CERTIFICATION

This is to certify that this project titled “Investigating the effect of leadership styles

on employees performance in some selected SMES in North West and Litoral

regions of Cameroon” is presented by BUNGO ELECTA LONNLAH (18C0457)

in the Department of Management and Entrepreneurship, Higher Institute of

Commerce and Management of the University of Bamenda under the supervision

and guidance of;

SUPERVISOR

MR. LAISON INNOCENT

Signature…………………….

Date………………………….

HEAD OF DEPARTMENT

MR. LAISON INNOCENT

Signature………………………….

Date………………………….

1
 DECLARATION
I hereby declare that this project entitled “The effect of ATM services on
customers satisfaction” is with my efforts and all those who have contributed in
one way or the other are acknowledged below and to the best of my knowledge,
this work or part of it has not been presented anywhere for the award of any
certificate.

SONIA MANKAH FOBUZIE

Signature……………………….. Date……………………..

MR. LAISON INNOCENT

Signature……………………….. Date……………………….

2
 DEDICATION
I dedicate this piece of work to my families.

3
 ACKNOWLEDGEMENTS
I express a sincere and deeply felt gratitude to our supervisor MR. LAISON
INNOCENT who guided my effort tirelessly and stimulated our inspiration
throughout the study. I equally appreciate the contribution from MR. KIFEN
FRANKLINE, who went through the work, making great contribution.
Completing this research study would not have been possible without the
support of my parents.
Above all I indispensable acknowledge the Lord God almighty for bestowing upon
me , good health, grace, strength and wisdom which enables me to go through this
work successfully.

4
 ABSTRACT

This work is explanatory survey which was design to access the effect of micro

finance on the growth of small and medium sized enterprises in the Bamenda

municipality. This work aims to bring out means in which micro finance institution

helps to provide services which can help reduce the challenges that SMEs are

facing the provide services like micro-credits, micro-insurance, training

consultancy and saving accounts. The statement of problem of this work is that.

SME helps to reduced poverty. Creates employments, increased the gross domestic

products but yet they have inadequate access to finance, no organisational culture.

That is why this study is out to examine the effects of micro-finance institution on

the growth of SMEs, the objectives of this study included our main objectives

which was to examine the effects of micro-finance on the growth of SMEs,

specific objectives such as identifying the problems associated with micro-credits

on the growth of SMEs. Examining the effects of micro-insurance on the growth of

SMEs in Bamenda municipality and accessing the effects of training. Consultancy

and savings account on the growth of SMEs in Bamenda. The methods used for

this work was the primary and secondary methods of data collection. The primary

source included the use of questionnaires and personal interviews why the

secondary source included information from published books and articles written

by others researchers of related topics. The data gathered from the field where

5
analysed and the findings that we got is that micro-finance has a positive impact on

the growth of small and medium size enterprises through the services they offer

and recommendations were made. We recommended that, micro-finance institution

should increase the duration of their client’s assets loans or spread the repayment

over long period of time.

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In Cameroon, just like in most developing countries of the world, Small and Medium-Sized

Enterprises (SMEs) are generally regarded as the driving force of economic growth, job creation,

and poverty reduction. They have been the means through which accelerated growth and rapid

industrialization have been achieved (Koech, 2011). Small and Medium-Sized Enterprises

(SMEs) have been recognized as socioeconomic and political development catalysts in both

developed and developing economies (Waswa, 2010). This is apparently the case in Cameroon

where Small and Medium-Sized Enterprises (SMEs) contribute significantly to employment

creation, income generation and stimulation of economic growth in both urban and rural areas.

The SMEs nomenclature issued to mean small and medium-sized enterprises (ILO, 1998).

The growth of SMEs has been in the recent past of great concern to many government policy

makers and researchers globally because of the realization of their economic contribution to

Gross Domestic Product (GDP) and economic growth. As such they are no longer viewed as

“stepping stones” to real business but as a means of industrial and economic growth and as well

as tools of poverty eradication (ILO, 1986). According to Organization for Economic Co-

operation and Development (OECD, 2004), Small and Medium-Sized Enterprises (SMEs) are

7
known to contribute to over 55% of Gross Domestic Product (GDP) and over 65% of total

employment in high-income countries. They also account for over 60% of Gross Domestic

Product (GDP) and over 70% of total employment in low-income countries.

Small and medium-sized enterprises (SMEs) offer many advantages to the community including

the creation of jobs in both the rural and urban areas, support for larger industries including the

agricultural sector and the utilization of local resources. These types of businesses require very

little capital to create jobs, rely primarily on family savings and often provide their own skill

training at no cost to the government (Maithaet al., 1997).

In addition, development of Small and Medium-Sized Enterprises (SMEs) facilitates distribution

of economic activities within the economy and thus fosters equitable income distribution.

Furthermore, Small and Medium-Sized Enterprises (SMEs) technologies are easier to acquire,

transfer and adopt. Also, SMEs are better positioned to satisfy limited demands brought about by

small and localized markets due to their lower overheads and fixed costs. Moreover, SME

owners tend to show greater resilience in the face of recessions (URT, 2002). Through business

linkages, partnerships and subcontracting relationships, SMEs have great potential to

complement large industries requirements. A strong and productive industrial structure can only

be achieved where SMEs and large enterprises not only coexist but also function in a symbiotic

relationship.

The Small and Medium-sized Enterprises sector, just like most sectors of activities in Cameroon,

is faced by many challenges such as limited access to finance and lack of enterprise culture. To

address these challenges, that is where Microfinance Institutions (MFIs) come in. Microfinance

Institutions (MFIs) are the primary source of finance to Small and Medium-sized Enterprises and

8
are also contributing towards promotion of the enterprise culture by offering various forms of

training to SMEs. According to Chijoriga (2000), MFIs help to promote enterprise culture among

SMEs by providing various financial services to SMEs. These services include; advancing loans

and provision of credit management training to SMEs and holding their deposits. These services

together help to promote enterprise culture which encompasses savings culture, investing culture

and entrepreneurial skills.

Credit provision is absolutely crucial to the success of Small and medium enterprises’; it directly

impacts on their day-to-day operations, and, in turn, their profitability (Lam & Burton, 2005).The

concept of Micro financing can be traced back to an obscure experiment in Bangladesh 30 years

ago. It has since become a worldwide movement as a development activity, as a way of helping

poor people out of poverty (Dicher, 2006). Buckley (1997) captures their prominence role in

development of economies; he describes them as the newest darling of the donor community.

Other authors have described them as the newest silver bullet for alleviating poverty (Karmani,

2007) while Greer (2008), Gupta and Aubuchon (2008) claim that microfinance shines as a

proven way to improve the lives of the poor.

Perkowski (2012:1) said that “access to finance is a challenge for businesses in any country”.

Entrepreneurs in developing countries in general and Cameroon in particular require micro-credit

and other services from micro-finance institutions for several reasons; to speedily expand their

operations, for start-up capital, for working capital or for other purposes. Providing micro-credit

and other services to small and medium enterprises has traditionally been challenging for micro-

finance institutions. On the one hand, the challenge may be related to a lack or non-existence of

financial history and the inability to provide required collateral among small and medium

enterprises. On the other hand the absence of credit bureau data and regulatory bodies at national

9
level is challenging. In addition, Suberu et al. (2011) stated that a shortage of both debt and

equity financing is one of the major barriers to rapid development of the small and medium

enterprises.

1.2 Statementof Research Problem

As eluded earlier, Small and medium-sized enterprises (SMEs) are the major agents of economic

growth and employment in most developing countries including Cameroon.Small and Medium-

Sized Enterprises are a major source of entrepreneurial skills, innovation and employment. They

are the main source of employment in developed and developing countries alike, comprising

over 90% of African business operations and contributing to over 50% of African employment

and GDP (Okafor, 2006). In Cameroon, they play an important role in creating employment at

low levels of investment per job, leading to increased participation of indigenous people in the

economy, using mainly local resources; promote the creation and use of local technologies, and

providing skills training at a low cost to society.

Despite the large contributionof SMEs in countries development and economic growth, their

growth and development in developing countries are mainly inhibited by access of finance, poor

managerial skills, lack of training opportunities, and high cost of inputs (Cook and Nixson,

2000). Further studies conducted suggest that finance is the most important constraint for the

Small and Medium-Sized Enterprise sector (Green et al 2002). The SMEs have very limited

access to financial services from formal financial institutions to meet their working and

investment needs (Kessy and Temu, 2009).

Acknowledging the importance and role played by Small and Medium-Sized Enterprises (SMEs)

in the country, and recognizing the problems faced by them, the governmentcreated the Ministry

10
of Small and Medium-Sized Enterprises in 2004, which has the responsibility to design and

implement Small Medium-Sized Enterprises policies. The creation of a separate Ministry is

indicative of the importance of an expanding SME sector for Cameroon’s economy. Also, the

government, through the Ministry of SMEs, has come up with policies aimed at encouraging the

growth of SMEs such as reducing the procedures and duration (less than 7days) of creating an

enterprise and also provided tax concessions to young and micro enterprises (Ministry of SMEs,

2016).

However, despite government efforts in most developing countries including Cameroon to

promote SMEs activity, not much progress seems to have been achieved, judging by the

performance of the informal sector (Nkonoki, 2010). When the state of the macro economy is

less favorable, by contrast, the opportunities for profitable employment expansion in SMEs are

limited. SME's need both financial and non-financial services to enhance their productivity,

profitability and growth. Sievers and Vanderberg (2004) hold the view that access to financial

and business development services are essential for growth and development of Micro and Small

Enterprises.

The Microfinance industry has become a major backbone in the sustenance and survival of

SMEs in Cameroon in general and in the Bamenda Municipality in particular. Microfinance

Institutions (MFIs), as part of their core business, provide credit to SMEs. In addition to these

financial services, MFIs also provide non-financial services like business training, financial and

business management to help improve the capacity of their clients in managing the loan

resources granted them.

11
The number of MFI institutions in Bamenda municipality continues to grow rapidly. However,

their wide presence does not correspond with the extent of reduction in the major challenges that

affect the growth of SMEs in the country. This study is designed to analyze the impact of MFIs

on the growth of SMEs in the Bamenda municipality and to propose a more effective approach

that MFIs can adopt in order to meet the growth-oriented needs of SMEs.

1.3 Research Question

1.3.1 The Main Research Question

The main reseach question of this study is to examine the effect of microfinance institutions

(MFIs) on the growth of small and medium-sized enterprises (SMEs) in the Bamenda

municipality.

1.3.2 Specific Research Questions include;

(1) What are the challenges faced by SMEs in the Bamenda municipality?

(2) To what extend does MFI services affect the growth of SMEs in the Bamenda

municipality?

(3) What recommendations can be made to encourage the growth of SMEs in the Bamenda

municipality?

1.4 The Research Objectives

1.4.1. TheMain Objective

The main objective of this study is to examine the effect of microfinance institutions (MFIs) on

the growth of small and medium-sized enterprises (SMEs) in the Bamenda municipality.

12
1.4.2. Specific Objectives

(1) Identifying the problems associated with the growth of SMEs in the Bamenda

municipality,

(2) Examining the effect of MFI services (micro-credit, micro-insurance, training,

consultancy and savings account) on the growth of SMEs in the Bamenda municipality,

and

(3) Providing suitable policy recommendations.

1.5 Research Hypothesis

In order to achieve the objectives of this study, our research hypothesis is that;

Ho: Micro-credits, micro-insurance, training, consultancy and savings account has no significant

effect on the growth of SMEs in the Bamenda Municipality.

1.6 Significance of the Study

This study is important in a number of ways: First, the study ventured into a field critical to the

development of Small and Medium-Sized Enterprise. In particular, this study focused on the

growth and development of entrepreneurs operating Small and medium enterprises in the

Bamenda Municipality. The findings of this survey can be used to inform financial institutions

on suitable products for these businesses, with a special emphasis of improving the

entrepreneurs’ welfare through their businesses.

The study is useful to the government in policy making regarding the financing of the Small and

Medium Enterprises through microfinances and other financial institutions. The policy makers

will obtain knowledge on the best mechanisms that should be adopted to finance the Small and

13
Medium enterprises. This study is therefore to act as a guide in designing appropriate policies

that will guide MFIs in financing the Small and Medium Enterprises.

The study is also significant to scholars who can find it useful in providing information on the

effect of MFIs on the growth of small and medium-sized enterprises in the Bamenda

municipality in particular and in Cameroon as a whole. It is hoped that this study will add to the

available body of knowledge and increase the understanding of how to best empower

entrepreneurs in the Small and medium-sized enterprise sector, so that they in turn can contribute

more meaningfully to economic development It can also be of significant to researchers as it

provides basis upon which further studies can be carried out on broad subject’s microcredit

financing of Small and Medium Enterprises and it can also provide reference to scholars.

1.7 Online of the Study.

This study comprises five chapters. The first chapter, which is an introductory part, looks at the

background and the context of the study, followed by a statement of problem, research questions,

objectives, hypotheses and its significance. In chapter two, we review related literatures that are

breaking down into conceptual framework, theoretical framework and empirical framework. An

explanation of the methodology of data collection and analysis is done in chapter three, after

which the results of the data analyzed is presented and discussed in chapter four. Finally, the

summary, conclusion, recommendations and limitations of the study constitute chapter five.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Literature

2.1.1 Microfinance Institutions (MFIs)

Micro-finance institutions refer to institutions that specialize in providing financial services to

low-income people, usually to help support self-employment, in developing countries. Examples

include: small loans, savings plans, insurance, payment transfers, and other services that are

provided in small increments that low-income individuals can afford. These services help

families to start and build “micro” enterprises, the very small businesses that are important

sources of employment, income, and economic vitality in developing countries. Micro-finance

does not only cover financial services but also non-financial assistance such as training and

business advice (REPOA, 2006).

In addition to financial intermediation, some MFIs provide social intermediation services such as

the formation of groups, development of self-confidence and the training of members in that

group on financial literacy and management (Ledgerwood, 1999). There are different providers

of microfinance (MF) services and some of them are; Non-Governmental Organizations (NGOs),

savings and loans cooperatives, credit unions, government banks, commercial banks or non-bank

financial institutions. The target group of MFIs are self-employed low income entrepreneurs who

15
are; traders, seamstresses, street vendors, small farmers, hairdressers, rickshaw drivers, artisans

blacksmith etc. (Ledgerwood, 1999).

2.1.1.1 The Functions of Micro-Finance Institutions

Micro-finance institutions provide many functions to those in need of financial and related

services in many parts of the world. They provide capital to entrepreneurs, giving them the

means to snatch an opportunity to start a business, expand an existing business or to use as

working capital, which may lead to improve profit margins as well as their lives.

Table 1: The different functions of micro-finance institutions

Function Description
Micro-credit or micro- An amount of money given to the borrower with the option of future

loans repayment.
Saving Deposits made to be used in future, in exchange for a series of savings made.
Insurance Insurance involves a contribution made into a pool, to spread the risk between

individuals on the assumption that something may go wrong.

Pension An amount of money deposited to benefit from at a specified and generally

distant date in the future in exchange for a series of savings made.

Money transfers Micro-finance institutions provide facilities to borrowers to transfer money to

families, friends and make payments to small and medium enterprises,

suppliers and other creditors.

Consulting services, In addition to lending money, micro-finance institutions also offer consulting

including education. services, including basic business education to loan beneficiaries on how to

manage their finances and run a business efficiently.

Group lending Micro-finance institutions prefer their borrowers to create a group, so as to

16
 ensure timely repayments. Formation of groups act as support for each other

and every member can guarantee the repayment of other members of the

group. Through group lending, micro-finance institutions collect payments

more efficiently and the group can offer support to the borrower that faces any

challenge of repayment.
Empowerment Lending to the poor is definitely better for the right development of the

community. They use the proceeds for educational purposes of the children or

to purchase food for the family‟s survival. Apart from these, lending to the

poor also resolves the problem of inequality that has been prevailing in our

society for many years.

Technology Technology used by micro-finance institutions has assisted beneficiaries to be

connected with the rest of the world. This is how micro-finance has played a

vital role in connecting the world in pecuniary manner.

Source: Muntengezanwa et al. 2011.

2.1.1.2 Types of Micro-finance Institutions

Microfinance institutions are broadly grouped into different types depending on their services

offered and branch of activities they operate in. below is a summary of some of the types of

microfinance institutions;

Table 2: Types of micro-finance institutions

Type Nature of operations

Informal financial systems This system includes entities and individuals operating outside the

(Family, traditional savings and domain of the financial system. It includes financing from family

money lenders) and friends and unregistered supplier credit. This is a high risk form

of financing. Interest rates could be as high as more than 100 per

17
 cent and repayment terms are often quite flexible.
Semi-formal finance (Cooperative Semi-formal lending institutions, such as the cooperative or village

and village bank) bank are the dominant and sustainable traditional institutions that

meet the financial and social needs of the poor. This is a dominant

form of credit and savings in urban and rural areas and provides a

lending option to small and medium enterprises or individual needs.

Members are required to attend scheduled meetings and the group

can be dissolved after each member has had a turn at borrowing.

NGOs Many donors provide funds to NGO‟s for distribution to needy

(International and national aid small and medium enterprises. Most of their programs take the form

programs and para-public of community lending and saving cooperatives, with high interest

organizations) rates and inflexible repayment terms.

Micro-finance institutions The main objective of micro-finance institutions is the delivery of

(Micro-credit, savings, insurance financial services (micro-loans, micro-savings, micro-insurance,

and money transfers) money transfers, etc.) to a large number of productive but resource-

poor people in rural and urban areas, including small and medium

enterprises, in a cost effective and sustainable way. The

interventions of the micro-finance institutions are intended to make

a positive and measurable impact on the lives of the poor.

Commercial banks (Commercial Commercial banks have a limited capacity to deal with small and

banks and agricultural credit medium enterprise financing and are not favorably disposed towards

banks) small loans. A very low proportion of informal business sector

operators have access to these formal financial institutions.

Source: Jegatheesan et al. (2011:300).

2.1.2 Small and Medium Enterprises

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According to Kessy and Urio (2006), Small Medium-Sized Enterprises (SMEs) can be defined as

a productive activity either to produce or distribute goods and or services, mostly undertaken in

the informal sector. It is sometimes referred to as micro, small and medium enterprises

(MSMEs). The Small and Medium-Sized Enterprises cover non-farm economic activities mainly

manufacturing, mining, commerce and services (URT, 2003). The Cameroon government

defines SMEs according to sector, employment size, and capital investment in fixed assets like

machinery. A micro-enterprise is one with fewer than five employees, a small enterprise with 5-

49 employees, a medium enterprise with 50-99 employees and a large enterprise with more than

100 employees. This definition would exclude a number of informal economy enterprises,

peasant farmers, and Cameroonians engaged in lower-level income-generating activities (URT,

2003).

2.1.3 Role of MFIs on the growth and development of SMEs

The purpose or goal of any firm is to make profit and growth. A firm is defined as an

administrative organization whose legal entity or frame work may expand in time with the

collection of both physical resources, tangible or resources that are human nature (Penrose,

1995).

The term growth in this context can be defined as an increase in size or other objects that can be

quantified or a process of changes or improvements (Penrose, 1995). The firm size is the result

of firm growth over a period of time and it should be noted that firm growth is a process while

firm size is a state (Penrose, 1995). The growth of a firm can be determined by supply of capital,

labour and appropriate management and opportunities for investments that are profitable. The

determining factor for a firm’s growth is the availability of resources to the firm (Ghoshal, Halm

19
and Moran, 2002). Enterprise development services or business development services or

nonfinancial services are provided by some MFIs adopting the integrated approach. The services

provided by nonfinancial MFI services are; marketing and technology services, business training,

production training and subsector analysis and interventions (Ledgerwood, 1999).

Enterprise development services can be sorted out into two categories. The first is enterprise

formation which is the offering of training to persons to acquire skills in a specific sector such as

weaving and as well as persons who want to start up their own business. The second category of

enterprise development service rendered to its clients is the enterprise transformation program

which is the provision of technical assistance, training and technology in order to enable existing

SMEs to advance in terms of production and marketing.

Enterprise development services are not a prerequisite for obtaining financial services and they

are not offered free of charge. These charges are subsidized by the government or an external

party since to recover the full cost in providing the services will be impossible by the MFI. The

enterprise development services may be very meaningful to businesses but the impact and

knowledge that is gained cannot be measured since it does not usually involve any quantifiable

commodity. It has been observed that there is little or no difference between enterprises that

receive credit alone and those that receive both credit packages and integrated enterprise

development services (Ledgerwood, 1999).

2.2 Theoretical Literature

2.2.1 Theories of Microfinance

2.2.1.1 Women empowerment Theory

20
Cheston and Kuhn (2002) talk about the theory of empowerment. The theory indicates that

women account for nearly 74% of the 19.3 million of the world’s poorest people now being

served by microfinance institutions. Most of these women have access to credit to invest in

businesses that they own and operate themselves. The vast majority of them have excellent

payment records in spite of the daily hardships they face. Contrary to conventional wisdom, they

have shown that it is a very good idea to lend to the poor and to women.

Financial self-sustainability paradigm: The main consideration in programme design is

provision of financially self-sustainable microfinance services to large numbers of people

particularly micro and small entrepreneurs. The focus is on setting of interest rates right to cover

costs, to separate microfinance from other interventions, to enhance separate accounting, to

expand programmes so as to capture economies of scale to use group to decrease cost of

delivery. Gender lobbies argue that targeting women on grounds of high women repayment rate,

it is assumed that increasing women access to microfinance services will in itself lead to

individual economic empowerment, wellbeing and social and political empowerment.

Poverty alleviation paradigm: The main considerations are poverty reduction among the poorest,

increased wellbeing and community development. The focus is on small savings and loans,

provision for consumption and production, group formation, etc. This paradigm justifies some

level of subsidy for programmes working with particular clients group or in particular context.

Some programmes have developed effective methodologies for poverty targeting and or

operating in remote areas. Gender lobbies in this context have argued for that targeting women

because of women’s responsibility for households wellbeing. Poverty alleviation and women

empowerment are seen as two sides of the same coin. The assumption is that increasing women’s

21
access to microfinance will in itself increase household income which will then translate into

improved wellbeing and enable women to bring about wider change in gender inequality.

Feminist empowerment paradigm: The underlying concern is gender equality and women’s

human rights. Microfinance is promoted as an entry point in the context of a wider strategy for

women’s economic and social political empowerment. The focus here is gender awareness and

feminist organization (Khan, 2008).

2.2.1.2 Games Theory of Microfinance.

The microfinance games theory also supports the idea of group lending among micro finance

institutions. Many of the new mechanisms rely on groups of borrowers to jointly monitor and

enforce contracts themselves .It is based on Grameen lending model of microfinance which is

based on group peer pressure whereby loans are made to individual groups of four to seven

.Group members collectively guarantee loan repayments and access to subsequent loans is

dependent on successful repayment by all group members. Payment is usually made weekly. The

groups have proved effective in deterring defaults as evidenced by loan repayment rates attained

by organizations such as Grameen Bank (Bangladesh) that use this type of microfinance model.

The model has also contributed to broader social benefits because of their mutual trust

arrangement at the heart of group guarantee system and the group itself often becomes the

building block to a broader social network (Ledgewood, 1999). However, group based

mechanisms tend to be vulnerable to free riding and collusion. Inefficiencies are well known to

emerge in similar contexts (Gruber, 2005).

2.2.1.3 Uniting theory of microfinance

22
The uniting theory of micro finance emphasizes on joint liability. Ghatak and Guinnane (1999)

reviewed the key mechanisms proposed by various theories through which joint liability could

improve repayment rates and the welfare of credit constrained borrowers. They established that

all the theories have in common the idea that joint liability can help alleviate the major problems

facing lenders i.e. screening, monitoring, auditing and enforcement by utilizing the local

information and social capital that exists among borrowers under explicit joint liability, when

one borrower cannot repay a loan, group members are contractually required to repay instead.

Such repayments can be enforced through the threat of common punishment typically the denial

of future credit to all members of the defaulting group or by drawing on group savings funds that

serves as collateral. Second, the perception of joint liability can be implicit. That is borrowers

believe that if a group member defaults, the whole group will become ineligible for future loan

even if the lending contract does not specify this punishment.

2.2.1.4 Financial sustainability theory

Long-term survival and sustainability is critical for an MFI in being able to reach its target

clientele and cover administrative and other costs. While social goals of reaching the poorest and

poverty alleviation are valid, sustainable standing on one’s own feet is as true for low income

households receiving microfinance as for microfinance itself.

Sustainability for the microfinance has internal and external implications. Internal in terms of

deposit and savings mobilization, financial performance, staff motivation, loan administrative

costs etc. while external in terms of availability of funds for loan disbursement, grant for

community organizing etc. (Morduch, 2002).

2.2.1.5 Poverty alleviation Theory

23
The pressing need for rural economy is to create jobs for a large unemployed and under

employed labour force. It is customarily argued that jobs can be created either by generating

wage employment or by promoting self-employment in nonfarm activities.

Creation of employment requires investments in small working capital. Unfortunately income

from other sources is so low that they cannot generate investible surplus on their own. Thus

obtaining credit under certain circumstances can help the poor accumulate their own capital and

thus improve their living standard through the income generated from investments (Wahid,

1994).

2.2.2 Theories of Growth of SMEs

Various theoretical models have been developed which describe the growth of SMEs. One class

of theoretical models focuses on the learning process, either active or passive, and the other

models refer to the stochastic and deterministic approaches.

2.2.2.1 Passive Learning Model

In the Passive Learning Model (PLM) (Jovanic 1982 cited in Agaje 2004), a firm enters a market

without knowing its own potential growth. Only after entry does the firm start to learn about the

distribution of its own profitability based on information from realized profits. By continually

updating such learning, the firm decides to expand, contract, or to exit. This learning model

states that firms and managers of firms learn about their efficiency once they are established in

the industry. Firms expand their activities when managers observe that their estimation of

managerial efficiency has understated actual levels of efficiency. As firm ages, the owner’s

estimation of efficiency becomes more accurate, decreasing the probability that the output will

widely differ from one year to another. The implication of this theoretical model is that smaller

24
and younger firms should have higher and more viable growth rates (Stranova, 2001,

Cunningham and Maloney 2001 and Goedhuys, 2002).

2.2.2.2 Stochastic and Deterministic Approaches

The other set of growth theories of firms include the Stochastic and Deterministic Approaches

The stochastic model, which is also known as the Gibrat's Law, argues that all changes in size

are due to chance. Thus, the size and age of firms has no effect on the growth of SMEs.

According to Becchetti and Trovato (2002) empirical of the law has indicated that it only

considers size and age as potential variables which may significantly affect firm growth by

neglecting other explanatory variables which may significantly affect firm growth. The

deterministic approach assumes, on the contrary, that differences in the rates of growth across

firms depend on a set of observable industry and firm specific characteristics (Becchetti and

Trovato, 2002 and Pier Giovanni et al 2002).

2.2.2.3 Agency Theory

Agency theory deals with the people who own a business enterprise and all others who have

interests in it, for example managers, banks, creditors, family members, and employees. The

agency theory postulate that the day to day running of a business enterprise is carried out by

managers as agents who have been engaged by the owners of the business principles who are

also known as shareholders. The theory is on the notion of the principle of “two-sided

transactions” which holds that any financial transactions involve two parties, both acting in their

own best interest, but with different expectations.

25
2.2.2.4 The Pecking-Order Theory or Framework (POF)

This is another financial theory, which is to be considered in relation to SMDs financial

management. It is a finance theory which suggests that management prefers to finance first from

retained earnings. Then with debt, followed by hybrid forms of finance such as convertible loans

and last of all by using externally issued equity; with bankruptcy costs, agent costs and study

carried out by Nortion (1991b) found out that 75% of the small enterprises used seemed to make

financial structure decisions within a hierarchical or pecking order framework. Holmes et al.

(1991) admitted that POF is consistent with small business sectors because they are owner-

managed and do not want to dilute their ownership. Owner-managed businesses usually prefer

retained profits because they want to maintain the control of assets and business operations.

This is not strange considering the fact that in Cameroon, according to empirical evidence, SME

funding is made up of 80% of owned equity as well as loans from family and friends. Losing this

money is like losing one’s own reputation which is considered very serious customarily in

Cameroon.

2.2.2.5 Access to Capital

The 1971 Bolton report on small firms outlined issues underlying the concept of “finance gap”

(this has two components-knowledge gap-debt is restricted due to lack of awareness of

appropriate sources, advantages and disadvantages of finance; and supply gap-unavailability of

funds or cost of debt to small enterprises exceeds the cost of debt for larger enterprises.) that:

there are a set of difficulties which face a small company. Small companies are hit harder by

taxation, face higher investigation cost for loans, are generally less well informed of sources of

26
finance and are less able to satisfy loan requirements. Small first have limited access to the

capital and money markets and therefore suffer from chronic undercapitalization. As a result;

they are likely to have excessive recourse to expensive funds which act as a brake on their

economic development.

2.3 Empirical Literature

It has been documented that the effects or interventions of micro-finance institutions led to either

a positive or a negative performance of small and medium enterprises. This provision of micro-

credit and various services by micro-finance institutions to stimulate growth has produced mixed

results.

Maksudova (2010) confirmed that less developed economies that further advance the impact of

micro-finance as a non-traditional bank may be poisoning the economy. He further stated that

micro-finance directly contributes to economic growth by improving the value of small

entrepreneurship and businesses. It indirectly contributes to economic growth through interaction

with the financial sector development, captured by improved access to finance (financial

deepening) and the integration of households‟ financial needs.

A study done on the impact of training on the performance of small and medium enterprises

served by micro-finance institutions in Tanzania, revealed that the output of enterprises that

received training increased, compared to those who obtained micro-credit without training

(Kessy & Tembu, 2010). Similarly, Maksudova (2010) argued that the dynamic growth of micro-

finance in recent decades, and especially amidst the global financial crisis, signals that

alternative means of financing could play a significant role by filling the gaps in formal

intermediation and also by contributing to the financial stability of a country.

27
Aroca and Hewings (2009) analyzed the Brazilian and Chilean banks and NGOs who accessed

micro-credit programs. Using propensity score and matching techniques, they contrasted the

average income of individuals who received micro-credit against the income of control groups,

formed by respondents with similar descriptions. The two countries presented opposing results.

The Brazilian result indicated a high positive impact of micro-credit programs, especially for

those administered by banks. In contrast, the Chilean scenario presented a weaker substantiation

for the micro-credit administered by banks. In support of the NGO-based programs, the evidence

was negative on the average income for their clients.

Akingunola and Onayemi (2011) conducted a study among women in the Ogun and Oyo States

of Nigeria and found that formal financial institutions may not really be discriminating against

women; rather, they were unable to satisfy their credit needs because of the low income-yielding

propensity of their businesses as well as the inability of these women‟s small and medium

enterprises to provide acceptable collateral securities.

Nugrohos (2010) research in Indonesia established that informal micro-finance institutions such

as moneylenders and cooperatives can minimise the default rate on small loans through

maintaining close contact and friendships with their poor clients. The study also further found

that access to micro-finance services contributed to the welfare of the poor.

Achoja (2011) carried out a study in the Delta State, Nigeria among the micro-finance user

groups and found a recorded loan marketing efficiency of 80.20%. He recommended that micro-

finance user groups should form linkage with financial institutions for the purpose of a credit

mobilisation scheme.

28
Akram and Hussain (2011) conducted a study in the District Okara in Pakistan. Their findings

were that micro-finance was efficiently serving the poor by increasing their income level.

85.40% of their respondents stated that their income level had increased after receiving micro-

finance facilities and therefore improving their living standard.

Another study carried out by Durrani et al. (2011) in Pakistan revealed that access and efficient

provision of micro-credit could enable the poor to smooth their consumption, better manage their

risks, gradually build their assets, develop their micro-enterprises, enhance their income earning

capacity, and enjoy an improved quality of life. It also indicated that with little effort, the

performance of micro-finance institutions can be improved and these institutions can play their

role better in poverty alleviation than usual.

Cooke (2011) analyzed the different effects that micro-credit would have on producers of raw

material, and second order producers that fashioned raw material into products. The conclusion

of the study was that micro-lending has the potential to do harm to a developing marketplace,

and micro-creditors must be cognisant of possible unintended consequences of their micro-loans.

Even after paying back micro-loans, the micro-loan recipients were much better off than those

who did not receive a micro-loan.

Qureshi et al. (2012) pointed out that micro-finance helps different categories of poor people and

has significantly positive effects on the access to micro-credit. Results also show that there is

improvement in the micro-finance sector over recent years in terms of investments, active

borrowers, branches and personnel.

Mutengezanwa et al. (2011) conducted a research focusing on the topic under discussion and

discovered a positive relationship between micro-credit and the socio-economic lives of people.

29
The study revealed that the activities of micro-finance institutions resulted in an increased social

interaction and socio-economic sustainability. Micro-finance institutions assist micro-

entrepreneurs to fund their projects, especially those who could not access micro-loans from

traditional banks. Beneficiaries indicated that micro-finance institutions have a positive impact

on the socio-economic lives of people.

Idolor and Eriki's (2012) findings revealed that micro-loans and advances from micro-finance

banks had a significant impact on the education and life expectancy indexes. Micro-finance

banks' asset base had a negative impact on the human development index and its components,

while deposit liabilities of micro-finance banks also had a negative impact on the human

development index and its components.

Ondoro and Omena (2012)conducted a study in Kenya and found that micro-finance had no

significant relationship between micro-finance services savings or investment among the youth

in the Migori. However, a positive effect was revealed of micro-finance services on financial

management skills.

Maksudova (2010) established that there was evidence of robust contributions to micro-finance

and it was positive only in less developed countries where formal financial intermediation is

immature, leaving significant space for alternative means such as micro-finance. The positive

impact, however, runs the risk to be eroded as middle income countries catch up with the

developed world.

A study by Cooper (2012) on the impact of microfinance services on the growth of SMEs in

Kenya found a strong positive relationship between micro finance services and growth of SMEs

30
Alarape (2007) did a study to examine the impact of owners/managers of small business

participating in entrepreneurship programs on operational efficiency and growth of small

enterprises in Nigeria. The study was a cross-sectional analysis of impact of exposure of

owners/managers of small businesses on their performance of operational efficiency and growth

rate. The data was collected from primary and secondary sources. Both descriptive and

inferential statistics were employed for the analysis. The findings were that small business whose

owners, managers had experience of participating in entrepreneurship programs exhibited

superior managerial practice, had higher gross margin rate of growth than small businesses

whose owner/managers did not have superior experimental learning.

Nilsson (2010) conducted a study to investigate the impact of micro finance institutions (MFIs)

on the development of small and medium size businesses (SMEs) in Cameroon. The study

adopted a case study approach that involved CAMCCUL – (Cameroon Cooperative Credit Union

League). The study concluded that microfinance is an important asset to developing countries

since it is able to cater for financing needs of the very poor in the society.

Bran and Woller (2010) carried out a study to establish the effects of microfinance in India. The

study concluded that microfinance has brought better psychological and social empowerment

than economic empowerment. The study further recommended that the impact of microfinance is

commendable in courage, self-confident, self-worthiness, skill development, awareness about

environment, peace in the family, reduction of poverty improving rural savings, managerial

ability decision making process and group management. In other variables the impact is

moderate. As a result of participation in microfinance, there is observed a significant

improvement of managerial skills, psychological wellbeing and social empowerment. It is

recommended that the SHGs may be granted legal status to enhance the performance.

31
Olu (2009) conducted a study on the impact of microfinance on entrepreneurial development of

small scale enterprises that are craving for growth and development in a stiffened economy of

Nigeria. The study used a questionnaire as an instrument of primary data collection .Table and

simple percentages were used in data presentation. The study revealed that microfinance

institutions are evident tools for entrepreneurship development due to the various services they

offer and the role they play towards the development of the economy.

Koech (2011) conducted a study to find out the financial constraints that hinder growth of SMEs

in Kenya. The researcher adapted the case study approach and targeted SMEs in Kamukunji

District. The study used structured questionnaires as the main tool for data collection. Data was

analyzed by exploratory factor analysis and descriptive analysis with the help of SPSS to obtain

percentages and frequency distribution tables. The factors hindering growth of SMEs were

identified as capital access, cost, capital market collateral requirements information access,

capital management and cost of registration. The study recommended that business financiers

through loans consider reducing collateral requirements to facilitate SMEs easy access to loans.

Research gap

However, many studies on the effect of microfinance on the growth of SME’s have been

conducted in other parts of the world especially in Southeast Asia such as Malaysia, Bangladesh

as well as Africa in the countries like Nigeria, Ghana, and Kenya. But rare studies have been

conducted in the country to verify the positive effect brought by micro-loan accessibility to SME

practitioners. The existing information focused much on constraints, financial benefits and

32
strategies to establish the microfinance institutions to deliver the services. But this has faced

various shortcomings for the fact that the main concerns/goals have not been achieved. However,

the available literature from various scholars seem to be inadequate to explain the deeper

relationship between the micro finance services and the growth of small and medium enterprises,

as most of the studies illustrate the growth rate of small and medium enterprises given the

available Micro Finance services and uses mainly descriptive method of analyses. This study is

in the right time to assess the effect of small loans on the improvement of Small and Medium

Enterprises, using an inferential method of analyses to bring out the causality between MFIs and

the growth of SMEs. This study is therefore set to minimize the existing gaps through an

investigation into Microfinance services and the growth of small and medium enterprises.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Scope and Area of the Study

3.1.1. Scope of the Study

33
The research was carried out within Bamenda municipality, Mezam Division of the North West

region in the republic of Cameroon with the aim of showing how Microfinance institutions

(MFIs) affect the growth of small and medium-sized enterprises (SMEs). Thus, the researcher

limited his research to entrepreneurs and SMEs in the municipality, thus the conclusions and the

recommendation of the study will be more appropriate and suitable to the study area. Therefore,

generalizations about the effect of MFIs on the growth of SMEs to other areas in the country in

particular and the world as large may not reflect their reality of those areas.

3.1.2. Area of Study

Bamenda is a city in northwestern Cameroon and capital of the Northwest Region. The city has a

population of over 500,000 inhabitants, and is located 366 kilometers (227 miles) north-west of

the Cameroonian capital, Yaoundé. Bamenda is known for its cool climate and scenic hilly

location. The city is an amalgamation of seven villages - Mankon, Mendakwe, Nkwen, Chomba,

Mbatu, Nsongwa and Bandzah

3.2 Research Design

An exploratory research design was be used in conducting the study. The nature of research

necessitates the use of qualitative and quantities techniques. This is because the study focused on

both subjective and objective assessment of Small and medium enterprises growth due to

services they get from MFIs. Explanatory designs have been documented (Mugenda&

Mugenda,2003; Kothari,2002) and advanced as best method for social scientists whose interest is

collecting original data for the purpose of describing a population, which is too large to observe

directly.

34
3.3. Model Specification

The central variables of our model are: Growth of SMEs (GSME), Micro-Credits (MC), Micro-

Insurance (MI), Training (TR), Consultancy (CON), Business experience (BE) and Savings

Account (SA). The relationship between the dependent and independent variables can be

expressed in a functional form as follows;

GSME= f (MC, MI, TR, CON, SA, BE)

Putting the above functional relationship into an econometric model will be;

GSMEi = β0 + β1MCi + β2MIi + β3TRi + β4CONi + β5SAi + β6BE + µi ……………….. (1)

Where β0 = constant term

β1 = coefficient of Micro-credits

β2 = coefficient of Micro-insurance

β3 = coefficient of Training

β4 = coefficient of Consultancy

β5 = coefficient of Savings Account

β6 = coefficient of Business experience

µi = stochastic variable.

i = number of individuals.

3.4. Sources and Method of Data Collection

The instrument used for data collection in this study was a questionnaire. A questionnaire was

used because it is one of the most appropriate tools for survey and because it provides both

qualitative and quantitative data. The questionnaires were designed in the form of both open

ended and close ended questions. Some of the closed ended questions were weighted using a 4

35
and 3 point Lerket scale (SD=Strongly Disagree, D=Disagree, A=Agree, SA=Strongly Agree,)

and the two point scale of Yes or No; of which the respondents were required to place an ‘X’ in

the box which describes their feeling. The researcher made use of 30 copies of the questionnaire.

3.5. Population of the Study, sample and Sampling Techniques

Population of the Study

According to Cooper and Schindler (2003), a population is the total collection of elements about

which we wish to make some inferences. The population of this study consists of all

entrepreneurs and managers operating small and medium-sized businesses in Bamenda.

2 Sample and Sampling Techniques

Sample frame

Sampling frame is a list, directory or index of cases from which a sample can be selected

(Mugenda and Mugenda, 2003).The rule of thumb should be to obtain as big a sample as

possible, however resources and time tend to be major constraints in deciding on sample size to

use. The researcher focused on SMEs in the Bamenda municipality, found in the Northwest

Region, Republic of Cameroon. Hence all entrepreneurs found in the three subdivisions that

make up the Bamenda municipality constitute the sample frame.

Sample Size

The sample size for this study was comprised of 100 respondents/entrepreneurs, drawn from the

three subdivisions that make up the Bamenda municipality.

Sampling Techniques

36
A stratified and simple random sampling technique was used to administer the questionnaires to

the respondents in the business community. While a stratified sampling technique was used to

group SMEs according to subdivisions (Bamenda 1, 2 and 3), a simple random sampling

technique was used to select 10 SMEs from each subdivision. The researcher preferred this

technique because it gave the chance for every entrepreneur to be selected and represented in the

sample. In total, 30 questionnaires were administered.

3.6. Analytical Techniques

Data was analyzed using both descriptive and inferential statistics. A logistic model was used to

analyze the effect of advertising on sales volume, while measures of central tendencies were

used to show the prevalence of some selected background characteristics of respondents. This

technique was preferred because the dependent variable is a dummy variable which takes the

value 1 when there is a favorable outcome (increase in sales volume), and 0 otherwise (fall in

sales volume). The model was regressed with the option ‘robust’ so as to take care of the

problems of multicollinearity, heteroskedasticity and autocorrelation (Gujarati, 2004). The

hypothesis was tested using the logit model.

37
 CHAPTER FOUR

PRESENTATIN AND DISCUSSION OF FINDINGS

This study aimed at examining the effects of micro finance services on the growth of SMEs in

Bamenda municipality. The main micro finance services considered in this study are micro

credit, micro insurance, training, consultancy, savings and business experience was used as a

control variable. The data was collected through self-administered questionnaires to 100

respondents with 98 of them recovered giving a questionnaire recovery rate of 98%. The data

was analysed descriptively using frequency and percentage tables, bar and pie charts while the

hypothesis of the study were tested using ordered logistic regression given that the dependent

38
variable (growth of SMEs) was categorical and the categories are ordered. The results are

presented as follows

4.1 Presentation of Respondents

47%
53% Male
Female

Figure 4.1 Gender of Respondents

Source: (Source: Authors Computing from Field Results, 2019)

Among the 98 responses recovered, 53% of them were males while 47% of them were females

indicating that there were more males that females in the sample. This however, reflect the

gender gap that exist among entrepreneurs in Bamenda municipality.

39
 70
64

60

50

40

28
30

20

6
10

0
Single Married Divorced

Figure 4.2 Marital Status of Respondents

Source: (Source: Authors Computing from Field Results, 2019)

From table 4.2, it is observed that majority of the respondents (64 out of 98) are married

followed by the singles (28 out of 98) and lastly the divorcees (6 out of 98).

60 55

50

40 32

30

20
11

10

0
Under 30 yrs. 30-50 yrs. Above 50 yrs.

40
Figure 4.3 Age Group of Respondents

Source: (Source: Authors Computing from Field Results, 2019)

From figure 4.3, majority of the respondents (55 out of 98) are of ages between 30 to 50 years.

The second age group is under 30 years with 32 out of the 98 respondents falling in this age

group. The last age group is those above 50 years who are 11 of them out of the 98 respondents.

60 53

50

40 33

30

20

8
10 4

0
No Education Primary Secondary Higher

Figure 4.4 Level of Education of Respondents

Source: (Source: Authors Computing from Field Results, 2019)

41
Going by educational attainment, the responses on table 4.4 reveals that majority (53 out of the

98) of the respondents are higher education leavers, followed by secondary school leavers (33

out of 98), primary (8 out of the 98) and lastly no education (4 out of the 98 respondents)

50

45 43

40

35 32
30

25

20

15 12 11
10

0
1 – 5 yrs. 6 – 10 yrs. 11 – 20 yrs. Above 20 yrs.

Figure 4.5 Business Experience

Source: (Source: Authors Computing from Field Results, 2019)

Figure 4.5 reveals business experience and it shows that majority of the respondents have

experiences between 1 to 5 years, followed by those with business experience of between 6 to 10

years, then those with experience between 11 to 20 years and lastly those with experience above

20 years. This means that frequency reduces with increase in years of business experience.

42
 4%

44%
Sole Proprietor
52% Partnership
Limited Company

Figure 4.6 Business Type

Source: (Source: Authors Computing from Field Results, 2019)

Table 4.6 reveals that out of the 98 respondents 52 (majority) of them were partnerships,

followed by sole proprietorships (44%) and lastly limited companies (4%)

Table 4.1 Summary of Descriptive Analysis

Variable Obs Mean Std. Dev. Min Max

Growth of SMEs 98 2.725593 1.104571 1 5

Micro Credit 98 .9233559 .2660468 0 1

Micro Insurance 98 .4445671 .4969569 0 1

Training 98 .9233559 .2660468 0 1

Consultancy 98 .7889923 .4080566 0 1

Savings 98 .7889923 .4080566 0 1

43
Business Experience 98 2.725593 1.104571 1 4

Table 4.1 presents the summary of descriptive analysis and it shows mean which is the average

behaviours of the variables, standard deviations which shows the extent to which responses

deviate from the mean maximum which is highest possible outcome and minimum which is the

lowest possible outcome. Variables with a minimum of zero and maximums of one are binary

response variables which are transformed into dummy variables. However, all the variables of

the study were categorical in nature

Table 4.2 Correlation Analysis

Micro Micro Training Consultancy Savings Business

Credit Insurance Experience

Micro Credit 1.00

Micro 0.16 1.00

Insurance

Training 0.03 0.25 1.00

Consultancy 0.28 0.02 0.04 1.00

Savings 0.23 0.17 0.41 0.57 1.00

Business -0.11 0.20 0.10 -0.14 0.13 1.00

Experience

(Source: Authors Computing from Field Results using Stata 14)

44
The interest of the correlation analysis was to test whether there exist any strong linear

relationship between any pairs of the independent variables to indicate the presence of

multicollinearity between the variables. The results reveal that none of the relationships is very

strong and so we advanced to run the Ordered Logit analysis bearing in mind that there is no

multicollinearity in the analysis.

Table 4.3 Ordered Logistic Results

VARIABLES Growth of SMEs

Micro Credit 0.482***

(0.111)
Micro Insurance 0.250***
(0.0506)
Training 2.946***
(0.161)
Consultancy 1.205***
(0.0705)
Savings 0.700***
(0.0736)
Business Experience 0.776***
(0.0798)
Constant cut1 (1.259)
0.369
Constant cut2 (1.237)
1.528
Constant cut3 (1.221)
2.685**
Constant cut4 (1.197)
-1.004

45
 Observations 6,232
Robust standard errors in parentheses

*** p<0.01, ** p<0.05, * p<0.1

The results presented in table 4.3 shows the Ordered Logit regression results run with the robust

standard error method to eliminate any possibility of heteroscedasticity existing in the results.

Controlling for other effects, the coefficient of micro credit is 0.482 showing that the SMEs of

those entrepreneurs who have benefited from micro credit are more likely to grow than those

who have never benefitted micro credit. Specifically, the coefficients show that acquiring micro

credit compared to not acquiring it increases ordered log odds of growing by 0.482units. This

effect is statistically significant at 1% level of significance and thus micro credit significantly

affect the growth of SMEs in Bamenda Municipality of the North West Region of Cameroon.

Also, with the effects of other variables held constant, having a micro insurance policy increases

the ordered log odds in favour the SME growing by 0.250. The effect of micro insurance is also

significant at 1% level of significance implying that micro insurance significantly affect the

growth of SMEs in Bamenda Municipality of the North West Region of Cameroon.

Furthermore with other effects held constant, having business training compared to not having it

increases the ordered log odds of adopting the SMEs growing by 2.946units. This means that

SMEs where owners have undergone some training are more likely to than those that their

owners have not undergone some training. This effect is also statistically significant at 1% level

of significance implying that training significantly affect the growth of SMEs in Bamenda

Municipality the North West Region of Cameroon.

46
In line with SMEs owners benefiting from consultancy services, the results reveal that those who

benefit from consultancy services are more likely to grow than those who have not benefited.

The results specifically show benefiting from consultancy services compared to not benefiting

increases their ordered log odds of growing by 1.205units. The effect of consultancy services is

significant at 1% level of significance indicating that consultancy services significantly affect the

growth of SMEs.

Also, the coefficients of savings with other effects held constant shows that a unit increase in

savings results to increase in the likelihood of the SMEs growing. The results specifically show

savings increase the ordered log odds of the SMEs growing by 0.700units. The effect of saving

on the growth of SMEs is significant at 1% level indicating that savings at the MFI significantly

affect growth of SMEs in Bamenda municipality of the North West Region of Cameroon.

More so, examining the results on business experience effect while controlling for other effects

reveal that increase in the business experience increases the likelihood of SMEs growing by

0.776units and the effect is significant at 1% level of significance predicting that business

experience significantly affect the growth of SMEs in Bamenda municipality of the North West

Region of Cameroon.

The results summarily reveals that micro finance institutions and its services offered significantly

affect the growth of SMEs in Bamenda Municipality of the North West region of Cameroon.

47
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Summary of Findings

This research study was out to examining the effect of Micro-finance Institutions
on the growth of Small and Medium-sized enterprises in Bamenda. Collecting
primary data with the use of a questionnaire and applying a logistic regression
technique, our results showed that MFI services have positive effects on the growth
of SMEs in Bamenda.

The main finding of the study is that micro-credit; micro-insurance, training,

consultancy and saving account services have a positive and significant influence
on the growth of SMEs in Bamenda. While this result is significant at 1% for
micro-loans, it is significant at 5% for micro-insurance and saving accounts, and at
10% for training and consultancy.

Thus an increase in the increase in the use of Microfinance services, such as micro-
loans, micro-insurance, training, consultancy and saving account, will result to an
increase the size of the enterprise.

48
Our results also reveals that the greatest challenge of SMEs in Bamenda is high
taxes with up to 98% of the respondents agreeing to that fact, then followed by the
poor general performance of the economy (94%), repayment schedules of loans
(86%), high competition (76%), lack of clear plans (48%) and limited tools and
equipment (28%) in that order.

5.2 Conclusion

This study set out to examine the effect of Microfinance Institution (MFIs) on the
growth of Small and Medium-sized Enterprises (SMEs) in Bamenda. More
precisely, it was out to assess whether an increase in the use of Microfinance
services such as micro-loans, micro-insurance, training, consultancy and savings
account by entrepreneurs will stimulate the growth of SMEs. To obtain this result,
Bamenda was divided into 3 parts following the number of subdivisions, and a
both a stratified and random sampling technique was done to determine the sample
size. Then a questionnaire was administered to 50 enterprises; and we applied a
logistic regression model to analyse the field data. Our analyses showed that there
is a strong a positive relationship between micro-loans, micro-insurance, training,
consultancy and savings, and the growth of SMEs in Bamenda.

Thus, Microfinance institutions have a strong and positive effect on the growth of
Small and Medium-sized enterprises in Bamenda.

5.3 Recommendations

49
Given the current concern about the development of our country, and the role
played by both Small and Medium-sized enterprises (SMEs) and Micro Finance
Institutions (MFIs), this study recommend the following;

 It is recommended that the Government provide an environment that is

appropriate for small and medium enterprises to flourish. Policies and
regulations for small and medium enterprises should be relaxed and provide
incentives to those who operate in the informal sector to enter the formal
economy stream. Aspiring small and medium entrepreneurs should find it
appealing to do business the formal sector.
 The government, through the ministry of Small and medium-sized
enterprises, should review the policy governing the SMEs to address key
challenges faced by the business community. Also monitoring and
evaluation of service delivery of MFIs to the business community especially
in Bamenda.
 The government should eliminate red tape to register new businesses and
layers of administrative requirements; Institute one center where small and
medium entrepreneurs can be assisted without delays.
 MFIs should support and strengthen the growth of SMEs by providing good
services and provide good linkages between the service delivery of micro-
finance services and growth rate of SMEs. MFIs and other financial
institutions are encouraged to slow down the interest rates charged on both
short and long terms loans to allow the small enterprises be able to grow
faster. This strategy is to boost the growth of SMEs.
 MFIs should increase the duration of their clients' asset loans, or spread the
repayment over a longer period of time, or increase the moratorium. This

50
 will enable the clients to have greater use of the loan over a longer period for
the acquisition of capital assets and technology.

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 APPENDIX 1

SURVEY QUESTIONNAIRES

My name is BUNGO ELECTA management students from the Higher Institutes Of Commerce

and Management (HICM) Bambili. I am carrying out research on the topic “The effect of

Microfinance Institutions (MFIs) on the growth of Small and Medium-sized Enterprises (SMEs)

in Bamenda”. Please you are kindly requested to answer this questionnaire briefly; the

information will be used mainly for academic purposes.Your response will be treated with

utmost confidentiality.

SECTION A. SOCIO-DEMOGRAPHIC PROFILE OF THE RESPONDENT

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Select only one appropriate answer by marking an “X” in the box for each statement
1. Gender 2. Marital status 3. Age 4. Level of Education
Male Single Under 30 yrs. No Education
Female Married 30-50 yrs. Primary
Divorced Above 50 yrs. Secondary
Higher
5. Experience in 6. Type of Ownership of the

business business
1 – 5 yrs. Sole Proprietor
6 – 10 yrs. Partnership
11 – 20 yrs. Limited Company
Above 20 yrs. Others (List)

SECTION B.THE FUNCTIONING OF MICROFINANCE INSTITUTION AND THE

PERFORMANCE OF SMALL AND MEDIUM-SIZED ENTERPRIESE (SMES)

7. Does your business Organisation utilizes the services offered by Microfinance

institutions (MFIs)? YES

NO

8. What services offered by Micro-finance Institutions (MFIs) are used by your business

Organisation?

Savings services

Micro-credit services (loan provision)

Micro-insurance (Insurance services)

Training Sessions (Finance and management)

Consultancy (Business advice)

Others, please specify………………………………………………

9. How can you assess the degree of effectiveness of service delivery by micro-finance

MFIs?

Very Effective

60
 Effective

Average

Not Effective

10. Have you realized growth in your business in the past years?

YES

NO

11. How can you assess the growth rate of the enterprise?

Very High

Very low

Average

Medium

12. Do you think microfinance services have contributed greatly to the growth of your

enterprise? YES

NO

13. Has your enterprise ever contracted micro-loans from a microfinance institution?

YES

NO

14. What was the reason for your enterprise to acquire a microloan?

Start the new business

Expand existing business

Acquire new equipment

Use as working capital

Building project

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15. What was the collateral required for a microloan?

Natural asset (land, mineral)

Physical asset (house, car)

Financial asset (saving, life policy)

16. What are some of the problems your enterprise faces with the obtaining Micro-loans

from MFIs?

Strict/inflexible terms

Long procedure

Too much paper work

Lack of collateral required by MFIs

Cost of process in applications and follow up of loans

Other (Specify) ______________________

17. Has your enterprise ever contracted micro-Insurance from a microfinance institution?

YES

NO

18. Has your enterprise ever undergone training from a microfinance institution?

YES

NO

19. Has your enterprise ever consulted microfinance institution for advice?

YES

NO

20. Indicate the area of consulting your organization received from Microfinance

institutions?

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 Leadership

Finance

Operation

Marketing

Administration

21. What are some of the problems SMEs in Bamenda are facing?

Repayment schedules of Loans

High Taxes

General performance of the economy

High competition in market

Lack of clear plans

Limited tools and equipment

22. What other ways can improve MFIs financial assistance towards SMEs growth?

_____________________________________________

THANK YOU FOR YOUR COOPERATION

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