CHAPTER ONE

    INTRODUCTION

1.1 Background of the study

Accounting information is crucial for decision-making in microfinance institutions (MFIs) as it provides insights into their financial health, performance, and prospects (Romney & Steinbart, 2018). However, the quality of accounting information in MFIs can be challenging due to resource limitations, lack of expertise, and unique characteristics, which has limited microfinances in introducing quality information systems (CGAP, 2019). Therefore, understanding the effects of accounting information systems in MFIs is essential for stakeholders, including managers, investors, and creditors, to make informed decisions.

      Micro finances, are increasingly becoming an important asset class for investors (Biesland, mersland and strom, 2015). Globally, the growth in the micro finance market continues and soon the micro finance sector is expected to become the world’s largest banking market in terms of the number of customers (Bies et al 2015). During the last three decades, micro finance has captured the interest of both academics and policy makers. The industry has been growing at a significant rate and in several countries it has become an important sub-sector of formal financial markets (Asseta, Hermes, and meesters, 2010). According to Robenson (1999), micro finance institutions is defined as a development tool that grants or provides financial service and products such as very small loans, micro savings, micro insurance and money transfer to assist the very or exceptionally poor in expanding or establishing their businesses. In Cameroon MFIs can be traced as far back as 1963 when the first credit union was established in the North West Region by the St. Anthony’s discussion group (Long, 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 then. Accounting information system is the system of collecting, storage and processing of financial and accounting data that is used by decision makers of an organization (Naranjo, 2004).An accounting information system is generally a computer data base method for tracking accounting activities in conjunction with information technology resources.

The background of the study focuses on the integral role of accounting information systems (AIS) in enhancing the performance of microfinancial institutions, which are vital for promoting financial inclusion and economic development, particularly in low-income and developing regions. Microfinancial institutions, including microcredit organizations, microfinance banks, and cooperative societies, provide essential financial services to individuals and small businesses that lack access to traditional banking. Their core objectives include alleviating poverty, empowering entrepreneurs, and fostering economic growth by providing credit and other financial services to marginalized communities (Ledgerwood, 1999).

In recent years, the increase of technology has transformed the financial services landscape, including the operations of microfinancial institutions. The implementation of AIS has become increasingly relevant as these systems facilitate accurate financial reporting, enhance decision-making, and improve operational efficiency. According to Romm and Pliskin (2002), AIS enable organizations to manage financial data effectively, leading to better strategic planning and resource allocation. Furthermore, AIS can significantly reduce the time and cost associated with financial processes, allowing microfinancial institutions to serve their clients more effectively (Kumar & Sharma, 2015). Despite the potential benefits, many microfinancial institutions face challenges in adopting and implementing AIS. Factors such as limited financial resources, lack of technical expertise, and inadequate infrastructure often hinder their ability to leverage technology fully (Mersland & Strøm, 2010). As a result, understanding the specific impacts of AIS on performance metrics, such as profitability, operational efficiency, and financial stability, is critical for these institutions to thrive in a competitive environment. Research has shown that there is a positive correlation between the use of accounting information systems and improved financial performance in various sectors (Bhimani, 2006). However, there is a gap in the literature regarding the specific effects of AIS on microfinancial institutions. This study aims to bridge this gap by investigating how AIS can enhance the performance of these institutions, thereby contributing to the body of knowledge in microfinance and accounting information systems. Moreover, as financial technology continues to evolve, microfinancial institutions must adapt to stay relevant. The World Bank (2018) emphasizes the importance of digital finance in increasing the accessibility and affordability of financial services. By exploring the impact of AIS, this research will provide insights into how microfinancial institutions can harness technology to improve their services and achieve their mission of financial inclusion. In conclusion, the background of this study underscores the critical intersection of accounting information systems and the performance of microfinancial institutions. By examining this relationship, the research aims to provide actionable insights that can help these institutions

1.2 Statement of Problems

Currently, most organizations continue to increase spending on information system and their budgets continue to rise. Moreover, economic conditions and competition create pressures about costs of information. Generally, information system is developed using information technology to aid an individual, government institutions   in performing their job. Therefore, most institutions focus on developing information system in order to support decision system, communication, knowledge management, as well as many others.

The key part of information system needed for decision making in institutions is accounting information system. More so, the world and the human life has been transformed tremendously from information age to a knowledge age. In this perspective, knowledge has been recognized as the most valuable asset. In fact, knowledge is not impersonal like money and does not reside in a book, a data bank or a software program.

Choe (2002) believed that knowledge is always embodied in a person, taught and learned by a person, used or misused by a person. Accounting information system is an unbiased tool for an effective administration and management. Poor accounting information system jeopardizes administrative effectiveness, which makes managers malnourished administratively especially in financial sector.

Management is engaged with different types of activities which require good quality and reliable information. Quality information is one of the competitive advantages for an organization. In an accounting information system, the quality of the information provided is imperative to the success of the systems. Quality of information generated from AIS is very important for management. Business organizations often use accounting information systems to provide support for management decisions. Support usually includes financial analysis from company accountants. Analysis is often taken for the company’s accounting information system. Using business technology, this system can process copious amounts of documents electronically for owners and managers. This has led the researcher to investigate on the effects of effectiveness of AIS on financial performance of microfinance.

1.3 Research questions

Main research question

What is the effect of accounting information system on the performance of microfinance institutions in Bamenda?

 Specific research questions:

• To what extent do the users in (of)  AIS influence the financial performance of MFI’s in Bamenda?
• How does the effectiveness of users training on AIS procedures and controls affect the consistency and reliability of firms performance of MFI’s in Bamenda?
• What are the common sources of data errors introduced by users in the AIS, and how can this errors be minimized in the firms performance of MFI’s in Bamenda?

1.4 Research objectives.

Main objective:

To examine effects of accounting information systems on firms performance of micro financial institutions in Bamenda.

Specific objectives:

1. Examine the extend to which the users of Accounting information system influence the firms performance of MFI’s in Bamenda.
2. Asses the effectiveness of users training on AIS procedures and controls affect the consistency and reliability of firms performance of MFI’s in Bamenda.
3. To examine the common sources of data errors introduced by users in AIS and how this errors can be minimized the firms performance in MFI’s in Bamenda