ABSTRACT

The collapse of microfinance institutions in Cameroon in general and Buea in particular over the last ten years has raised the need for improved financial management in microfinance institutions in Buea.

Microfinance institutions are expected to meet the needs of their customers by providing micro-financial services like saving, loans, and even business advisory services. In this regard, this study set out to examine the effects of corporate budgeting on the performance of micro-financial institutions in Buea.

Data was collected through a survey in 5 microfinance institutions in Buea. An analysis was done using statistical package for social science 24 and statistics and data 41 packages.

The main findings revealed that: out of the four major variables under investigation (budget control, budget monitoring, budget planning, and budget participation), all showed a positive correlation with profitability which was considered as an indicator of the financial performance of micro-financial institutions in Buea.

They respectively had correlation coefficients of 0.024, 0.040, 0.124, 0.357 showing that budgeting has a positive effect on the financial performance of micro-financial performance in Buea.

There is, therefore, a need for corporate responsibilities to put in place more budget mechanisms to check these indecent practices, plan a budget well, intensify budget audit and budget compliance and local managers are involved in the budgeting process. The main challenge faced in this research was financial issues.

Keywords: budgeting, financial performance, and micro-financial institutions

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Budgeting is a statement in financial terms of the total revenue to be generated from a time period and the expenses to be incurred for that same period. The budget in terms of revenues gives a bottom line for revenues to be met while on the other hand, it gives a maximum amount of money to be spent. This revenue target and expenses limit gives institutions a forecasted profitability level for that period.

Budgetary control can be defined as a system of procedures used to ensure that an organization‟s actual revenues and expenses adhere very close to the financial plan. The system typically involves setting personal goals for managers that are based on the budget along with a set of rewards that are triggered when the goals are met. The result of the business is closely monitored by a budget committee, which provides feedback to the manager whenever actual results threaten to fall below expectations

According to the local government and accounting manual, Uganda 2007 budget can be defined as an annual plan of a local government income from the revenue collected, Government grants, and all other revenue source and how much local revenue will be spent in accordance with their objectives, needs, and priorities. And this is mainly concerned with both the central government and local governments.

The chartered institute of management Accountant (CIMA) of England defines a budget as a plan quantified in monetary items prepared and approved prior to a defined period of time usually showing planned income to be generated and expenditure to be incurred during that period and the capital to be employed to attain a given objective and this definition of (CIMA) covers budgeting activities largely in the private sector enterprises.

The major objective of budgeting in financial institutions and micro-financial institutions in Buea to be precise is to ensure efficient and effective utilization of funds and for the realization of the objectives of the institution. However, the absence of an appropriate budgeting system in the micro-financial institution will result in poor operations as there may be no goals and objectives to be achieved hence leading to poor performance.

The purpose of budgetary control is to provide a forecast of the revenues and expenditures, this is achieved through constructing a model on how a business might perform financially speaking, events and plans are carried out, (Churchill, 2010). A budget is a financial or quantitative statement prepared and approved prior to a defined period of time for attaining given organizational goals, (Kariuki, 2010). Such goals include control and evaluation, planning communication and motivation, (Lucey, 2010).

However, in order to achieve organizational objectives using a budget, it has to be prepared and adhere to totally. This is one of the highly used tools for planning and controlling business organization, (Lazaridis, 2014). The budgeting process may be quite formal in a big organization with committees set up to perform that task while on the other hand, in very small firms, the owner may write down the budget on a piece of paper or just budget it in his head if he can easily recall all the items.

Budgeting is considered a vital tool in management as the management is evaluated based on performance. Hence budgeting is an important tool because it pushes the management to meet up the targeted revenues and at the same time try to cut down organizational expenses in order not to exceed expenses as planned by the budget.

The subject of financial performance has received significant attention from scholars in the various areas of business and strategic management. It has also been the primary concern of business practitioners in all types of organizations since financial performance has implications on an organization‟s health and ultimately its survival (Onduso, 2013). Performance refers to the degree to which objectives are being or has been accomplished. Extensive literature regarding the firm‟s objectives, places much emphasis on the maximization of shareholder‟s wealth.

Managers are thus concerned about maximizing shareholder‟s wealth as it connotes future prospects, reflects steady growth and provides a risk shield. In order to achieve this, Naser and Mokhtar (2004), argue that high performance reflects management effectiveness and efficiency in making use of the company‟s resources like the budget. According to (Lazaridis, 2006) the greatest dilemma in

financial management is to achieve the desired trade-off between liquidity, solvency, and profitability while seeking to maximize shareholder wealth.

The effect of budgeting on the performance of financial institutions has been studied in various countries across the world. However, not much research has been covered in this area on micro-financial institutions in Buea. Whereas (Kenis, 1979) supported the argument that budgeting is positively and significantly associated with performance, (Milani, 1975) found that there is a weak positive association between budget and performance.

With reference to the ambiguities arising in previous studies as well as the absence of extensive research in this area of study in Buea, this research seeks to find out the impact of budgeting on the financial performance of micro-financial. As of 2020, there exist over twenty (20) micro-financial institutions in Buea.

1.2 Statement of the Problem

Many micro-financial institutions in Cameroon have shown poor performance which can be attributed to poor or inefficient budgeting practices though not leaving out other factors like internal control on resources. This as a factor has kept a lot of shareholders and other investors wondering if there exists any relationship between budgeting and the performance of the institution. It has often been considered as wastage of resources for financial resources to be diverted for the use of such control.

As some major micro-financial institutions like COFINEST, FIFA closed down, others continue to battle in the competitive market with commercial banks since they have no clear cut distinction in the market in addition to the ongoing crisis in the area causing many shareholders to doubt an investment in this sector. Hence triggering the argument that there is a need for effective budgeting practices in micro-financial institutions to impact their performance

In clearing this doubt of the shareholders, the need to prove the correlation between budgeting and its effects on these micro-financial institutions. The research on this is vital so as to know if resources can be employed in the budgeting process to improve performance since the micro-financial institutions serve as the number one means of funds to most SMEs in Buea. The research will therefore provide answers to the following research questions.

1.3 Research Questions

1. What are the roles of budget planning in the performance of micro-financial institutions in Buea Cameroon?
2. How does budget participation influence the performance of micro-financial institutions in Buea Cameroon?
3. What are the constitutions of budgetary control in the performance of micro-financial institutions in Buea Cameroon?
4. To what extent does budget monitoring affect the performance of micro-financial institutions in Buea?
5. what are the challenges micro-financial institutions in Buea face in their budgeting process?

1.4 Objectives of the Study

This study has as a main objective to investigate the impact of budgeting on the performance of micro-financial institutions in Buea. In order to achieve this, the following specific objectives are relevant.

1. To assess the effects of budgetary planning on the performance of micro-financial institutions in Buea
2. To examine the effects of budget participation on the performance of micro-financial institutions in Buea
3. To analyze the effects of budgetary control on the performance of micro-financial institutions in Buea
4. To observe the effects of budget monitoring on the performance of micro-financial institutions in Buea
5. To explore the challenges faced by micro-financial institutions in Buea in their budgeting
6. To investigate possible recommendations to be made to micro-financial institutions in Buea

   1.5  Hypothesis

The hypothesis to be tested by the study include;

• Budget planning has no relationship with the performance of micro-financial institutions in Buea
• Budget participation has no relationship with the performance of micro-financial institutions in Buea
• Budgetary control has no relationship with the performance of micro-financial institutions in Buea
• Budget monitoring has no relationship with the performance of micro-financial institutions in Buea