Sample project| The impacts/effects of microfinance on small and medium size enterprises (SMEs) in Cameroon

The impacts/effects of microfinance on small and medium size enterprises (SMEs) in Cameroon



1.1. Overview

This  chapter  gave  attention  to  the  background  information  to  the  problem,  states  the statement of the problem. It also stipulates research objectives and research questions. Finally, it provides the significance of the study.  This chapter  concentrates  on  the introduction  which  is  categorized  into  the  background  information  to  the  problem, statement of the problem, research objectives, and research questions. In the same vein, the chapter contains significance of the study.

Microfinance is not a new concept. It is dates back in the 19th century when money lenders were  informally  performing  the  role  of  now  formal  financial  institutions. The informal financial institutions constitute; village banks, cooperative credit unions, state owned banks, and social venture capital funds to help the poor.  These institutions are those that provide savings and credit services for small and medium size enterprises. They mobilize rural savings and  have  simple  and  straight  forward  procedures  that  originates  from  local  cultures  and  are easily understood by the population (Germidis et al., 1991).  These funds are to finance the informal sector SMEs [Small and Medium size Enterprises] in developing countries and it known that these SMEs are more likely to fail (Maloney, 2003).  The creation of SMEs Small and Medium size Enterprises]    generates employment but these enterprises are short live and consequently are bound to die after a short while causing those who gained job positions to lose them and even go poorer than how they were.  It is not until recent that microfinance had gained recognition thanks to the noble prize winner Yunus Muhammad of the Grameen Bank. It should be noted that microfinance is not a panacea but it is a main tool that foster development in developing countries. It is known worldwide that the poor cannot borrow from the banks. Banks do not lend to them because they do not have what is required to be granted a loan or to be provided with the bank services. The lack of financial power is a contributing factor to most of the societal problems. These problems emanate from poverty and it 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  with  the  regular  commercial  banks  (Zeller  and  Sharma, 1998). Researchers have viewed microfinance in 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 for 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 in a nutshell to alleviate poverty, and according to this project, it will be seen from the point of the development of SMEs [Small and Medium size Enterprises]   and focusing mostly in the rural areas.
The UN millennium goal to alleviate poverty by the year 2015 is far from fetch despite the enormous  works  that  microfinance  institutions  are  doing  to  contribute  in  this  domain (Hiderink  and Kok, 2009). The main challenge facing the poor is to gain financial power to enable them boost their income generating activities (Yunus, 2003).1.2 Background to the problemSince 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 was 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 programmes. 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 increasing involvement of NGOs[Non Governmental Organizations  and  the  microfinance  institutions  in  the  process  of  enhancing  the  development  of SME Small and Medium size Enterprises] particularly at the rural level. The question now is, why microfinance at this point in time? A Roman Catholic priest from Holland by name Rev. Father Anthony Jansen brought the notion of credit unions into the country. This was as a result of complaints that were coming up from farmers, petty traders and inhabitants in the locality in which he were living.  Among the difficulties or complaints faced by these locals; was the issue that most of them often save their money by hiding in some parts of the house, in which case ants often eat them up; again some farmers sold their crops before harvest due to fear of the lack of storage facilities. It was then  that,  in  1963  the  first  credit  union  was  formed  such  that  farmers  could  have  a  bit  of financial  power  to  afford  for  better  seedlings  (  ).  How then  are  these microfinance  institutions  of  significance  to  the  sustainable  development  of  the  country?Further  still,  why  are  farmers  not  cultivating  in  large  scale  to  increase  their  wealth  and improve on  their  living  standard?  It  is  important  to  look  at  this  because  even  though  the government  promotes  SMEs Small and Medium size Enterprises]   in  the  rural  areas  through  different  institutions,  microfinance institutions are not leaving any stone unturned to make sure that the acute poverty striking the rural population is redressed. Agriculture and SMEs Small and Medium size Enterprises]  are the key sectors to the government and of  course  has  a  great  influence  in  the  socioeconomic  development  of  the  country  but productivity and development keeps on dropping with a rising population.

1.3 Statement of problem

Cameroon has valuable natural resources for a strong agricultural sector. This resource base should provide a platform for the development of rural SMEs, and contribute to the country's fight against poverty. Business development, however, requires more than natural resources, and it is not clear what challenges and opportunities in development rural SMEs are facing in Cameroon.
·         What markets are available?

·        Is there sufficient access to technology and labour resources? ·        Do firms have access to financial capital to fund development?

This  study  will  investigate  the  underlying  issues  rural  small  firms  are  facing  in  their development.  Particular  attention  will  be  given  to  the  issue  of  financing  firm  development, where  the  major  microfinance institution  in  Cameroon,  CamCCUL,[ Cameroon Cooperative Credit Union League]  plays  an  active  role.CamCCUL has for many years aimed to support Cameroon's SMEs Small and Medium size Enterprises]   with micro-financing, but it  is  unclear  whether  their  administrative  practices  support  their  efforts  or  create  additional hurdles  for  rural  firms  in  need  of  financing  for  the  development  of  their  businesses.The specific questions that shall guide the research in this project are:·        Do farmers have access to the financial resources they need for developing their businesses?

·        Are  microfinance  institutions  providing  funding  to  developing  rural  small  businesses  in Cameroon in an acceptable way and on reasonable terms?

1.4 Objectives of Research

This  study  is  intended  to  investigate  the  problems  and  opportunities  that  rural  small businesses face in their development efforts, with a particular interest in the role that microfinance institutions may be playing. In addition to gaining a more general understanding of the  challenges  facing  developing  rural  firms,  the  study  will  identify  how  NGOs  are contributing  to  the  development  of  rural  small  businesses  and  why  rural  small  businesses succeed  or  fail  in  their  efforts  to  acquire  financing  for  their  development. This study is focus  on the resource needs of developing rural small and medium size firms, and  how  micro-finance  may  be  contributing  to  rural  firms'  development,  and  thus  the sustainable  development  of  rural  agricultural  infrastructure  in  Cameroon. The specific objectives in this study are:

·        To investigate the extent in which CamCCUL helps its members in developing their small or medium size businesses.

·        To find out whether CamCCUL’s members feel they have reasonable and fair access micro financing.
1.5. Significance/Justification of Study

In trying to justify why the current study is important, it is vital to mention that researchers have  found  this  area  of  study  very  important  to  the  development  of  the  socio-economic activities  in  developing  countries  and  their  contributions  to  the  development  of  small  and medium size businesses in Cameroon. Extensive research has been carried out on the role of the financial management aspects. This research will therefore focus on CamCCUL which has not been exploited in terms of its contributions to the development of small and medium size businesses and particularly in the farming domain.  A study  of  this  nature  is  equally  very important  because  it  is  going  to  enlighten  the  government  and  the  public  on  the  role CamCCUL is playing in the SMEs sector since it is in partnership with some international NGOs and with the government.
Microfinance  as  a  whole  provides  the  rural  population  a  means  to  have  access  to  financial services in their  localities to boost their living standards in a sustainable manner in line with the millennium development goals of alleviating poverty in developing countries. They can contribute in the fight against poverty by improving the agricultural sector which is the main source of living to the inhabitants of such developing nations. Thus it will pave a way forward for potential NGOs wishing to help in the sustainable development of SMEs to understand the difficulties they may come across and how they can succeed in their endeavors.It will facilitate the researcher to be awarded a Bachelors Degree in Banking and Finance in the University of Buea.

   1.6. Scope and delimitation of study

 CamCCUL is a league of all credit unions scattered in the entire geographical landscape of the Cameroon with its main objective of providing financial services to the poor which cannot be  done  by macro  financial  institutions  and  as  such  helping  in  poverty  alleviation and alleviating poverty. To cover all the regions in the entire country will be impossible because of the limited time frame. For this reason, the research will be limited to activities in the, North West and the South West regions of Cameroon.

The impact  of  microfinance  on  SMEs Small and Medium size Enterprises]   in  this  area  will  be analyzed,  looking  at  its  contributions,  and  in  what  form,  and  of  course  the  response  of entrepreneurs to the contributions of this institution to them.

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