ABSTRACT

The major challenge facing many developing countries, especially in Africa, is devising appropriate development strategies that will capture the financial services requirements of Small and Medium Enterprises (SMEs) which constitute about 70 percent of the business sector.

The study sought to examine the impact of microfinance services on the growth of small and medium size enterprise (SMEs) in Buea Municipality case study AWICCUL which started from July 2017. The sample technique use is the probability sampling which is random and stratified sampling, which sample out 40 enterprises from the period of July 2017 till September 2016.

The source of data used is the primary source of data in which questionnaire was administered in the collection of data. At the end of this study the research concluded that microcredit and micro savings which are microfinance services influences the growth of small and medium enterprises.

However, it is recommended that the mode of repayment should be revised so that the poorest can borrow without collateral.

Also group based lending should be encouraged. In terms of policy on support services, MFIs should assist their clients by providing training on credit utilization and provide information on government programs to SME operators in the country.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF STUDY

The microfinance industry worldwide has been recognized as an instrumental tool for poverty alleviation and economic growth. There socio-economic transformation effort of low income and poor community has been possible through accessing semi-formal and informal financial products and services.

The pivotal role of microfinance has helped foster the growth and development of SMEs in the world by providing Start-Up and business expansion capital among other financial services.

Microfinance institutions target the poor who are considered risky but the repayment rate tends to be positive as compared with the regular commercial banks (Zeller and Sharma 1998).

Microfinance dates back to the 19th century when money lenders informally perform the role of new formal financial institutions.

The informal financial institutions constitute of village banks, cooperative credit unions, state owned banks and social venture capital funds to help the poor. These institutions provide savings and credit services for SMEs.

They mobilized savings and have simple and straight forward procedures that originate from local cultures and are easily understood by the population (Germidis et al 1991). These funds are to finance the SMEs in developing countries and it’s known that these SMEs are more likely to fail (Maloney 2003).

The creation of SMEs generates employment but these enterprises may not survive longer and consequently are bound to die after a short  while causing those who gain jobs or positions to lose them and even go poorer than they were.

(Hanohan 2004) alludes that a well-functioning financial system is linked to foster an equitable growth. He argues that access to finance by the poor and small enterprises from formal and informal sources is a prerequisite for poverty reduction and social cohesion.

Hence access to finance has become an integral part of efforts to promote inclusive growth and empowerment of the vulnerable groups. Therefore financial inclusion in any development sector leads to high levels of socio-economic development and ultimately reduces the poverty levels in an economy.

(Atiur 2009) however states financial inclusion is a tool for combating poverty and a key element of social inclusion making people to contribute and to benefit from the process of social and economic development.

Through increased access to savings accounts and other financial services, the poor can build financial security, manage risks against adverse shocks and even invest in new business opportunities. Hence financial inclusion is essential for inclusive growth, which is necessary for sustainable overall economic growth.

(Chibba 2009) emphasizes the importance of financial inclusion especially from semi – formal financial institution by stating that although the chosen and conventional approaches to tackle poverty and millennium development goals (MDGs) are useful and necessary, they are not sufficient to address the human development challenges.

Financial inclusion offers incremental and complementary solutions to tackle poverty, to promote inclusive development and to address the millennium development goals.

In addition, microfinance gives people new opportunities by helping them to get and secure finance so as to equalize the chances and make them responsible for their own future.

It broadens the horizon and thus plays both economic and social rates by improving the living standard of the people.

These improvements are on a nutshell to alleviate poverty, boost production and according to this project; it will be seen from the point of the development of SMEs.

SMEs play a major role in economic development in every country including African countries. Studies indicate that in both advanced economies and developing countries SMEs contributes on average 60% of total formal employment in the manufacturing sector.

The authors argue that for African economies the contribution of SMEs sector to job opportunities is even more important. Taking into account the contribution of the informal sector, SMEs account for about ¾ of total employment in the manufacturing sector.

Microfinance institutions in Cameroon consist of money lenders, microfinance agencies, non – governmental organizations (NGOs), and rural farmer’s scheme and savings societies that provide savings and/or credits facilities to micro and small scale business people who have experience difficulties in obtaining such services from the formal financial institutions.

Their range of activities include deposit taking, savings schemes, small scale enterprises, agriculture, real estate, group lending, retail financial services, giving advice on financial matters and training in business management.

For developing countries small scale business would generally mean enterprises with less than 50 workers and medium size business would mean those with 50 – 99 workers. In Cameroon a small scale business is an enterprise employing at least 6 but with a maximum of 20 employees, with the value of assets and working capital of less than or equal to 100 million FCFA.

A medium size business is considered a firm which employs between 21 – 100 workers with an annual turnover income between 100 million to one billion FCFA.

This study will be looking at the impact of Microfinance services case study AWICCUL Buea branch services on the growth of small and medium size enterprise in Buea Municipality.

Awing central cooperative credit union limited (AWICCUL) is a savings and credit cooperative founded in 1968.The founding members of this credit union were farmers who usually sell their products to the marketing cooperatives.

Its common bond was later extended to all the villagers and even civil servants. This credit union is a micro finance institution affiliated to the Cameroon Cooperative Credit Union Limited (CamCCUL Ltd), the idea of this institution was brought in to Awing by a son of the land by name Mr Alota Stephen who is now of late.

As a clerk of the farmer’s cooperative, he noticed that most farmers usually sell their products before harvesting with this he established the credit union with the help of CamCCUL Ltd.

Over a period of about 48 years, the credit union has had some remarkable growth such as amalgamation and evolution of membership, shares, savings, and reserves and increase in the number of branches. Amalgamation came to place in 1999 where the three quarter branches joint together to form one strong and viable credit union now located at the awing main market.

The evolutionary chart of the credit union shows a tremendous increase in branches such as the creation of the Bamenda, Yaoundé (1and2), and Douala, Buea and Santa as well as a collecting center in Douala.

Membership, shares savings, and deposits have equally weakness a remarkable growth since 1968 to present date. The credit union now possess a membership of about 4252 shareholders and a share capital of about 213,199,898 CFA francs.

The members are of both sexes and even groups are included. The annex office in Bamenda helps to support the head office in its operations and thereby reducing traveling expenses to and from the village for transactions. With this development, money transfer has been made possible.

The annex offices table its own financial report to the main office for a consolidated financial report to be prepared. In addition the credit union now owns a building in Bamanda town located at Fund Street which is still undergoing construction. Another important event in the life of the credit union is the computerization of the system. AWICCUL now operate a computerized system which ease the operations of the credit union.

1.2 Problem Statement

The concept of business growth is still a grey area as there is yet to be a conclusive approach and definite indicators of business growth despite the fact that it is every entrepreneur’s wish to have their businesses grow.

Thus the subject of business growth is a fertile area for a study in the Cameroonian context. (Kemei2011). Reviews examining impacts of microfinance have concluded that, rigorous quantitative evidence on the nature, magnitude and balance of microfinance impact is still scarce and inconclusive.

It is widely acknowledged that no well-known study robustly shows any strong impacts of microfinance (de Aghion and Morduch 2010). Various studies have been done on SMEs and how they are influenced by microfinance services;

In Kenya, (Mutuku 2010) studied on the impact of microfinance institutions on MSMEs in Kenya and found out that they had a great impact on employment creation and poverty alleviation.

In Ethiopia, different MFIs are to influence artisanal mining cooperatives in improving modes of gold production. The ministry is in talk with the MFI in the procedures of lending money to cooperatives who will use the money to buy gold ore producing machines.

Tamrat Madjo, Dedebit Credit and Savings S.C, Oromia Credit and Savings, Omo microfinance and Amkara Savings, are MFIs that will disburse loans to the cooperatives engaged in the production of alluvial gold. This will affect their economic growth in the long run

Microfinance industry has become increasingly important world over as a major strategy in the development agenda for poverty reduction and in the promotion of SMEs.

The industry is seen as paramount in augmenting private sector leading growth through supporting the SME sector.

The microfinance institutions resource base can provide a platform for the growth of SMEs and contribute to the fight against poverty. Some studies argue that microfinance has indeed many positive impacts.

In Cameroon the microfinance industry is playing a critical role in providing a range of financial services to both urban and rural communities.

The services are through the products such as loans, deposits, savings, micro- insurance money transfer services and financial education.

The provision of such services is expected to contribute to the growth of SMEs in terms of business capital and increase in employment levels to improve household incomes.

However the is no adequate empirical evidence available to vindicate the contribution of microfinance services in bridging the growth gap of SMEs.

The study therefore is geared towards establishing the impact of microfinance services case study AWICCUL on the growth of SMEs in Buea. In other to critically examine the impact this services have on the growth of SMEs in Buea the following question will be answered

1. What is the contribution of micro saving services offered by AWICCUL on the growth of small and medium size enterprises in Buea?
2. What are the contributions of microcredit service offered by AWICCUL on the growth of small and medium size enterprises in Buea?

In other to answer this question the following objective will be taken into consideration

1.3 Objectives of the Study

1. This study of the impact of microfinance services on the growth of SMEs in Buea case study AWICCUL has as its main objective to Examining the effect Microfinance services (AWICCUL) on the growth of SMEs in Buea?

With this being our main objective the following specific objectives will be considered:

1. To establish the extent to which micro savings of AWICCUL affects SMEs business capital in Buea Municipality?
2. To establish the extent to which microcredit AWICCUL affects the growth of SMEs in Buea Municipality
3. To make recommendation on the extent to which microfinance services (AWICCUL) on the growth of small and medium size enterprises in Buea Municipality

Further reading: Banking and Finance project topics and Materials

Impact of Microfinance on Small and Medium Enterprises in Zimbabwe: The Case for Masvingo Town