CHAPTER ONE

INTRODUCTION

1.0. Introduction

This chapter introduces the background of the study, a brief business challenges in context to organizational communication, which is all detailed in the research context. This is followed by the problem statement, research questions, research objectives, scope, delimitation, and significance, structure of the study and definition of key terms.

1.1. Background to the Study

According to the OHADA Law (2011), cooperatives societies like commercial institution are linked to the historical context which developed in Europe in the 19th century starting in the 1830s and have gradually developed increasingly, spreading abroad and diversifying their different forms. History is difficult to set in stones and the choices of dates and events are bound to be arbitrary. At any date the cradle of the cooperatives are traced to England, France and Germany. Each of these three countries came up with its own form of cooperative. In England we had the consumption cooperative, In France we had the industrial workers or the producer’s cooperative and in Germany we had the savings and credit cooperative.

Cooperatives are autonomous associations of persons united voluntarily to meet common economic, social and or cultural needs and aspirations through jointly-owned and democratically controlled enterprises. (International Cooperative Alliance ICA, 1995). Consumer cooperatives are institutions owned by consumers and managed democratically with the aim of fulfilling the needs and aspirations of their members and Producer cooperatives are groups of factory workers united to establish together an undertaking based on their competence. Savings and credit cooperatives are groups of people who due to their absolute or relative property were excluded from traditional banking services and decided to mutualize their savings so as to be able to grant loans to members and thus, facilitate their economic development (Tchami, 2007).According to Nfor (2011), a valid test of community development can be viewed through the lenses of the Common Initiative Groups in Cameroon (CIG). It has been existing for quite a long time taking many forms across the globe. In villages guided by traditional leaders who made people to work in community halls, road constructions and building projects. The passage of time has engulfed many different sectors and today it is not only limited to the country side but have involved city dwellers who act as information belt between the different zones and regions. CIG arose some twenty years ago due to the fall of market prices of cocoa and coffee a main cash crop that accounted for about 75% of family income.

In Africa, the idea of savings and credit cooperative societies was first described and discussed in 1955 in Jipara, a small town in the West of Ghana. The idea was brought about by a Roman Catholic Priest; Father John McNulty from Ireland. He decided to assist the village to form a saving and credit cooperative and he trained 60 people mainly teachers. The success of the cooperative widely replicated throughout the African continent (Mumanyi, 2014). Puja Mondal (2007) also said that there are three major types of cooperative societies which are: The Credit Cooperative Society, the Consumers cooperative society, and the Producers Cooperative Society.

These three basic types are further divided into several types. For instance, there is a society of the peasants. This is sub-divided into cotton grower’s society, sugarcane society, wheat producer society and so on and so forth. In the similar way there are sub-types of consumer’s cooperatives and producer’s cooperatives. The three types of cooperative societies are: producer’s cooperatives societies, consumer cooperatives societies, and credit cooperatives societies. In Cameroon, the above three types of cooperatives have taken a mixed form. A single society could be a credit, consumer and production society at the same time.

Generally, cooperatives are organized into service and producer cooperative. The producer cooperatives objectives are to promote the use of modern technology and contribute to national development through production. The service cooperatives are responsible for procurement, marketing and extensive services, loan disbursement, sale of consumer goods and member’s education (Branco, 2005). In practice, building a culture that respects the financial challenges as much as the artistic, starts with the executive director. Consistent statements and action by the executive director drives the norms through the organization. This can be a significant challenge in organizations with a separate value must be held as deeply and communicated as clearly as possible by both leaders. In two organizations with long histories, one executive director consistently talk about the financial and artistic together describing their culture as artistically liberal and fiscally conservative.

According to Hawo (2015) on the Financial Management of the Public sector of Nairobi (Kenya), said that implementing Integrated Financial Management Information System (IFMIS) is to increase the effectiveness and efficiency of state financial management and facilitate the adoption of modern public expenditures practices in keeping with International Standards and benchmark. Much of the work in automating IFMIS has focused on financial management information system including general ledger accounts payables, accounts receivables, procurement and payroll, asset management, debt management and budget. As IFMIS systems evolved the needs changed so the scope of the automation can be expanded, given the rapid change of technology it may not be feasible to plan all of these potential needs or IT options in advance (Bartel 2009). Husman & Pudjiastuti (2006), said governments in developing countries are increasingly exploring methods and systems to modernize and improve public financial management. Over the years there has been an introduction of the IFMIS as one of the most common financial management reform practice aimed at the promotion of efficiency, effectiveness, accountability, transparency security of data management and comprehensive financial reporting. The scope and functionality of IFMIS varies across countries but normally it represents an enormous complex strategic reform process. According to Carlos & Klaus (2006), cooperative, financial institutions have problems in financial management, governance, and supervision. This is due to the political instability in most developing countries, insufficient technical know-how, and fluctuation of prices and interest rates in the developing countries.

1.2. Statement of the Problem

Management of finance is a crucial function of any business institution since it determines its success (Lakew & Rao, 2014). Kwame (2010) suggests that unpleasant financial management practices will negatively impact business profit and organizations’ financial results. A major challenge faced by financial managers in micro finance institutions in Cameroon is the issue of inadequate investment validation. Investment validation is a critical capability for a microfinance institution’s smooth operation. This is because the market in which micro finance institutions operate are still developing which might limit market activities. As results, microfinance institutions find it difficult to obtain market data for valuation purposes. Microfinance institution management teams are unable to obtain the level of quality information required to make investment decisions due to lack of consistent and reliable valuation procedures.

There have been reports that have continuously indicated that the microfinance institutes, financial outcome has not been stable due to various factors. CBK (2019) notes that although microfinance started on a high notch, recent reports indicate that the MFBs have been slogged into a loss-making streak. Pre-tax losses increased from 171 million in June 2017 to 935 million by the end of June 2018, thus a decline of 450%. Evidence also shows that about 70% of microfinance banks had registered losses by the end of 2016/2017. For instance, Daraja, Choice, Maisha, and Century Microfinance Banks had breached their minimum requirement for core capital, thus signalling financial instability. Only Microfinance institution did not fall into the loss-making spree, but its profits declined by 92%, from 224 million shillings to 18.7 million shillings in December 2016 (CBK, 2019). Performance. Kirika (2018) deliberated on the factors that mostly affect microfinance institutions’ performance: A case study of Meru County and found out that credit management, competition, and investment decisions have a significant relationship with the performance of microfinance institutions. This study sought to determine what effect the board characteristics, financing mix, credit default management, and assets and liabilities management practices have on the financial performance of microfinance institution. Thus, this study seeks research on these particular variables.

1.3. Research Questions

1.3.1. Main Research Question

How does financial management affect the performance of microfinance institution in Cameroon?

1.3.2. Specific Research Questions

1. How does Capital budgeting affect the performance of microfinance institutions in Cameroon?
2. How does Capital structure affect the performance of microfinance institutions in Cameroon?

• How does Working capital management affects the performance of microfinance institutions in Cameroon?

1.4. Objectives of the Study

1.4.1. Main Objectives

The main objective of the study is to assess the effects of financial management on the performance of micro finance institutions in Cameroon.

1.4.2. Specific Objectives

1. To evaluate the effect of capital budgeting on the performance of micro finance institutions in Cameroon.
2. To evaluate the effects of capital structure on the performance of micro finance institutions in Cameroon.

• To evaluate the effects of working capital management on the performance of micro finance institutions in Cameroon.