CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Debt management plays a vital role in the success or failure of any business entity be it a Small Scale Business or a Large Scale Business. Like little drops of water that form a mighty ocean, so is the nature of Small Scale Business. The origin of Small Scale Business emanated from the entrepreneurial skills of individuals and can be traced as far back as the end of the trade by barter system where goods were exchanged for goods and services for services. With the advent of money, the trade by barter system came to an end and now goods and services could be exchanged with something of value called money. In the past decades, both developed and developing countries continue to rely on the activities of Small Scale Business to play a key role in economic growth and development. In the world today, Small and Medium Sized Enterprises are regarded as vectors for job and wealth creation. Through their investment, they create value and produce a number of goods and services that have been the drive of industrialization. Small Business have been an integral part of American life and the US economy since the time of the first colonial settlers. During the 17^th and 18^th centuries in America’s history, a majority of colonist   were small farmers, many of them turn to produce their own goods for sale in order to make a living. In Sub-Saharan Africa, the Small and Medium sized sector accounts for 90% of firms with about 70% and 80% and up of very small firms. Abor and Quartey (2010) estimated that 91% of businesses in South Africa are Small and Medium sized and contribute between 52-57% of their GDP.

In Cameroon today, small and Medium sized enterprises officially make up 95% of the country’s economy affirms Minister Laurent Serge Etoudi Ngoa, Minister of Small and Medium Enterprise, Social Economy and craft. Generally, Small Scale Business have contributed greatly to improving the living standards of people especially the working population by providing jobs to relieve the society of over dependence, over reliance on the Government, enabled the utilization of scare resources, encourage creativity and even reduce crime waves as must individuals are busy and have a source of income.

Presently, as part of the Sustainable Development Goals (SDG) efforts are being put in place to reduce the rate of poverty and over dependence on the government in developing countries Cameroon not left out and the so called white collar jobs. These goals are achievable through the growth and development of small scale businesses. Fully aware of this Cameroon in recent years has been increasing its support to them. This includes the creation of Small and Medium Sized Bank in July 20^th, 2015 in Yaounde which was initiated to reduce the challenges faced by small scale enterprises when seeking financing. Through such goals support structures are being put in place to ensure the growth and sustainability of small scale firms including funding and concessional loans usually at concessionary rate. Meanwhile Abor and Biekpe (2006) questions whether the use of such debts actually improves the enterprises performance and hence sustainability.

Small Scale Business just like other organizations need capital to run their affairs. One of the ways to achieving this is by the use of debt. Debt does not only occur when money is borrowed but can also occur when goods or services are exchanged without immediate payment. This debt acquisition may either be at the start of the business or for expansion. At the commencement of the business, owners strive to maintain a favourable capital structure. Ordinarily, it’s normal for business owners (equity holder) to finance the business but must often, it goes beyond that. Must small scale business owners turn to seek funds from other sources such as borrow from a financial institutions, ngangi houses, friends and family members which may attract an interest  in order to finance their businesses that is debt financing. Also, an incident of debt occurs when the firm gives out goods or services on credit to its clients.

In Bamenda II Municipality today, the growth and survival of small firms have been a major concern since most of them have been facing challenges in expansion even though much attention has been given them. This difficulty in expansion and growth has led to questions over how SSBs manage their affairs in terms of debt management since liquidity challenges have featured in most of their closure. Denver (2005) further alludes that in accordance to previous studies that have been conducted, it is evident that small scale businesses do not give much attention to debt management. With regards to these findings, most SSEs tend to yield to the effects of failing to provide much consideration to and the insufficiency of an effective and efficient debt management strategy. This issues contributes to  the slow growth of SSBs, failing to meet financial obligations which may lead to loss of key suppliers and the extinction of the small firms. This was also in line with Sardakis (2007), who postulated that it is necessary especially for smaller businesses, for survival purposes, to have an efficient and effective debt and liquidity management system. Most SSEs lack knowledge on the ability to deploy appropriate debt management strategies to drive better organizational performance as indicated by Akorsu & Agyapong (2012), making the use of debt management vital in small scale enterprises in developing countries such as Cameroon. Most researches have shown working capital management as the major problem for the collapse of SSEs and so this research is going to look at debt management as another unaddressed issue that has had a major effect on the growth and survival of SSEs in Bmenda II Municipality. Also, studies on debt management have mainly focused on large scale businesses as alluded by Yazdanfar and Oman (2015).

In todays business setting, debt is seemingly inevitable. Despite the recognition and support given them by the government, Small Scale enterprises still encounter a lot of challenges which has retarded growth in this sector; Challenges such as insufficient power supply and poor credit facilities. Therefore servicing these debts has become imperative due to insufficient capital in running many small scale enterprises in Bamenda II. Managing the debt of such enterprises has become a necessity if these businesses desire to grow. This means that the management of such firms needs to put in place appropriate debt management strategies in order to derive growth.

1.2 Statement of the Problem

In the past decades, the government of Cameroon has put in place policy measures and support schemes to develop and increase the performances of Small Scale enterprises such as the creation of a Small and Medium Sized Bank to aid financing. But today, SSEs have not done credibly well and have not performed as expected in spite of the fact that they have been regarded as the back bone for employment and industrialization in Cameroon, Bamenda II Municipality not leftout. Unfortunately, the rate of growth and expansion of firms in this sector is relatively low caused by many factors such as insufficient capital, inadequate business strategies, insufficient power supply, insufficient research and development, limited access to credit facilities and inadequate knowledge of debt management being a major factor. Poor debt management accounts for slow debt claims which may end up being bad debts, slow growth rate and the rampant closure of Small Scale Business in Bamenda II Municipality. Because of poor debt management, many businesses die within the first 5 years of existence and a small percentage goes into extinction between the 6^th and7^th year and only about 5% to 10%  survive and grow to maturity says Addaney (2016). These enterprises which have been considered as engines of growth only contribute 36% of the countrys GDP. Minister Laurent Serge Etoudi Ngoa, minister of SMEs, Social Economy and craft states that if Small Scale Business were to contribute up to 50% of GDP, we would already be an emerging country.  This implies that Small Scale Business need to work harder to achieve the remaining 14%. Must Small Scale Business managers and owners tend to overlook the aspect of debt management and focus more on aspects like production and sales. Because very little attention has been given to this area within Small Scale Business in Bamenda II Municipality, this study seeks to establish the effect debt management on the performance of Small Scale Businesses in Bamenda II Municipality and suggest ways that if put into practice will better the debt management situation of the firms in this sector hence its performance (survival, growth and expansion).

1.3 Research Questions

 Main Research Question

What is the effect of debt management on the performance of Small Scale Business in the Bamenda II Municipality?

Specific Research Questions are;

• What is the effect of debt recording on the performance of small scale businesses in the Bamenda II Municipality?
• What is the effect of credit policy on the performance of small scale businesses in the Bamenda II Municipality?
• What is the effect of debt recovery plan on the performance of small scale businesses in the Bamenda II Municipality?

1.4 Research Objectives

General Objective

To assess the effect of debt management on the performances of Small Scale businesses in Bamenda II the Municipality.

 Specific Objective are to;

• Examine the effect of debt recording on the performance of Small Scale Businesses in the Bamenda II Municipality.
• Evaluate the effect of credit policy on the performance of Small Scale Businesses in the Bamenda II Municipality.
• Analyse the effect of debt recovery policy on the performance of Small Scale Businesses in the Bamenda II Municipality