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This is to certify that this project titled “Investigating the effect of leadership styles
SUPERVISOR
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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
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DEDICATION
I dedicate this piece of work to my families.
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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.
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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
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
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
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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
should increase the duration of their client’s assets loans or spread the repayment
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CHAPTER ONE
INTRODUCTION
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
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
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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
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
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
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
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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
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
Perkowski (2012:1) said that “access to finance is a challenge for businesses in any country”.
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
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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.
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
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
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
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of Small and Medium-Sized Enterprises in 2004, which has the responsibility to design and
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).
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
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
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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.
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) 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?
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.
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1.4.2. Specific Objectives
(1) Identifying the problems associated with the growth of SMEs in the Bamenda
municipality,
consultancy and savings account) on the growth of SMEs in the Bamenda municipality,
and
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
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
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
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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
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.
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
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
does not only cover financial services but also non-financial assistance such as training and
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
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are; traders, seamstresses, street vendors, small farmers, hairdressers, rickshaw drivers, artisans
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
working capital, which may lead to improve profit margins as well as their lives.
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
including education. services, including basic business education to loan beneficiaries on how to
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ensure timely repayments. Formation of groups act as support for each other
and every member can guarantee the repayment of other members of the
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
connected with the rest of the world. This is how micro-finance has played a
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;
(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
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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
(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
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
banks and agricultural credit medium enterprise financing and are not favorably disposed towards
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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,
2003).
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
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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,
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
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
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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.
particularly micro and small entrepreneurs. The focus is on setting of interest rates right to cover
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
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
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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
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
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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
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
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
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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
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).
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
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
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and younger firms should have higher and more viable growth rates (Stranova, 2001,
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
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
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2.2.2.4 The Pecking-Order Theory or Framework (POF)
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.
The 1971 Bolton report on small firms outlined issues underlying the concept of “finance gap”
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
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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.
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
with the financial sector development, captured by improved access to finance (financial
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
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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
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
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
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.
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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-
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
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,
Even after paying back micro-loans, the micro-loan recipients were much better off than those
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
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.
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The study revealed that the activities of micro-finance institutions resulted in an increased social
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
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
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
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Alarape (2007) did a study to examine the impact of owners/managers of small business
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
superior managerial practice, had higher gross margin rate of growth than small businesses
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
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
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
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.
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,
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
Putting the above functional relationship into an econometric model will be;
β1 = coefficient of Micro-credits
β2 = coefficient of Micro-insurance
β3 = coefficient of Training
β4 = coefficient of Consultancy
µi = stochastic variable.
i = number of individuals.
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.
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
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
Sample Size
The sample size for this study was comprised of 100 respondents/entrepreneurs, drawn from the
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
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
37
CHAPTER FOUR
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
47%
53% Male
Female
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
39
70
64
60
50
40
28
30
20
6
10
0
Single Married Divorced
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
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
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 reveals business experience and it shows that majority of the respondents have
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
Table 4.6 reveals that out of the 98 respondents 52 (majority) of them were partnerships,
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
Insurance
Experience
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
45
Observations 6,232
Robust standard errors in parentheses
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
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
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
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.
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;
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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58
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.
59
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)
NO
8. What services offered by Micro-finance Institutions (MFIs) are used by your business
Organisation?
Savings services
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?
Building project
61
15. What was the collateral required for a microloan?
16. What are some of the problems your enterprise faces with the obtaining Micro-loans
from MFIs?
Strict/inflexible terms
Long procedure
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?
62
Leadership
Finance
Operation
Marketing
Administration
21. What are some of the problems SMEs in Bamenda are facing?
High Taxes
22. What other ways can improve MFIs financial assistance towards SMEs growth?
_____________________________________________
63
64