Molyko, Southwest Region - Buea, Cameroon


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The Impact Of Fraud on the Performance of Micro Finance Institution in Cameroon

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Fraud is a global problem affecting the society as a whole. It cuts across all walks of life. Fraud has been in existence for a long time. It is a complex problem since the perpetrators will always try not to leave a trail. Fraud affects organizations through loss of funds which can lead to low amount of funds available for business, can lead to loss of customer confidence and time wasted through investigations. Fraud activities pose a significant problem to the MFI in Cameroon. The main objective which is to evaluate the impact of fraud on the performance of micro finance institutions. This research aims to contribute to the knowledge of fraud in banks with a focus on MFIs. This research uses a sample size base on a survey of various MFI. Primary data was obtained through self administered questionnaires so as to collect the required data. The descriptive statically method: SPSS was used to describe the data and determine the extent used. Descriptive statistics such as frequencies, percentages, means and standard deviation was used to report and present data. The usage of Multiple Regression analysis model was used to determine the effect of the independent variables on the dependent variable.

Correlation of analysis, the study finds that fraud has a positive association to the performance of MFIs. Constant audit checks of the financial statements would aid in avoiding the occurrence of fraud. Internal controllers should be instituted.

Management should do proper background checks on its employees to be certain they have clean records and have good moral and ethical values and are discipline and strict in carrying out their duties at work, this is to help avoid fraud which may be as a result of greed which is the main cause of fraud.

 Again, management should endeavor to provide its staff with all necessary remuneration packages, training and  proper background checks that will motivate them to give their best because fraud may arise if the employee satisfaction requirements are not met.



1.1 Background of the Study

If the act of fraud is not arrested, it might delete the resources and performance of institution in Cameroon because foreign investors might not find it wise to transact business via the micro finance institutions and this will affect the institutions performance drastically. Micro finance in Cameroonconstitutes an incentive tool for micro and small enterprises that has little or no access to traditional financial system, as well as a source of credit for people and communities in need that do not have sufficient resources to access the traditional financial system. Without MFIs, the sources of funds for this portion of the market would be limited to friends, family or loan sharks, which restrict entrepreneurial capacity and affect the quality of life of the population (Soares&MeloSobrinho,2008).

Furthermore, for any economy, especially Cameroon to develop and grow, the financial sector must be effectively solid, strong and efficient. The existence of an effective banking industry is a panacea to growing any economy. The pivot of any economic development is the financial sector through funds from surplus units to deficit units. This also stimulates investment, economic growth and employment as well as international trade and payments.Over the years, the Cameroon banking industry has witnessed several reforms in search of an efficient and effective financial system (Owolabi, 2010).

Organizational performance is the measure of how well the organization has done the job (Stoner, Freeman &Gilberth, 1995). Increasingly, questions are being raised over the cost of funds for this enterprises and their ability to earn margin sufficient to cover their operational cost and still realise profit (Arsyad, 2005). It has been pointed out repeatedly that MFIs need to be economically viable and sustainable in the long run (Srinivasan etal. ,2006). In fact, studies have found linkages between the financial sustainability of micro finance institutions and achievement of their social objectives. Low income customers are more likely to borrow from institution they see as financially viable (Zeller et al. 2003). Fraud has remained one of micro finance biggest threat to its performance in the past years.

Fraud is a universal financial word. Its occurrence or perpetration is not limited to Cameroon. The incidence of fraud in the Cameroon micro financial institutions (MFIs) has assumed an alarming proportion of late (Uzoka, 2001). With the deregulation of the banking system in the early 1980s, the pace at which MFIs were established increased in an unprecedented manner. Fraud is a global phenomenon that has been in existence for long and increasingevery day. Fraud is a deliberate act that causes a business or economy to suffer damages, often in the form of monetary losses. Fraud according to Adeniji,(2004) and ICAN, (2006) is an intentional act by one or more individuals among management , employees or third parties which results in a misrepresentation of the financial statement. Fraud in the banking system is a global l phenomenon and its growth in Cameroon economy has been outstanding. Fraud is the number one enemy of every business growth over the world and fraud has a great effect on the performance of every micro financial institution (MFIs). The fear now is that the increase rate of fraud in financial institutions if not arrested pose certain threats to stability and survival of individual financial statements and the performance of the industry as a whole and there is no area in the economy that is immune from fraud and fraudsters (Nwankwo, 2005).

In addition, general poverty amongst the citizenry coupled with high degree of unemployment in the larger society made survival a herculean task. Corruption and other forms of vices became easily identifiable with Cameroonians irrespective of their gender, social status and professional callings. Under this dispensation, frauds have grown in scope, nature, methodology and dimensions as the MFIs advances. The rate, frequency and volume of financial losses have been a major source of concern to the regulatory agencies. Government and public statements have been issued because of this cankerworms, which has eaten the fabrics of the society. Unfortunately, the bane of society is agreed and the philosophy to get rich quick is now the order of the day. According to Nwaze, (2006), it will almost amount to an understatement to say that fraud has come to stay. It has been around since the beginning of time and would certainly continue to be an issue until the end of time. Fraud occurs in almost all facets of human endeavor. Employee dishonesty is as old as the work place itself. Fraud has assumed dimensions, albeit with increased sophistication. Hence forgeries, deceit and other unwholesome practices have continued to be a way of life and the practitioners have flourished overtime at the expense of the larger society. Incidentally, banks especially MFIs are their major targets in recent times notwithstanding the increase use of technology in banking operations. No bank appears safe from the menacing epidemic.

 Financial institutionsfraud generally bringing untold hardship on bank owners, staff, customers, and family members as most MFIs failures is always associated with large scale frauds (okoro, 2003). According to (Oseni, 2006) the incessant fraud in MFIs are getting to a level at which many stakeholders in the institutions are losing their trust and confidence in the institution. Corroborating the view of oseni and idolo, (2010) stress that the spate of fraud in Cameroon MFIs has lately become a source of embarrassment to the nation as apparent in the seeming attempt of the law  enforcement agencies to successfully tract down culprits. Although the incidence of fraud is neither limited to the banking industries nor peculiar to Cameroon economy, fraud is everywhere even in the United States of America. However, the high rates of fraud in the micro finance institutions calls for urgent attention with the view to find solutions. Fraud in it effect reduces institutions assets and increases it liabilities. Fraud also has a great effect on management performance in that, it reduces the institution profit, it also leads to unemployment, and also the liquidity of the institution. Fraud if not checked might cause run on in MFIs. The high turnover of fraud, theft, defalcation and forgeries in the MFIs is capable of underming the performance, growth, development and stability of MFIs which at the moment seems to be doggedly affected the micro financial institution of the economy.

With regards to banking industry, it may endanger crisis of confidence among the financial institutions, impede the going concern status of banks and ultimately lead to bank failures (Adeyemo, 2012). Due to the pivotal roles of MFIs in the growth and economic development of any nation, it has become very necessary to protect this institution from fraudsters. Thus, the purpose of this research is to discuss from practical point of view how fraud can affect MFIs performance.

1.2 Statement of the Problem and justification of study

Fraud is a global problem and affects every business, industry and organization. It leads to losses that continue to pose significant challenges to industries despite significant challenges  to industries despite  significant advances in fraud detection terminologies .Global fraud  study report to the nations, a publication of the Association of Certified Fraud Examiners (2014) on occupational fraud abuse indicate that a typical organizations losses 5% of its annual revenue to fraud.

In Africa, several organization have been affected by fraud. Chiezey&Onu, (2013) studied the impact of fraud and fraudulent practices on the performance of MFIs. Among the findings of the study is the involvement of staff in frauds. The study recommended the need for the Government to strengthen law enforcement institutions to fight fraud.

Idowu, (2009) did an assessment of fraud and its management in MFIs. The study revealed that greed rather than poor salaries is what makes people to commit fraud.

Idolor, (2010) in his research on MFI frauds in Cameroon: Causes, Effects and possible solutions, found  out that poor remunerations, lack of proper staff training and lack of proper background checks on staff are some of the causes of fraud.

According to Akinyomi, (2012), greed is a foremost cause of fraud in his study on examination of fraud in the MFIs Sector and its prevention.

Micro financial institutions generally have been experiencing fraud since its evolution. Thisaffects the performance and the profitability and management body of MFIs and may possibly lead to distress. The inability to identify the immediate and remote causes of continuous cases of bank fraud in MFIs in Cameroon is one of the problems brought to bare. Fraud is a major challenge to the entire banking industry. No bank is immune to it and in all facets of life (Olorunsegun, 2010). The banking public expects accountability, fairness, transparency in their day operation for effective intermediation. Though there were known cases of fraud in MFIs, one major question still remains unanswered which is, what is the nature and different ways through which fraud can be perpetuated in MFIs. It is asserted by Adeyemo, (2012) that fraud in the MFIs is possible with corroboration of an insider. MFIs are expected to ensure that they carry out their responsibility with sincerity of purpose which is devoid of fraudulent practices; this is relevant if the MFIs is to gain public trust and goodwill.

Despite all the measures given above to prevent fraud in the MFIs, fraud has still been a main problem in the performance of micro financial institution (MFIs). All this problems bring forth research on THE EFFECT OF FRAUD ON THE PERFORMANCE OF MICRO FINANCE INSTITUTIONS.

The Following Research Questions Provided Guidance For The Study

  1. What is the effect of fraudulent money transfer on the profit of micro financial institution?

  2. What is the influence of unauthorized withdrawal on the profit of micro financial institution?

  • To what extent does theft and embezzlement affect the profit of micro finance institution?

1.3 Research Objectives

The general objective of the study is to evaluate the extent to which fraud affects the performance of micro financial institutions. However, it is set to achieve the following specific objectives which are to;

  1. Determine the extent to which fraudulent money transfer affect the profit of micro financial institution.

  2. Ascertain the influence of unauthorized withdrawal on the profit of micro financial institution.

  • Determine the extent to which theft and embezzlement affect the profit of micro financial institution.

  1. To identify the challenges MFIs are facing in eliminating Fraud.

1.4 Research Hypotheses

  • Fraudulent money transfer does not have an effect on the performance of micro finance institutions.
  • Unauthorized withdrawal does not have an effect on the performance of micro finance institutions.

Theft and embezzlement does not have an effect on the performance of micro finance institutions




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