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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
Amity Campus
Uttar Pradesh
India
201303
ANALYSIS OF MICROFINANCES' PERFORMANCE
AND
DEVELOPMENT OF INFORMAL INSTITUTIONS IN
CAMEROON
by
DJAMAMAN BRICE GAETAN
A dissertation submitted in partial fulfillment of
the requirements in Masters
of Finance and Control at the Amity Center for
E-learning Amity University,
Uttar Pradesh
September 2012
Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
ABSTRACT
Historically, microfinance has been successful in reaching the
population excluded from the classical financial system. In the 90's, efforts
have been concentrated towards the financial and institutional sustainability
of the microfinance institutions (MFIs). Tools to evaluate financial
performances have been developed, but the social performances were taken for
granted.
This study is intended to investigate the relationship between
social and financial performance of MFIs and factors that contribute to the
development of informal sector in Cameroon; with a particular interest in the
role that microfinance institution may be playing. In addition to gaining a
more general understanding of the challenges facing developing informal
institutions, the study will identify how the evaluation of microfinances'
performance is contributing to overcome the mission drift or arbitrage between
social and financial performance of microfinance institutions. This thesis is
focused on three specific objectives:
The First is to analyse the influence of social performance on
the financial performance, with the aim to study whether there is a good
management or arbitration by MFIs. The second objective is to study the impact
of the financial performance on the social performance, with the aim to find
whether good financial performance enables the firm to allocate some margin to
social issues or financially powerful companies are the worse in terms of
social performance because of their leaders' greed, who do not share the
margin. The last objective is to analyse the reciprocal influence of informal
sector and microfinances' performance.
Key words: microfinance, social
performance, financial performance, informal sector, Cameroon and mission
drift
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Analysis of microfinances'performance and development
of informal institutions in Cameroon
By Djamaman Brice Gaétan
ACKNOWLEDGEMENTS
This thesis would not have been realized without the valuable
inputs of the Pan African e-Network Project, AMITY University Campus Uttar
Pradesh India 201303 and our Focal Team of the National Virtual University. We
will like to thank them largely on the knowledge they imparted in us. Gratitude
is given to Professor Emmanuel TONYE, Professor Mama FOUPOUAGNIGNI and Mr
TAKANG Nixon
We will also like to thank the MOANTAMB's and DJONG's
families, for their love, encouragement and the support they gave to us to
realize this work, their tolerance made us to understand that winners do not
quit and quitters do not win. This is especially to my parents Mr MOANTAMB
Nicolas and Mrs NTAMKEN Marie, my aunt Mrs AMBO'O Odette and his husband Mr
DJONG Simplice.
We will also like to use this opportunity to thank all those
who have contributed directly or indirectly to this thesis. Especially the
classmates of Central Africa Virtual University of Cameroon, my friends: BILE'E
Etoga Matrhe, NSOUNFON Donald, MVOGO Lucien, NZODIA Ines, ABENGMONI Emmanuel II
and KIYEM Gisèle.
To crown it, our profound gratitude goes to God Almighty who
gave us the enabling capacity both mentally and physically as well as the
opportunity to be alive for the completion of this work.
This work is dedicated to my parents Mr. and Mrs.
MOANTAMB
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
Table of contents
ABSTRACT 2
ACKNOWLEDGEMENTS 3
LIST OF TABLES 7
LIST OF FIGURES 7
CHAPTER I- INTRODUCTION 8
I.1- Background of the study 9
I.2- Problem statement 10
I.3- Context of the study 11
I.4- Objectives of research 11
I.5- Research outline 12
CHAPTER II- A COMPREHENSIVE REVIEW OF THE EXISTING LITERATURE
13
II.1- Welfarists and Institutionalists approaches 13
II.2- The Self-Sufficiency and Sustainability of MFIs
14
II.3- Impact of Microfinance Institutions 17
II.4- Literature review on the social performance of
microfinance institutions 18
II.4.1- Impact studies on microfinance 18
II.4.2- Studies on the social performance of microfinance
institutions 19
II.4.3- Clients targeting 20
CHAPTER III- THEORETICAL PERSPECTIVE 23
III.1- The concept of microfinance 23
III.1.1- Definition 23
III.1.2- Overview of microfinance in Cameroon 24
III.1.3- Evolution of equities 28
III.1.4- Profitability of microfinance sector 29
III.2- The concept of informal sector 30
III.2.1- Definition 30
III.2.2- Informal sector in Cameroon 31
III.3- Theoretical links between MFIs and informal sector
development 31
III.4- Microfinance schism 33
III.4.1- The welfarists' approach 33
III.4.2- The institutionalists' approach 34
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
III.5- Social performance 36
III.5.1- Outreach 36
III.5.2- Impact assessment 38
III.6- Financial performance 40
III.6.1- Determinants of a profitable institution 40
III.6.2- Perennial MFIs 42
III.7- The mission drift of MFI: The institutionalists and
the welfarists 44
III.7.1- The concept of mission drift 44
III.7.2- The debate between the institutionalists and
welfarists 45
CHAPTER IV- RESEARCH METHODOLOGY 47
IV.1- Relationship between social and financial performance
47
IV.1.1- A tentative typology of the firms' performances
47
IV.1.2- The problem statement 48
IV.2- Selection of variables and indicators 49
IV.2.1- Selection of the financial performance indicators
49
IV.2.2- Selection of the social performance indicators
51
IV.2.3- Selection of developmental indicators for the
informal sector 52
IV.2.4- Selection of the control variables 54
IV.3- The research hypothesis and research model 54
IV.4- Regression approach 55
IV.5- conclusion 57
CHAPTER V- PRESENTATION AND ANALYSIS OF DATA 58
V.1- Data collection 58
V.2- The data set 58
V.3- Preliminary data analysis 59
V.3.1- Descriptive statistics 59
V.3.2- Correlation analysis 60
V.4- Regression analysis 62
V.4.1- Financial performance regression analysis 62
V.4.2- Social performance regression analysis 68
V.4.3- Informal sector regression 73
CHAPTER VI- CONCLUSION, LIMITATIONS AND RECOMMENDATIONS
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
VI.1- Conclusion 79
VI.2- Limitations and recommendations 81
REFERENCES 83
APPENDICES 85
APPENDIX A: List of variables 85
APPENDIX B: Abbreviations 85
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Analysis of microfinances'performance and development
of informal institutions in Cameroon
By Djamaman Brice Gaétan
LIST OF TABLES
Table 1: Distribution of approved MFIs 23
Table2: Aggregate balance sheet of MFIs on 31 December 2010
25
Table3: evolution of microfinance activities in Cameroon from
2002 to 2010 26
Table 4: Summary table: welfarists and institutionalists
...34
Table5: A set of various assumptions on likely relationships
between SP and FP 45
Table 6: evolution of fixed deposits and gross loan from 2002
to 2010 51
Table 7: Distribution of microfinances based on their
categories 57
Table 8: descriptive statistics 58
Table10: ANOVA analysis of ROA regression 61
Table11: ROA regression coefficients ..61
Table12: ANOVA OF ROE REGRESSION 63
Table13: ROE regression Coefficients 63
Table14: ANOVA OF OSS REGRESSION 65
Table15: OSS regression coefficients 65
Table16: ANOVA of AL regression .66
Table17: AL regression coefficients .67
Table18: ANOVA for CFIR regression 68
Table19: CFIR regression coefficients .69
Table20: ANOVA OF CFGR REGRESSION ..70
Table21: CFGR regression coefficients 72
Table22: ANOVA OF FD REGRESSION 74
Table23: FD regression coefficients when FP influences the
informal sector .74
Table24: FD regression coefficients when SP influences the
informal sector .74
Table25: GL regression coefficients when FP influences the
informal sector .75
Table26: GL regression coefficients when SP influences the
informal sector .76
LIST OF FIGURES
Figure1: Number of MFIs per region 26
Figure 2: Evolution of fixed deposits and gross loan from 2002
to 2010 53
Figure 3: Summary of research hypothesis ..55
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
CHAPTER I- INTRODUCTION
The proclamation of 2005 as International Year of Microcredit
by the United Nations has certainly contributed to make this tool even more
popular launched at the end of 1970. Since then, microfinance has developed to
enable excluded people to access banking services to financial services. Within
a few decades, seeing the results qualitatively and quantitatively promising,
microfinance has taken center stage in international cooperation.
Non-Governmental Organizations (NGOs), associations, mutual societies, credit
unions, private companies have sprung up around the world and are currently
serving over 90 million people worldwide.
The Gramenn Bank and Muhamed Yunus had the Nobel Prize in
2006. They have enabled the poor population of Bangladesh which is up to six
millions persons, with 96% of women to have access microcredit. The microcredit
belongs to the range of varied products offered by microfinance institutions
(MFIs). Microfinance means the finance of small size. She represents a
financial intermediation in favour of poor people who have low income and are
generally marginalized by classical banking system. That is why, most African
countries have developed in their PRSP (Poverty Reduction Strategy Paper) some
actions concerning microfinance, with the aim to improving financial services
offered, in particular credit to poor people and contribute in stimulating
economic growth. However, these MFIs sometime face social mission (social
performance, which consist in touching a large number of those who are excluded
to the classical banking system) and financial viability or financial
performance, which means that cost of supply service must be taken into
consideration (Doligez , Lapenu, 2006).
In fact, the real contribution of services offered to
microfinance institutions with the aim of reaching social objectives such as
the fight against poverty, the local development or the reduction of
inequalities, still at the center of various debates (Hulme & Mosley, 1996;
Morduch, 2000; Pitt & Khanker, 1999). Generally, in developing countries
and particularly in Cameroon the fight against poverty can be effective through
the financing of micro and small businesses. The creation of Small and Medium
Size Enterprises generates employment but these enterprises are short live and
consequently cause those who gained job positions to lose them and even go
poorer than they were. It should be noted that microfinance is not a panacea
but it is a main tool that fosters development in developing countries. It is
known worldwide that the poor cannot borrow from banks. The latter does not
lend to them because they do not have what is required to be granted a loan or
to be provided with bank services. The lack of financial power is a
contributing factor to most of the societal problems. These problems emanate
from poverty and it
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
is known that with poverty one is bound to suffer so many
consequences ranging from lack of good health care system, education,
nutrition, Microfinance has proved this bank concept to be wrong. They target
the poor who are considered risky but the repayment rate turns to be positive
as compared to the regular commercial banks (Zeller and Sharma, 1998).
Researchers regard microfinance from different dimensions.
Microfinance gives people new opportunities by helping them to get and secure
finances so as to equalize the chances and make them responsible of their own
future. It broadens the horizons and thus plays both economic and social roles
by improving the living conditions of the people (Microfinance Radio
Netherlands, 2010). These improvements are to alleviate poverty, and according
to this project, it will be seen from the point of the development of informal
institutions. The accomplishment of 2035 Cameroon emergence to alleviate
poverty at this date is far-fetched despite the enormous works that
microfinance institutions are doing to contribute in this domain. The main
challenge faced by the poor is to gain financial power to enable them boost
their income generating activities (Yunus, 2003).
I.1- Background of the study
Since independence, the government of Cameroon has embarked on
several attempts aimed at promoting agricultural development in the country. In
the first few years after independence in 1961; the government embarked on the
policy of «Green Revolution», which aimed at encouraging the
development of agriculture in the country (Simarski, 1992). Other efforts
included the setting up of agencies like the National Fund for Rural
Development (FONADER) and other rural agricultural extension programs. In spite
of all these attempts, much is still needed to boost this sector, which is
considered very vital in the economic life wire of the state. A recent
development in this sector has been the increase involvement of NGOs and the
microfinance institutions in the process of enhancing the development of
informal sector.
Moreover, recent years have seen a growing push for
transparency in microfinance. An important aspect of this trend has been the
increasing use of financial and institutional indicators to measure the
performance of microfinance institutions.
Historically, microfinance has been successful in reaching the
population excluded from the classical financial system. In the 90?s, efforts
have been concentrated towards financial and institutional sustainability of
the microfinance institutions. Tools to evaluate financial performances have
been developed, but the social performances were taken for granted.
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Analysis of microfinances' performance and
development of informal institutions in Cameroon
By Djamaman Brice Gaétan
However, nowadays, donors and social investors ask the MFIs to
justify the fundings: Who are the clients targeted? How can we combine social
and financial objectives? How do we avoid mission drift? Some MFIs themselves
have the intuition that reinforcing social performances can lead, on the mid
run, to strengthen financial sustainability. Some initiatives have flourished,
trying to identify few indicators that could be used to assess the social
process followed by the MFIs.
In Cameroon, studies conducted on MFIs efficiency are rare.
Monkam et al (2001), shown through the financial ratios that, IMFs are viable
even the cost of money is expensive. However, Monkam?s study is focus on
financial aspect to the detriment of social objectives. Likewise, Djeuda &
Heidhues (2005) have done the growth stimulations of Cameroonian Mutual Growth
by using Cobb - Douglas production function in the cost behaviour analysis. But
their study is just based on structure growth, without seeking to know if
credit grant toward the poor is effective. Therefore, we are based on this lack
of research on social performance on MFIs to structure our argumentation. It is
important to look at it because even though the government promotes informal
sector through different institutions, microfinance institutions are not
leaving any stone unturned to make sure that the acute poverty striking the
poor population is redressed.
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