ABSTRACT

The effects of microfinance service on household welfare have experience high debts recently both in the national and international level. The main objective of this research work is to examine the role of microfinance services on household welfare in Bamenda III. Specifically the research seeks to examine the effect of savings, microcredit, insurance and financial education and training on household welfare. The data use for this research was collected from user of microfinance service in Bamenda III with the use of questionnaires. The method of analysis used was descriptive statistics. The findings suggest that Microcredit services have a significant negative effect on household welfare in Bamenda III. Savings facilities do not have a significant effect on household welfare. Microinsurance services do not have a significant effect on household welfare. And equally, Training and educational programs do not have a significant effect on household in the municipality of Bamenda III. Base on the findings some of the recommendations include: The negative impact of microcredit services on household welfare suggests the need for a thorough review and restructuring of the microcredit programs in Bamenda III. The need to critically evaluate the design and implementation of these financial inclusion interventions. Looking at the findings from the overall perspective, I recommend that a more holistic and evidence-based approach to financial inclusion policy and program design is warranted to ensure positive outcomes for the target population.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Poverty has for decades continued to be a pressing problem across the world. Despite progress in some areas, poverty continues to affect millions of people, both in developing and developed countries. According to the World Bank, in 2021, about 9.2% of the world’s population lived in extreme poverty, defined as living on less than $1.90 per day. This translates to roughly 700 million people. Additionally, a much larger proportion of the global population faces moderate poverty, struggling to meet basic needs such as food, shelter, and healthcare. Poverty levels vary significantly across regions and countries. Sub-Saharan Africa and South Asia have some of the highest poverty rates, with a large percentage of the population living in extreme poverty. However, poverty also exists in varying degrees in other parts of the world, including Latin America, the Caribbean, and even in developed countries. According to the World Bank, Poverty is a complex issue with multiple interrelated causes. Factors such as lack of access to education, limited job opportunities, inadequate healthcare, political instability, social inequality, and discrimination all contribute to the perpetuation of poverty. Despite the ongoing challenges, progress has been made in reducing global poverty over the past few decades. However, it is clear that poverty eradication requires sustained commitment.

Microfinance, which is the provision of financial services to low-income individuals and small businesses, has its roots in the 1970s. The concept emerged as a way to address the lack of access to traditional banking services for marginalized populations in developing countries. One of the earliest pioneers of microfinance was Professor Muhammad Yunus, who founded the Grameen Bank in Bangladesh in 1976 (Yunus (2007).The Grameen Bank’s innovative approach of providing small loans, known as microcredit, to poor individuals without collateral or traditional credit histories proved to be successful in empowering borrowers and fostering economic development. Yunus and the Grameen Bank were awarded the Nobel Peace Prize in 2006 for their efforts in alleviating poverty through microfinance (Morduch, 2002).

Microfinance can be viewed as a development program aimed at the provision of financial services to people with low incomes; these services are credit, saving and insurance (Khan and Rahaman 2007). Microfinance is recognised as the most essential tool for poverty alleviation in many developing countries and microfinance is an effective instrument that can improve on most important things related to household welfare for poor people such as education, economics, people’s living standards and empowerment of women  Sivchouet al., 2011).

Research studies have shown that microfinance could provide a lot of positive results on households such as creating more job opportunities, increasing household incomes, building up women’s abilities, improving household education and family welfare. Microfinance services according Kohet al.,(2020) has a positive impact on household. Microfinance services can make people to buy more household’s assets, and improve their living standards of particularly the poor people in the society who don’t have access to traditional banks.

A Microfinance institution is a financial organization that provides banking and financial services to low income populations. According to Littlefield et al.,(2003),  the financial services provided by microfinance institutions are not only for  business purposes but also help in managing family and personal emergency requirements. Microfinance institutions performs not only the role of a financial stimulator for the poor and needy but directly or indirectly has a very large impact on the lives of poor families in a very restrictive, (Sikivahan & Ponniah, 2018)

The case of Cameroon is of essence where there is still prevailing high socio-economic challenges. Cameroon currently ranks 153th of 183 on the 2016 Human Development Index (HDI) compared to 150th on the 2011 Human Development Index, and it is estimated that 48 percent of the population lives below the poverty line (HDIR, 2016).Poverty in Cameroon is largely a rural phenomenon; 55 percent of the country’s poor live in rural areas. About half of the people living in poor households are women and children under the age of 15. Most of the youthful population is unemployed. Access to health and other basic facilities such as education, roads, electricity, Failure of commercial banks to meet the needs of the poor, the microcredit model was adopted to fill the vacuum created by the commercial financial institutions.

 (Akume & Martial, 2017) to be able to trace the route of formal microfinance activities  in Cameroon, we traced back in 1963 when the first cooperative savings and loans institution (Credit Union), started its operations at Njinikom in the North West region of Cameroon.This was introduced by a Roman Catholic Rev. Father Anthony Jansen. The development of microfinance institutions and remain timid until the early 1990s when President Paul Biya in his New Deal Policy passed the remarkable law No. 90/053 of 19 December 1990 relating to freedom of associations, and Law No.92/006 of 14^th August 1992 relating to cooperatives, companies and common initiative groups (Fotabong 2012).

However, in Cameroon, there has always existed a controversial view point on whether microfinance is actually a poverty alleviation tool or a business scenario. Today, within the network of microfinance institutions, cooperatives, and some common initiative groups carrying out savings and credits, it is estimated there are about 1.5million accounts (Yuh, 2013). This number is significant when compared to the almost same level of accounts registered in the commercial banking sector (MINFI, 2008). However, access to financial services in Cameroon is deemed very low compared to other parts of Africa particularly when compared to the rest of developing countries. The situation is made worst as most MFIs limit their branch network in urban areas living out the rural areas which harbors about 87% of the poor population (IMF Country Report No.12/237). Many have agreed that microfinance has helped to reduce the number of poor people in Cameroon especially those who did not have access to the commercial banks services have at least been able to get access to the MFIs. Microfinance services have gained significant attention as a means to alleviate poverty and improve household welfare in developing countries. This study aims to examine the effects of microfinance services on household welfare in Cameroon, with a specific focus on the city of Bamenda. By analysing the impact of microfinance services on various indicators of household welfare, this research seeks to contribute to the existing literature on the subject and provide insights for policymakers and practitioners in the field of microfinance.

 1.2. Problem Statement

In Europe, microfinance has been utilized as a tool for financial inclusion and poverty reduction and have highlighted the positive outcomes of microfinance on vulnerable populations, emphasizing improved financial access and economic empowerment. In Africa, microfinance has been instrumental in providing financial services to the unbanked population. Reports such as African Development Bank Group (2020) showcase the transformative effects of microfinance on poverty alleviation and livelihood improvement across the continent. Cameroon has witnessed a growing interest in microfinance as a means to enhance financial inclusion and socioeconomic development. Research by Cameroonian Institute of Statistics (2021) has demonstrated the role of microfinance in fostering entrepreneurial activities and supporting income generation among marginalized groups in Cameroon.

Bamenda, a city in Cameroon, stands as a microcosm where the impact of microfinance services on household welfare can be deeply examined. However, despite the potential benefits, challenges such as access barriers, regulatory constraints, and limited financial literacy persist, as noted in Bamenda Microfinance Survey (2021).This problem statement aims to explore the effectiveness of microfinance services in Bamenda, evaluating their impact on household welfare, and overall quality of life. By analyzing existing literature and empirical data, this study seeks to provide insights into the role of microfinance in improving household welfare dynamics in the local context.

Despite the increasing availability of microfinance services in Cameroon, there is a lack of comprehensive empirical evidence on the actual impact of these services on household welfare, particularly in the specific context of Bamenda III Municipality. Therefore, the problem that this research aims to address is the need to assess the effectiveness of microfinance services in improving the welfare of households in Bamenda III Municipality and identify the factors that influence their impact.

Previous studies have explored the impact of microfinance services on household welfare in various contexts. For instance, Khandker, et al., (2003) conducted a study in Bangladesh and found that microcredit programs had a positive impact on household consumption, income, and asset accumulation. Similarly, Kabeer (2005) examined the effects of microfinance services on women’s empowerment in South Asia and concluded that access to microcredit contributed to increased decision-making power and improved well-being among women.

For Cameroon to achieve the objective of the Millennium Development Goals, the accessibility of microfinance service to households must improve. The access to financial services in Cameroon as compared to other African countries is low. The new millennium was guided in by the UN by setting up a historic goal to curb the poverty by 2015. By emphasizing access to Microfinance, the UN millennium project seeks to focus country strategies and programs on building inclusive financial sectors that will enable the achievement of the Millennium Development Goals (United Nations, Millennium Development Goals, 2005).Highlighting the significance, Microfinance is one of the practical development strategies and approaches that should be implemented and supported to attain the bold ambition of reducing world poverty.

Microfinance institutions (MFIs) have emerged as a potential solution to address these challenges by providing financial services, such as microcredit, savings, and insurance, to low-income individuals and households. Bamenda, the capital of the Northwest Region of Cameroon, is a city with a significant population living in poverty and facing limited access to formal financial services.

1.3. Research Questions

1.3.1 Main Research Question

What is the effect of microfinance services on household welfare in Bamenda III Municipality?

1.3.2 Specific Questions

• What is the effect of microcredit services on household welfare in Bamenda III, Cameroon?
• What is the effect of savings facilities on household welfare in Bamenda III Municipality?
• What is the role of microinsurance services on household welfare in Bamenda III, Cameroon?
• What is role of training and educational program on household welfare in the Bamenda III Municipality?

1.4 Research Objectives

1.4.1 Main Objective

The main objective of the study is to assess the effect of microfinance services on household welfare in Bamenda III Municipality.

1.4.2 Specific Objectives

• To assess the effect of microcredit services on household welfare inBamenda III.
• To assess the effect of savings facilities on household welfare in Bamenda III Municipality.
• To assess the effect of microinsurance services on household welfare in Bamenda III.
• To assess the effect of training and educational program on household welfare in the Bamenda III Municipality.

1.5 Hypothesis

• H01: Microcredit services have no significant effect on household welfare inBamenda III.
• H02: Savings facilities have no significant effect on household welfare in Bamenda III Municipality.
• H03: Microinsurance services have no significant effect on household welfare in Bamenda III.
• H04: Training and educational programs have a significant effect on household welfare in the Bamenda III Municipality.