There are more than 460 registered MFIs in Cameroon with a sum amounting to over FCFA 258 billion which has been accumulated by way of deposits from close to one million customers (Gwasi and Ngambi, 2014). Microfinance has been defined therefore as “a credit methodology that employs effective collateral substitutes to deliver and recover short-term, working capital loans to micro entrepreneurs”(CGAP1, 2003).  The roots of microfinance lie in a social mission of enhancing outreach to alleviate poverty. More recently there has been a major shift in emphasis from the social objective of poverty alleviation towards the economic objective of sustainable and market based financial services (Rauf and Mahmood, 2009).

On a global note, the microfinance industry has realized important growth rate and as the number of microfinance institutions and customers continue to grow, regulation of the industry becomes a question of interest since the sustainability of these institutions is highly debated. A more efficient micro financial sector may eventually translate into higher rates of economic growth and thus the ability of governments to alleviate poverty. There are categories of Micro finance institutions in Cameroon, Micro finance institutions are regulated by three different regulations in Cameroon. They include the Economic community of central African states (CEMAC) through the Banking Commission of Central African States (COBAC), The National Law and the Pan African Harmonization of Business Laws in Africa (OHAD). Each institution is bound to respect all the regulations put in place by these regulatory body by paying special attention to the prudential norms implemented by COBAC. (Akanga, 2017).  The main document produced by COBAC for the regulation of the activities of Micro finance activities in Cameroon is directed mainly towards the activities of the MFI institutions and not their legal forms. In real terms MFI is defined as legalized and authorized entities not having the status of a bank but rather offer services such as savings and offer loans mostly for low income earners. These microfinance institutions are divided in to three categories that is category one MFI, category two MFI and category three MFI. (Fotabong, 2012).

Category one microfinance institutions are Micro finance institutions that accept savings and deposits from its members and give out loans to them. Category one Microfinance institutions include cooperatives, associations and credit union such as the Agyati cooperative credit union ltd. The capital requirement for this category one microfinance institution is not defined. Rather the Banking Commission for central African states (COBAC) requires that the said institutions in these category needs enough capital to meet up with its activities and the prudential norms. The principal objectives of organizations under this category are not to make profit but rather for the main purpose of empowering their members to be able to meet up with their activities (Akanga, 2017).

Category two are Microfinance institutions that accept savings, deposits and lend them out to third parties. This category has a stipulated minimum amount of capital which is 50 million FCFA. This amount must be shown to the regulatory bodies in the form of a bank statement from any legalized commercial bank. Institutions under this category are out to make profit example include UNICS. This category differs from the first category in that the first category deals with members and only lends out money to its members, while category two receives deposits and savings from customers and give out loans to third party or to the public (Akume & Anicet, 2017.)

 The third category of MFI is made up of financial institution that lends money but do not collect savings and deposit. Such institutions include institutions that finance projects. The minimum capital requirement for the category three institutions is 25 million FCFA. This amount must be paid in full and shown as evident in the form of a bank statement in a legalized commercial bank as at the time for the application for registration/accreditation. The category three institutions are profit oriented, that is they are out to make profit. The main difference between the category two institutions and category three institutions is that the category two receives savings and deposits while the category three does not receive savings nor deposit.  But they all have as objectives to make profit. (Fotabong, 2012).

1.2 Problem Statement.        

 Microfinance was originally conceived as an alternative to banks, which in most developing countries serve only 5 to 20% of the population (Gallardo et al., 2003), and informal moneylenders. With the passage of time, the microfinance sector has evolved. Microfinance institutions now have more than 100 million client and achieve remarkable repayment rates on loans (Cull et al, 2009).  The rapid growth of microfinance has brought increasing calls for regulation, but complying with prudential regulations and the associated supervision can be especially costly for microfinance institutions (Cull and al., 2009). Since regulation remains a precondition for deposit taking in many countries, more MFIs seek to transform into regulated entities to access cheap and local currency deposits. Regulation also opens the door to a variety of funding opportunities and helps to reduce the over reliance on subsidies.

Donors and microfinance practitioners are well aware that micro lenders need to prepare for the day when subsidies disappear (Aghion and Morduch, 2005). The sector is also criticized for providing services only to bankable customers and on almost same conditions as banks forgetting their social responsibility of providing financial services to those who are excluded from the traditional banking system. This can be explained by the fact that these MFIs are mostly emanations of banks and therefore operate with their mother bank conditions. According to the COBAC report on the microfinance sector (2008), the level of not performing loans and default rate are still very high in the sub-region. Moreover, interest rates still remain globally very high than those of the banks although less than interest rates charged by informal moneylenders in spite of competition (COBAC, 2008). The volume of loans and savings mobilized by the sector is still very low as compared to that of the banking sector (about 5.5% of the banks’ deposits and 4.8% of the banks’ loans in 2008 against 7% and 6% respectively in September 2007).

 Despite the remarkable expansion of savings, the transformation coefficient into credit still remains very low and more seriously, is the violation of basic prudential norms stipulated by the Banking Commission as well as poor internal control. There is uneven geographical distribution of microfinance institutions across the national territory (Fotabong, 2012; Kobou et al., 2009), with less than 48% of these MFIs located in rural areas with most of the population as farmers who are involve in subsistence agriculture meanwhile close to 60% of the population of Cameroon leaves in rural areas. This uneven geographical distribution has pose a big problem because farmers in the rural areas as the concentration of microfinance institutions makes farmers in rural areas to have lack of information and access to these microfinance institutions which in turn reduce their productivity. As a result there is a need to investigate how being a member of a microfinance institution affects the agricultural productivity of farmers.

1.3 Research Questions

1.3.1 Main Research Question

What are the effects of being a member of microfinance institutions on agricultural productivity?

1.3.2. Specific Research Questions

• What are the effects of loans by microfinance institutions on agricultural productivity?
• What are the effects of training offered by microfinance institutions on the agricultural productivity of farmers?
• What are the effects of remuneration plans by microfinance institutions on agricultural productivity?

1.4 Research Objectives

1.4.1Major Objectives

The main objective of this study is to investigate the effects of being a member of microfinance institution on agricultural productivity. To be able to attain this major objective, the researcher formulated the following specific research objectives.

1.4.2 Specific Objectives

• To examine the effects of loans that microfinance institutions gives to its members on agricultural productivity.
• To identify the effects of training offered by microfinance institutions to their members on agricultural productivity of farmers.
• To examine the effects of remuneration by microfinance institutions on agricultural productivity.