ROLE OF CASH MANAGEMENT ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS
|BANKING AND FINANCE
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The purpose of this study was to analyze the effect of cash management on the profitability of TBPCCUL. To arrive at this, specific objectives were developed; To evaluate the effect of cash management on Financial profitability of TBPCCUL, To determine the effect of cash management on economic profitability.
The study on the effects of cash management on the profitability of TBPCCUL, the population of the study was 25 working staff selected from the various Microfinance Institutions in Fako. The data was analyzed using descriptive statistics and presented using regression techniques. The study found out that these Microfinance Institutions are made up of both males and females. There is a high profitability registered by customers and the profitability of employees in these institutions.
The findings revealed that cash management has a positive impact on the profitability which is in accordance with the alternative hypothesis of the study and the staffs made of males and females performance profitability better than the one made of just female. As the recommendations we say that financial institutions should adopt good cash management policies and adopt better procedures and techniques of cash management.
1.1 Background to study
The concept of micro finance originated from the field of informal finance in the years 1970 and 1980.Micro finance involves the provision of financial services such as savings, loans and insurance to poor people living in both urban and rural settings who are unable to obtain such services from banks (Basley 2002).
Micro finance according to Otero (1999.p.8) is the provision of financial service to low income poor and very poor finance self-employed people. These financial services according to Ledger wood (1999) generally include micro savings and micro credit, but can also provide other services like micro insurance and money transfer or payment services. Micro finance institutions also provide non-financial services like education, counseling, health, technical assistance training and many others.
They are nine approaches of providing micro credit or finance to customers. These ones are; the minimalist approach, the integrated approach, the institutional approach, welfarist approach, the commercial approach, the individual approach, the group lending approach, the existing business approach and the creation approach(Messomo,2012).When
micro finance institutions perform services like micro credit, there is high probability of default. This at times greatly affects the probability of microfinance institutions.
The concept of microfinance was pioneered in Bangladash Muhammed Yunus in the year 1970s in the village of jobra. He experimented by lending to the poor women of the village of Jobra. He also found the Grameen bank and won the noble price in 2006(Helms, 2005). Since then, innovation in microfinance services has evolved. This evolution is aimed at alleviating poverty. Poverty has been the talking point of most political agendas worldwide especially less developed countries like Cameroon. According to International Monetary Fund
(IMF)(2003) country report on poverty reduction strategy papers(PRSPS), poverty rate in Cameroon has about was 40.2% in 2001.According to Ayuk (2012), Cameroon has about 500 microfinance institutions of all categories actively participating in the alleviation of poverty. If alleviation of poverty by MFIs through the granting of micro credit leads to default at times, there is a need to identify this problem.
The evolution of microfinance has been the turning point in financing of both entrepreneurial ventures and small businesses. In a number of European countries micro finance evolved from informal beginnings during the 18th and 19th centuries as a type of banking of the poor, juxtapose to the commercial and private banking sector. Almost from the unset
microfinance meant financial intermediation between micro savings and micro credit and was powered by intermediation. In Germany, the former microfinance institution now accounts for about 50% of banking assets; the outreach is to about 90% of the population. Microfinance in Asia has much longer history, though little seems to known about the early history of hui in China, Chit funds in India, the arisen in Indonesia or the paluwagan in the Philippines to name a few.
Financial institutions of indigenous origin, most of them informal are still exceedingly wide spread but had been largely ignored in financial sector developments. However, there are exceptions on a limited scale, as in India where chit funds are regulated like in Indonesia with its highly diversified rural microfinance sector where various forms of informal financial
institutions have been registered and eventually regulated throughout the 20th century (Hans, 2005). Over time, micro credit programs all over the world improved upon the original methodologies and defiled conventional wisdom about financing the poor. First, they showed that poor people, especially women, had excellent repayment rate among the better programs, rates that were better than the formal financial sectors of the most developing countries. Secondly, the poor were willing and able to pay interest rate that allowed microfinance institutions to cover their cost. So, financial service providers have had better understanding of the need of microfinance institutions and of the wide range of financial rate of low income people in both urban and rural areas (Gateway). These needs might be managing irregular income flows and coping with crisis such as unexpected
sickness, natural disasters and death, many financial service providers have broaden their scheme of operations beyond their product of providing only credit services but also offer other services like; savings, insurance and money transfers, to help poor people manage their financial lives (Robert et al, 2004). New technologies continue to create opportunities to broaden microfinance institutions financial services and to also provide those services at a lower cost to the poor.
In Cameroon the idea of credit union were introduced in1963 by a Roman Catholic priest Rev father Anthony Jansen from Holland who was then residing in a village residing in the northwest region called Njinikom. It is in this light that the first credit union started in Njinikom. Before embarking on the information of credit union, Rev Father had noticed and witnessed a problem amongst the villagers. Most villagers held that act of hoarding to a high esteem as a means of securing their liquidity to no avail, insect usually ate them. It is in vain that they saw the need for villages to regroup themselves as well as their resources to meet their productive need. This idea extended to Bamenda town as
well as other parts of the country. In 1969 there were already 34 credit union in existence organized jointly by the mission and the government department in charge of cooperatives. 34 credit union the joint to form the league known today as CAMCULL acting as a regulating organ to its affiliate’s credit union. It operates in all the region of Cameroon with its headquarter in Bamenda. Today, it’s an umbrella organization for over 200 credit union with a total of 196922(urban and rural) members. Its provides a wide range of services to its members, it also manages savings that is an amount of over 41000million FCFA its network consolidated balance is over 49840589FCFA.It is worth mentioning that credit unions are also subjected to law number 921006 of 14180106 and decree number 21455pm of 23/11/92 relating to rules and regulations governing cooperative societies as well as initiative groups.
Another credit union network named Renaissance cooperative credit unions RECCU-CAM ltd now exist in Bamenda, north west regional chief town, according to the local English language newspaper, the SUN. It was officially registered on May 30, 2013 but its constituent assembly held earlier in Bamenda on Saturday May 11. Mohammed Yunus founded the
Garment bank whose research pioneered the concept of providing micro banking services and non-collateralized loans or the poor in order to alleviate poverty
A credit union is a financial cooperative created for and by its members who are its depositors, borrowers and shareholders. Credit unions offers many banking services such as consumer and commercial loans (usually at lower than market interest rate), time deposit (usually at higher than market interest rate).
Their financial services are low income earners and for small business owners. It offers different type of services in practice; the terms are often used more narrowly to refer to loans and other services from providers that identify themselves as microfinance institutions. The turn to use new members to deliver very small loans to unpaid borrowers taking little or no collaterals. There are 3 types of microfinance which include; Category one microfinance institution are financial institutions that collect savings and deposits and lends them out to their members this category includes; association, cooperatives and credit union. There is no stipulated capital for category 1 institution instead COBAC(BANKING COMMITION OF
5 CENTRAL AFRICAN STATE) text required the capital to be sufficient to cover and meet up with stipulated prudential norm. An example of category 1 institution is TIKO BANANA PROJECT COOPERATIVE CREDIT UNION LIMITED (TBPCCUL) Category two microfinance institutions are financial institution that collect saving and deposit and later on lend them out to their third parties. These category groups are limited liability companies that function more like a micro bank.
The minimum capital for such category 2 institutions are stipulated by the text is 50millionFCFA prove of such must be shown by the use of a bank statement from a commercial bank
Category three microfinance institution are other microfinance institutions that give out loans to everyone who ones it (the are no affiliated to CAMCUULL).This is made up of lending institutions that do not collect savings and deposits they include the microcredit and project financial institutions. The minimum capital required for such is over 25millionFCFA for
The amount must be fully paid and evident to show in the form of a bank statement from only commercial banks as at the time of application for accreditation. This microfinance institution has an objective which is divided under article 5 of the uniform act include the following; Firstly, to finance small and medium size enterprises in order to boost the economic growth of the nation. Secondly, to reduce poverty by granting loans to households, this will go a long way to improve in the living standards of the citizens. Tiko banana project cooperative credit union limited (TBPCCUL) falls under category 1 microfinance institutions. This is because it is own and controlled by its members. Every financial institution is required to meet up with their desire of cash by keeping enough cash whenever there is any possible operation by the institution. According to Macon, Harris and Davidson (2012) cash is any medium of exchange which is immediately negotiable.
It must be free of restrictions of any business purpose. Cash have to meet prime requirement of acceptability and availability for instant use in purchasing and payment of debts. Acceptability to a bank or any financial institution for deposits is a common applied to cash items. This is a process of planning, controlling, and accounting for cash transactions and cash balances.
To attain a sound management and cautious cash, all financial institutions must have a certain position of active elements, assets conserve in excellent quality security which can easily be transformed to cash without great losses. Cash is essential in all financial institutions to compensate for expected and unexpected balance sheet fluctuations and to provide funds for growth.
The recent cash crisis faced in financial institutions which led to the closure of some microfinance institutions such as First Investment for Financial Assistant (FIFFA) and Companies Financier de l’Estuaire(COFINEST) had brought to the forefront the need to review their existing cash management policies, practices and procedures. Globalization today is more perceived through finance which marked the birth of micro finance institutions that spread experientially in serving the needs of all social classes, but in the same familiar way sometimes faces bankruptcy. This can be justified by mismanagement of cash as cash management is not limited to receipt and disbursement.
If it is easy to receive or to cash it is difficult to manage cash flow so as to avoid customer dissatisfaction. Although it is easy to manipulate employees, customers are strong partners and for this reason require a lot of attention.
This is why good cash management is a necessary condition for resistance or for business growth. So generally cash management is to ensure the company’s liquidity. In tough economic times where operating funds have become increasingly limited interest rate, interest rate is subjected to frequent changes cash position causing it therefore to be mastered properly. It is in this perspective that the theme of our work focuses on “the role of cash management on the profitability of micro finance institutions”.
1.2 Statement of the Problem