How Microfinance Services Can Help Cameroon Fight Poverty: Case Study, Kumba Town Cooperative Credit Union Limited (KUTCCUL)

Abstract

Poverty is a worldwide phenomenon that affects almost all countries of the world, both developed and developing countries. However, poverty is much more widespread in developing countries like Cameroon and women are the worse affected due to their vulnerability. No doubt, microfinance emerges as a very powerful tool to alleviate poverty among the poor population. The study examined the Role of Microfinance Services in Poverty Alleviation in Cameroon using Kumba Town Cooperative Credit Union Limited (KUTCCUL) as a case study.

Specifically, the study sought to evaluate the role of KUTCCUL in providing loans, receiving saving and nonfinancial services in Buea. The study was descriptive in nature and employed simple and convenient random sampling techniques to sample 20 respondents using a structured questionnaire.

Collected data were analyzed and presented using tables and charts. Findings revealed that KUTCULL Loans is a very strong tool in poverty alleviation at the household level with income after acquiring the loans. The study further found that these loans empower the poor, enable them to cope with and overcome many of the problems that they face.

Additionally, microfinance loans from KUTCCUL Buea were found to have led to the establishment and expansion of businesses, acquisition of shelter, education, access to health care and opening up of opportunities for the poor to improve their living standards including improved sanitation.

A multivariate regression model found a strong, significant, and positive relationship between poverty alleviation and loans, savings, and other nonfinancial services with a Spearman coefficient of correlation of 0.72.

The coefficient of determination of 0.52 implied that the KUTCULL loans, savings, and nonfinancial services accounted for 52% of changes in poverty alleviation in Buea. It was recommended that KUTCCUL Buea should continuously improve its outreach to enable them to reach more deserving low-income earners in Buea.

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

Microfinance is a banking service provided to the unemployed or low-income individuals or groups who otherwise would have no access to financial services. This is not a recent development and neither is the development of regulations and supervision of microfinance institutions.

In the early 1400s, there were a lot of poor Italians who died because of the plague. A lot of families were finished off and the climate changed ruined the crops and the people were flat out broke. During this time, lending money to the poor was regarded as a sin. In the early Renaissance, trade and commerce flourished but were not leveled because of an increasing amount of poverty in the lower classes.

The Roman Catholic Church stepped in and prohibited the process of lending at a profit stating that usury was “contrary to mercy and humanity to demand interest from the poor and suffering”. The Franciscan religious order was founded to act on behalf of the poor to improve their desperately low standard of living (Hirshland, 2003).

Between 1462 and 1500 a good amount of pawn shops appeared throughout Italy in the major towns. Although the pawn shops were inspired by a religious order the civic institution called “Monte di Pieta” was created. “Monte” for the mount of heap which represents the collection of money or donations distributed to the needy and “Pieta” for compression, expressing the benefits nature of the organization.

Around 1515, Pope Leon X authorized pawn shops to charge interest to cover the operating costs.   In the 18th century, Lysander Spooner wrote about the benefits of small loans to entrepreneurs and farmers as a way to get people out of poverty. Through this mechanism, self-help groups, poor women, and their families are provided not only with access to finance to improve their livelihoods but also in many cases with a range of basic health services.

Furthermore, local associations that made small loans to the industrious poor, were often very successful. These loans were called “Irish loan funds”. They were initially designed to provide small loans to poor farmers who had no collateral and to cover at its peak 20% of all households annually.  From 1865, this cooperative movement expanded rapidly with Germany and other countries in Europe, North America, and eventually developing countries. (Chao-beroff, 2003)

Following the importance of the small loans given to the poor and its benefits, the Indonesian People’s Bank created in 1895 became the largest microfinance system in Indonesia with approximately 30million retail clients through its over 4000 branches, units, and rural servicing posts which specializes in small scale and microfinance style borrowing. Between 1950-1970, in efforts to expand agricultural credit, governments used state-owned development finance institutions to channel concessional loans for agriculture. But because of this intervention, some financial institutions went bankrupt and the lending rates which were subsidized did not cover their costs. (Rutherford, 1999)

During this period, early pioneers such as the Grameen Bank in Bangladesh which was founded by Mohammad Yunus in October 1983 launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. Mohammad Yunus sought to realize his vision of self-support for the very poor people by means of loans on easy terms. The creation of the Grameen Bank has been a source of inspiration to microcredit institutions in over 100 countries to date. (Seibel, 2003)

With the experiences of different countries of the different continents, the developments of microfinance in Africa was full intermediation that effectively complements the banking sector in extending financial services to the poor. Small enterprises and most of the poor population in sub- Saharan Africa have very limited access to deposit and credit facilities and other financial services provided by formal financial institutions.

For example, in Ghana and Tanzania, only about 5-6% of the population has access to the banking sector. This lack of access to financial services from the formal financial system is quite striking when one considers that in many African countries, the poor represent the largest share of the population and that the informal sector is an important part of the economy. (Ledgerwood, 1999)

To meet the unsatisfied demand for financial services, a variety of microfinance institutions emerged over time in Africa. Some of these institutions concentrate on credit only or deposits only or both. In Africa, both group and individual savings and credit programs are used by cooperatives and associations. “Village Banking”, an adaptation of the Grameen Bank model first introduced to Africa by K-REP(KENYA), provides a good illustration of the use of group solidarity and of the linkage between savings and credit instruments. With this model, operated for example in Tanzania by Catholic Relief Services and the Netherlands development Programme both share capital and savings deposits which are mobilized from members.

Small loans are made to groups of ten members, but benefiting half of them at a time and reaching the second half only after repayment of the initial loans. Hence, group-based microfinance techniques may also be viewed as a response to portfolio performance problems experienced with individual loans.

At the same time, individual lending technologies have also been successfully adapted to the microfinance context. The microfinance institutions to work through group schemes have the potential of yielding a wide range of benefits, leveraging the importance of local communities in Africa into schemes that have proven successful in other regions. (Bennett, 1998)

Just like other African countries, the microfinance sector’s springboard in Cameroon was the banking system restructuring engaged by the Ministry of Finance and the Banking Commission for Central Africa (COBAC). The expansion of microfinance institutions in Cameroon during the 1980s can highly be explained by the gap left by the restructuring of the banking sector in most developing countries? Which was characterized by restraining or rationing of credit opportunities, Cameroon is not an exception.

In Cameroon, the history of microfinance dates back to more than a century in its traditional form popularly known as “Njangi or Tontine”. The introduction of “modern” microfinance in Cameroon started in 1963 by a Catholic Priest Father Alfred Jansen who encouraged Christians to form groups as a way to help improve their economic situation in Njinikom in the North West region in Cameroon.

By 1968, 34 credit unions that were already in existence joined together to form the Cameroon Cooperative Credit Union League (CamCCUL) Ltd. CamCCUL is, therefore, the umbrella organization of cooperative credit unions and the largest microfinance institution in Cameroon. There are more than 460 registered microfinance institutions in Cameroon with a sum amounting to over 258 billion FCFA which has been accumulated by way of deposits from close to 1million customers (Gwasin and Ngambi, 2014).

Kumba Town Cooperative Credit Union Limited (KUTCCUL) is a savings and loan cooperative society created in 1968.  In the late 1970s, KUTCCUL and the Medical Civil Servants Cooperative Credit Union Ltd merged their activities but retained the name KUTCCUL.

It is a category one microfinance institution and is affiliated to the Cameroon Credit Union League Limited (CAMCUL LTD) and duly registered under the Ministerial and COBAC decisions No D-2001/05 code No 19477 of 11th January 2001.

KUTCCUL is owned and controlled by its members or shareholder. KUTCCUL is managed by the Board of Directors elected from among its members by her General Assembly. The mission of KUTCCUL is to continuously develop and improve the likelihood of its cooperators and their communities through the provision of proximate and efficient microfinance and cooperative societies services. It also helps in improving the economic and social wellbeing of its members by encouraging regular savings, wise borrowings, and prompt repayment at reasonable rates.

1.2 Statement of the Problem

The considerable attention is given to microfinance over the recent years since Professor Mohammad Yunus and the Grameen Bank raised awareness of the role financial services play in helping poor families manage their precarious lives. But access to formal financial services is still severely limited in Africa.

It has been observed that despite the existence of their formal financial credit services, poverty has remained on an increase as well. This is due to the formal financial requirements which do not favor the demands of the poor and small firms. Furthermore, Bangladesh’s Prime minister went so far as to say that microfinance is “sucking blood from the poor”.

A string of suicides in some rural areas was linked to the pressures of repaying microloans, further muddying microfinance’s reputation. Other problems like lack of confidence in microfinance clients is another problem faced that hinders the successful achievement of poverty alleviation. Despite microfinance’s recent problems, it serves a crucial role in international development, in providing financial access to the poor and alleviating poverty.

Some solutions were developed over the years to avoid shock or default. For example, the Grameen Bank implemented programs to aid with income shocks whereby group borrowers gave a set amount of money per month to the group’s emergency fund, which could be emptied by any group member if a similar “income shock” occurred. It is needed sad to say that the solutions have been inadequate which is why economies still suffer from poverty. This, therefore, leads us to our research question

“What Is the Contribution of Microfinance Institutions in Poverty Alleviation in The Economy”?  In order to answer the research question, the following objectives will be met;

1.3 Objectives of The Study

The study aims at both the main and specific objectives;

1.3.1 Main Objective

The main objective of the study is to examine the role of microfinance services in poverty alleviation in Cameroon

1.3.2 Specific Objectives

1. To evaluate the role of KUTCCUL in providing loans, receiving saving and nonfinancial services in Buea.
2. To make recommendation based on the findings.

1.4 Research Hypothesis

Null hypothesis (Ho): KUTCCUL savings, loans, and non-financial services have no effect on poverty alleviation in Buea

Alternative hypothesis (H1): KUTCCUL savings, loans, and nonfinancial services have an effect on poverty alleviation in Buea.