Abstract

Covid-19 has dwarfed most economic as well as socio-political activities in the world. Analogously, the Pandemic has affected most Micro-financial institutions in the Buea Municipality. The aim of the study was to examine the impact of Covid-19 on the profitability of Micro-financial institutions in the Buea Municipality.

It was a descriptive study that adopted the mixed research design. Questionnaires were design and through the clustered sampling techniques, it was administered to 50 managers of the micro-financial institutions as well as its customers. Data analyzed through the inferential and descriptive statistical techniques show that Covid-19 has been a barrier to most financial institutions and has affected most income generating activities and causing a drop in savings as well as the distrust of loan takers.

The work concludes that most micro-financial institutions have been backbone to the success of most socio-economic as well as infrastructural development in the Buea Municipality and therefore recommends that there should be a drop in the interest on loan and also improvement in transparency and trust so as to maintain a mutual relationship between bank customers and bank managers

CHAPTER ONE

INTRODUCTION

This study is carried out to examine the impact of COVID-19 on the performance of micro financial institutions in Buea. This chapter presents the background of the study, statement of the problem, the objectives of the study, the research hypotheses, the research questions, and the significance of the study, the scope, delimitation of the study, definition of key terms.

1.1 Background of the study           

Coronavirus Disease 2019 (COVID-19) outbreak started in Wuhan, China in 2019, which has transmitted across the world (CDC, 2020). The COVID-19 pandemic also started in Africa in 2020 where the minister of health and population confirmed the first case of the virus in Egypt, and followed by Algeria which also confirmed it first case of the virus. Without stopping there, the pandemic also visited Cameroon affecting five regions with the first case confirmed by the minister of public health in March 2020. The virus has quickly spread beyond the main cities making Cameroon one of the main COVID-19 hotspots in west and central Africa.

The spread of corona virus has had, not only health impact through infection over the world but also serious economic, education and financial impact because of lockdown measures endorse to contain its spread in the society and increasing health expenses. The stop of almost all economic activities following the lockdown measures imposed has seriously affected people and various institutions like micro financial institutions (MFIs)

The dire consequences of COVID – 19 on MFIs range from challenge with liquidity to management of their cash. Management of cash is indispensable to every financial institution that desires to meet up with its short-term financial obligations.  Akinsulire (2013) asserts that the success of any business venture is predicated on how the management has planned and controlled its cash flows.

MFIs perform the micro banking with people below the middle income group who are generally have difficulties with traditional banking institutions. Income is primary generated by group lending, without collateral. They lend to and collect from members in group meeting. Lockdown measures and prohibition of gathering of people in mass because of fear of  transmission  of  the  disease  hampered  the  operation  of  MFIs’  activities  in  the  field. Moreover, closure of many economic activities, except a few essential businesses, damaged the earnings of borrowers of MFIs, thereby loan recovery. Severe challenges, however, seem to remain in the days to come because of increasing overdue borrowers and loan amount.

Malik et.  al.,  (2020)  have  researched  the  implications  of  Covid-19  for microfinance institutions in Pakistan through rapid response’ phone surveys of about 1,000 microenterprise  owners,  a  survey  of  about  200  microfinance  loan  officers,  and  interviews with regulators and senior representatives of microfinance institutions. They found that, on average, week-on-week sales and household income both fell by about 90%., as a result, 70% of  the  sample  of  current  microfinance  borrowers  reported  that  they  could  not  repay  their loans. Nepal microfinance Bankers’ Association (2020) reported a similar impact in Nepal.

From 2020, the COVID-19 pandemic is causing a significant deterioration in the economic activity of Cameroon (World Bank, 2020). Household and business income losses linked to social distancing measures and the course of the pandemic led to decline in consumption. Public and private services were disrupted. An estimated 0.8% increase in poverty rate was observed between 2019 and 2021 (World Bank, 2020). All these unavoidable affects cash flow, thereby affecting MFIs in diverse ways.

This research therefore seeks to determine the impact of COVID-19 on the performance of micro financial institutions in Buea, by comparing pre and post COVID era in the Buea municipality.

Due to the severe impact of COVID-19 and lockdown measures put in place by the Cameroon government to combat it spread, MFIs demonstrated some resistance capacity, which was supported by some regulatory relaxations provided by COBAC (Banking Commission of Central African State)

1.2. Statement of the problem

Years back in the Buea municipality, micro-financial institutions were one of the most stable and reliable institutions that one could boost of investing or seeking employment opportunities in to. More so, they have played a profound role in the growth and the development of the Buea municipality through their massive infrastructural facilities coupled with the employment opportunities that they offer to the different age composition in Cameroon and precisely in the Buea municipality. They have also assisted the poor to get out of poverty through the huge amount of loans they usually grant to them at a lower interest rate.

In addition to that, they have also played a vital role in the provisioning of a permanent access to appropriate financial services including insurance, savings and funds transfer. Due to the perennial and the intergenerational opportunities that micro financial institutions offer, recently they have not only been grappling with the remedies to the usually challenges they face like: the over indebtedness, inadequate investment validations, regulatory issues as well as embezzlement but a more capricious one which is Covid-19 has stepped in with consequences which are devastating on their operations.

The worst of it is that, it has also posed barriers on movement of the clients, has halted the carrying out of income generating activities and has imposed difficulties in the disbursement of loans to clients and the collection of repayments. They have also been frequent threats on the health condition of the potential customers caused by this pandemic. All these have implications on the final output of the system. It is therefore in this light that this research shall focus on investigating the challenges of the Covid-19 micro financial institutions, its impact on the profitability of these institutions as well as suggesting measures which can be implemented in order to remedy the situation and restore the productive capacity of these institutions in to normalcy.

1.3. Research questions

The main research question.

What is the impact of COVID-19 on the profitability of micro financial institutions?

Specific research questions 

1. What impact does COVID-19 have on the performance of micro-financial institutions?
2. How does COVID-19 influence the profitability of micro-financial institutions?