CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

 Globally, Asset management assures that the firm may continue to develop and expand by utilizing assets effectively. This will assist in keeping the firm on path, managing risk, and much more (Rangan, 2021). Asset management is vital for a firm’s financial performance since it may assist to optimize returns on investments while reducing losses (Pontius, 2023). Firms are capable of building, managing, operating, improving, and disposing of assets more cost-effectively by implementing an effective asset management strategy (Jephson, 2021). Asset management is additionally able to ensure that amortization rates are correct. Frequent asset evaluations will guarantee that the firm’s financial reports are correct (Regalado, 2016).

MFIs, which primarily serve underbanked populations, rely on effective asset management to ensure sustainability and maximize outreach. According to the Global Microscope Report (2022), MFIs collectively managed over $170 billion in assets worldwide, with a significant portion allocated to loan portfolios. By optimizing asset utilization, MFIs can reduce operational inefficiencies, mitigate risks, and improve profitability, a critical factor for their dual mission of financial sustainability and poverty alleviation. Research conducted by the World Bank shows that a 1% improvement in asset efficiency among MFIs leads to an average 0.8% increase in return on assets (ROA), underscoring the financial implications of robust asset management systems.

The global microfinance sector faces significant challenges related to asset quality, particularly in developing regions where non-performing loans (NPLs) remain a major concern. For instance, a 2021 report by MIX Market revealed that MFIs in South Asia experienced an average NPL ratio of 5.2%, compared to the global average of 3.8%, highlighting regional disparities in asset quality management. Effective asset management practices, such as implementing advanced credit-scoring models and diversifying loan portfolios, have proven instrumental in addressing these issues. In Africa, MFIs adopting digital tools for asset tracking saw a 15% reduction in delinquency rates between 2019 and 2022 (CGAP, 2023).

Effective asset management plays a pivotal role in ensuring the financial stability and profitability of banks (Alex & Kazaara, 2023). Optimizing the allocation, utilization, and monitoring of assets directly impacts financial performance and long-term sustainability . Optimizing asset allocation by focusing on high-yielding assets while minimizing exposure to high-risk assets can boost returns and improve profitability (Polycarp et al., 2023).

However, general physical asset management did not imply special education or professional knowledge and various approaches were evolving including maintenance, logistics, engineering. Such an approach did not address the rising pressures from the external environment and claims of various stakeholders. The need for asset management as a recognized discipline emerged due to the increasing complexity of technical nature across a wide range of industries and organizations. As a result, asset management was widely accepted in capital intensive industries and infrastructure organizations. Increasing competition, deregulation, external pressures, and technological advancement urge asset intensive businesses to design new strategies allowing for their long-term survival.

African MFIs collectively manage billions of dollars in assets, with loan portfolios representing the bulk of these resources. According to the African Development Bank (AfDB, 2022), African MFIs held over $25 billion in assets, with annual growth rates of approximately 8% over the last decade. Effective asset management is essential for these institutions to balance their dual goals of profitability and poverty alleviation. Studies indicate that African MFIs achieving an asset turnover ratio above 2.0 tend to outperform others financially, demonstrating better loan recovery and cost efficiency. This efficiency directly correlates with their ability to extend credit to underserved populations, contributing to economic growth and social welfare.

espite its potential, asset management in African MFIs faces unique challenges, particularly concerning loan portfolio quality. The NPL ratio among MFIs in sub-Saharan Africa stood at 7.8% in 2022, significantly higher than the global average of 3.8% (MIX Market, 2023). This high default rate underscores the need for robust asset management frameworks to enhance loan recovery processes and reduce credit risk. In Nigeria, for instance, MFIs implementing enhanced asset tracking systems reduced NPLs by 20% over three years (Central Bank of Nigeria, 2022). Similarly, in Ghana, MFIs adopting diversified asset portfolios reported a 15% improvement in financial performance between 2019 and 2022 (Bank of Ghana, 2023). These examples illustrate how targeted asset management strategies can address region-specific challenges and drive institutional growth.

Recently, there has been a significant amount of interest in research on strategic asset management both in academia and industry; while the majority of existing research is devoted to general, not strategic aspects of asset management. Managing physical assets is not a novelty for a wide range of asset-intensive industries (aviation, civil engineering, public infrastructure, etc.) as it is stemming from the 1960s and originally was an approach to maximize the value of asset portfolios throughout their life-cycle also known as terotechnology.

In Cameroon, asset management plays a crucial role in determining the financial performance and sustainability of microfinance institutions (MFIs), which are essential for providing financial services to underbanked populations. As of 2022, the microfinance sector in Cameroon comprised over 500 licensed institutions, collectively managing assets exceeding XAF 1.2 trillion (BEAC, 2022). These assets primarily include loan portfolios, fixed assets, and liquid reserves, which require efficient management to optimize returns and minimize risks. Studies by the Central African Banking Commission (COBAC) indicate that MFIs with robust asset management practices report an average return on assets (ROA) of 6%, compared to 3% for those with poor asset oversight. This highlights the direct correlation between effective asset management and financial performance in the Cameroonian context.

The microfinance sector in Cameroon, however, faces significant challenges related to asset quality and non-performing loans (NPLs), which undermine financial stability. A 2023 report by COBAC revealed that the average NPL ratio among MFIs in Cameroon was approximately 8%, higher than the 5% threshold recommended by international financial standards. This is particularly prevalent in rural and semi-urban areas, where economic instability and borrower defaults are more common. Nonetheless, MFIs employing advanced asset management techniques, such as improved credit appraisal systems and risk diversification strategies, have achieved better performance. For instance, MFIs affiliated with the Cameroon Cooperative Credit Union League (CAMCCUL) recorded a 10% reduction in NPLs between 2020 and 2022, demonstrating the impact of structured asset management practices on financial health.

Assets tangibility refers to physical nature of the assets while intangible assets are the knowledge or intellectual assets possessed by a firm which reflect the core competitive competence of the firm (Tsai et al., 2012). As a norm, extensive discourse has erupted among researchers on how the evolving role of diverse types of assets is shaping the economic value and sustainability of businesses, and paving way for their lasting success (Lehenchuk et al., 2022). In this regard, Nnado and Ozouli (2016) opined that it is normal for most businesses to own several types of assets which are expected to produce benefits for the business. Hence, the belief is that no business can be sustained without adequate investment in corporate assets (Reyhani, 2012; Nnado & Ozouli, 2013; Olatunji et al., 2014). At the moment, the business landscape has become increasingly competitive and ever dynamic; and asset management has evolved a key driver for sustainable business growth and success. Consequently, businesses have realized that intangible assets have become the core competitive advantage in dynamic marketplace.

However, despite the established importance and necessity of intangible assets, the arguments on recognition of assets in the financial statements seem to have favoured the tangible assets especially in the manufacturing companies and under-developed economies in particular. The supporters of this position believed that because intangible assets are not traded in the open market, it is surrounded with problems of imperfect property rights and information asymmetries, coupled with the classification and valuation issue at the firm level which is reasonably complicated and volatile; and in event of bankruptcy, determination of the liquidation value carries uncertainties due to the fact that they tend to be more firm-specific and not easily transferrable (Berger & Udell, 1990; Black, et al., 1996; Bae & Goyal, 2009; Lei et al., 2018; Demmou et al, 2019; Pyoko, 2023). Others argued that tangible assets are pledgeable assets which can be used as collateral to support more borrowing especially in countries where the financial market is underdeveloped, and access to credit and alternative financing sources are scarce. (Lei et al., 2018; Arilyn 2019;Iltaş & Demirgüneş, 2020).

The connection between asset management and financial success has been the subject of much investigation. The relationship between asset management and financial performance has been studied using a number of metrics, including ROA return on assets, ROE return on equity, and the proportion of asset turnover. The results of this study indicate that asset management and financial performance are significantly and favorably related.

The importance of asset management refers to a firm’s ability to effectively and efficiently monitor its financial performance. firms that effectively manage their assets are better positioned to fulfill their financial goals, generate value for shareholders, and stay competitive over the long term (Bimantara, 2020).As a consequence, additional research is required in this field to acquire a better knowledge of the relationship between asset management and financial performance as well as to provide effective methods for organizations to optimize their asset management practices.

1.2 Statement of the Problem

Managing business performance in today‘s complex and rapidly changing business climate is crucial for any organization‘s short-term and long-term success. In order to maintain investor confidence and provide insight to top management, there is an increased demand for organizations to provide prospective insights on business trends and drivers of performance. Financial planning, a key component of managing and driving business performance, continues to be of limited value and mired with conservatism for many organizations. Sound asset performance management is a prerequisite for a financial institution‘s stability and continuing profitability, while deteriorating asset performance management is the most frequent cause of poor financial performance and condition. MFIs in Mezam Division needs to ensure that there exists effective and efficient management of assets. Meanwhile, studies from the background of intellectual capital argued that intangible assets have become a critical component of corporate financial statements in knowledge-based economies (Kogan et al., 2017; Olaoye et al., 2020; Lehenchuk, 2022), thus the rationale behind the advocacy of finance for intangible assets and the role of these assets on financial performance is a subject of substantial debate (Lei et al., 2018; Demmou et al, 2019; Pyoko, 2023). They stressed that to unlock opportunities for success, organizations need to prioritize effective assets management by optimally recognizing all form of assets in their assets management strategy to position themselves toward sustainable growth and long-term profitability. Asset management refers to systematic approach to the governance and realization of value from the things that a group or entity is responsible for, over their whole life cycles (Olatunji & Eyitope,2019). Proper assets management is a driver of operational efficiency, informed decision-making, financial performance, scalability, and customer satisfaction as well as a catalyst for business growth (Umadevi & Babu, 2015, Joseph et al., 2023). Thus, the ability to integrate these assets into a broad assets management strategy and its effective utilization can significantly impact business operations, profitability, and overall performance.

The importance of assets management in an organization cannot be underplayed. This underpins that management of assets management is central to the survival and growth of any organization; Asset management makes it easy for businesses of all sizes across all industries to keep track of their assets, whether liquid or fixed. Employees will know where the assets are located, how they are being used, and whether there are changes made to them. This also is a massive boost to the check-in/check-out process, Asset management helps identify potential risks that could arise from the ownership or even use of certain assets and Asset management eliminates ghost assets” in a company’s inventory. Unfortunately, many companies have instances where lost, damaged, or stolen assets are still being recorded on the books.

Assets management is as inevitable in business as blood is in human body. (Umara, Sabeen & Qaisar, 2009). The need for proper management of a firm’s assets is imperative just as circulation of blood is very necessary in the human body to maintain life, the flow of funds is very necessary to maintain business. If it becomes weak, the business can hardly prosper or survive (ALShubiri, 2011). This informs that assets management is what makes a business  run effectively and efficiently.

Poor asset management can lead to financial risks, such as misallocation of resources, lack of operational visibility, and gaps in cybersecurity.

Asset quality can affect financial performance by influencing interest incomes and reducing the cost of bad debt management. Despite the fragmented nature of existing research, the idea that modern approaches to asset management have to become more integrated and holistic becomes dominating. Introducing a strategic approach to asset management seems to be a source of strong competitive advantage and should be considered within a broader organizational context.  It is on these premises that the study wishes to examine the effect of Asset Management on the Financial Performance of MFIs in Mezam, Division. 

1.3 Research Questions

1.3.1 Main Question

What is the effect of Asset Management on the Financial Performance of Micro Finance Institutions in Mezam, Division

1.3.2 Specific Questions

1. What is the effect of Asset Inventory Management on the Financial Performance of Micro Finance Institutions in Mezam Division ?
2. What is the effect of Asset Lifecycle Delivery Management on the Financial Performance of Micro Finance Institutions in Mezam Division

iii. What is the effect of Asset Management Objectives on the Financial Performance of Micro Finance Institutions in Mezam Division

1.4  Objectives of the Study

Based on the research question, the following research objectives where generated. They are separated in main and specific objectives.

1.4.1. Main Objective

To assess the effect of asset management on the financial performance of micro finance institutions  in mezam, division.

1.4.2 Specific Objectives

1. To identify the effect of Asset Inventory Management on the Financial Performance of Micro Finance Institutions in Mezam Division.
2. To evaluate the effect of Asset Lifecycle Delivery Management on the Financial Performance of Micro Finance Institutions in Mezam Division.

iii.To analyse the effect of Asset Management Objectives on the Financial  Performance of Micro Finance Institutions in Mezam, Division.