Cameroon’s vision of becoming an emerging nation by 2035

Cameroon’s vision of becoming an emerging nation by 2035

1.1.Background of the Study

Cameroon’s vision of becoming an emerging nation by 2035, with specific objectives of becoming a middle-income country, a newly industrialized country, consolidating democracy and enhancing national unity, as well as reducing poverty to minimal levels for the citizenry, cannot be achieved in a vacuum. To achieve these objectives, the productive capacity of the micro, small and medium-scale enterprise (MSME) sector must be utilized for maximum result.

Accelerating the growth potential of the MSME sector and achieving sustainable economic growth and development is essential. Formal and informal microenterprises constitute the engine room of entrepreneurial culture, hence drivers of growth for the economy. Kumar (2017) pointed out that MSME sector growth is vital to economic growth and development. Indeed, microenterprises have been copiously described as the lifeblood of any economy, reaffirming the fact that a thriving and robust microenterprise sector is required to develop a modern and dynamic economy effectively. Therefore, the sector must be strategically and consciously nurtured and managed. For this reason, it is imperative for microenterprises in developing countries to be able to access finance for their activities and grow over time if they are ever to play an increasing and prominent role in providing veritable income flow to households through the employment of household members.

The informal sector comprises the diversified set of economic activities by workers and economic units that are in law or in practice not covered or insufficiently covered by formal arrangements governing both enterprise and employment relationships (Albright and Soto, 2008). This can include self-employment, casual employment, sub-contract, day labourers, homemakers and street vendors, among others. Microenterprises constitute the majority of these businesses, owned and operated mostly by the poor with limited human capital, in sectors with low barriers to entry and account for a large share of total employment and gross domestic product in most economies, especially the low-income countries. Microenterprises, therefore, are not just an economic phenomenon but a survival response to the global financial crisis, lack of formal employment, and competitive disadvantages, among others. These enterprises provide most of the goods and services that meet people’s basic needs and help to reduce/alleviate poverty in developing and undeveloped countries. They require small amounts of capital to enter the market, their small size makes them simple to operate, and they produce results quickly. They make use of indigenous resources, are labour intensive and create jobs that improve the income levels of the entrepreneurial poor. Hence, micro-enterprises can be a catalyst for comprehensive community economic development.

The contribution of the informal microenterprise sector to economic growth and sustainable development is globally acknowledged (Loayza, 2016). There is increasing recognition of its pivotal role in employment generation, innovation, and wealth creation (Benjamin, Beegle, Recanatini and Santini, 2014). According to the International Labour Organization, Informal employment comprises one half to three-quarters of non-agricultural work in developing countries: fifty-one percent in Latin America, forty-five percent in North Africa, eighty-two percent in south Asia, sixty-six percent in sub-Saharan Africa and sixty-eight percent in Indonesia. The average share of official GDP varying from a low of twenty-seven percent in Northern Africa to a high of forty-one percent in Sub-Saharan Africa, twenty-nine for Latin America and forty-one percent for Asia (Vanek, Chen, Carré, Heintz and Hussmanns, 2014). In Cameroon, informal microenterprises make up the near total of the population of enterprises and occupy an important place in the creation of jobs and wealth. According to the Employment and Informal Sector Survey conducted in 2010 and 2015, informal production units (IPU) were estimated at two million five hundred thousand, employing over ninety-one percent and ninety percent of the Cameroonian working population in 2010 and 2015 respectively (EESI, 2010; EESI, 2015). Before this weight, their average share of official GDP was forty-nine percent in 2008 and about fifty-three percent in 2009 (INS, 2008; INS, 2009)

While informal microenterprises are an essential part of the business landscape in any country, they are faced with significant challenges that inhibit their ability to function and contribute optimally to the economic growth of many African countries, Cameroon inclusive. These challenges/problems include stagnation and failure of business activities (Bekele and Worku, 2008). There are many informal microenterprises in Cameroon which, despite their high potentials, have not been able to access, nor use financial services from existing institutions in the formal financial sector. The Africa Competitiveness Report in 2017 indicated that access to finance is the second most problematic factor affecting business, after corruption, in Cameroon (World Bank Group, 2017), due to inability of the enterprises to offer sufficient loan collateral, high-interest rates, size of the enterprise, the maturity of loan and legal status of the enterprises (Piabuo, Baye, and Tieguhong, 2015). Furthermore, Arinaitwe and Mwesigwa (2015) indicated that most microenterprises have trouble securing funds from formal institutions for their business activities because they lack creditworthiness and management capacity. Microenterprises are regarded as insecure and costly businesses to deal with because their absorptive capacity is small with attendant high intermediation costs, including the cost of credit monitoring and enforcement.

Realizing the importance of the informal microenterprise sector as a possible route to achieving Cameroon’s vision of becoming an emerging nation by 2035, the government has, in recent years, adopted strategies towards redressing the conditions that hinder the growth and survival of microenterprises. Initiatives of the Bank of Central African States (BEAC) and other policymakers toward addressing the financing needs of the microenterprise sector include partnerships with financial sector players and other stakeholders through public-private partnerships (such as UN Capital Development Fund (UNCDF) and FinMark Trust (FMT)), the creation of the bank for small and medium-sized enterprises, the recent introduction of the mobile money accounts and access points in both rural and urban areas. This is in addition to programs like PIAASI (integrated support programme to informal sector stakeholders), PADER (Rural Development Programme) and PAJER-U (support program to rural and urban youths), intended to raise informal household investment by improving the quality and availability of financial services to the population. Further, BEAC’s policy recognizes the role of microfinance in providing financial access to the low-income segment of the population, by structuring the national strategy for inclusive finance to improve the social performance, legislative, regulatory, institutional and fiscal environment of the microfinance sector.

Financial inclusion (FI), which is gaining both policy and academic relevance in recent times, and increasingly becoming a strategic factor in the development policy mix has been globally recognized as a solution to the survival and growth of microenterprises (Beck, Demirgüç-Kunt and Honohan, 2009; Onaolapo and Odetayo, 2012; Mago and Chitokwindo, 2014; Gupta and Singh, 2013). The creation of ‘UN Secretary-General’s Special Advocate (UNSGSA) for Inclusive Finance for Development and the launch of the ‘global partnership for financial inclusion’ by the G20 attests to its global importance. Financial inclusion is an intervention strategy that seeks to overcome the market friction that hinders the markets from operating in favour of the poor and underprivileged (Aduda&Kalunda, 2012). According to Triki and Faye (2013), financial inclusion initiatives make formal financial services available, accessible and affordable to all segments of the population; requiring particular attention to specific portions of the population historically excluded from the formal financial sector either because of their income level and volatility, gender, location, type of activity, or level of financial literacy. This implies that financial inclusion goes beyond improved access to formal financial services to encompass actual usage of quality financial services and the feedback effects on the lifestyle and activities of the users of the financial services.

While financial inclusion has become the buzzword in development finance studies, the question which arises is how best can we reach the ‘unbankable’ to enable them to maximize the benefits of financial inclusion? On the other hand, a Credit union is a cooperative, not-for-profit corporation organized to provide provident and beneficial services to its members. These include, but not limited to, encouraging thrift, creating a source of credit at reasonable rates of interest, and providing an opportunity for its members to use and democratically control their money holdings to improve their economic and social conditions (Chair, Lanotte, Ross and Wagner, 2015). Credit unions are community-based financial institutions and constitute a self-sustainable channel through which low-income unbankable can gain access to and make use of quality financial services that will improve their welfare.

Based on these roles, Cooperative Credit Unions, as one of the delivery channels, have a crucial role to play in the financial inclusion agenda. This is because their governance system, cooperative values, and organizational structure give them a comparative advantage over other financial institutions in the provision of formal financial services to the low-income population.

In Cameroon, cooperative credit unions are a perfect channel for financial inclusion since they promote access (making financial services available and affordable to users), usage (making customers use financial services frequently and regularly) and quality (making financial services tailored to clients’ needs). Despite all these, most poor people and owners of informal microenterprises in Cameroon still lack access to sustainable financial services, whether it is savings, credit or risk management products suspected to be impacting their businesses. Based on these, the study intends to examine financial inclusion through Cooperative Credit Unions and the performance of informal microenterprises in the North West region of Cameroon.

1.2. Statement of the Problem

There seems to be a consensus among scholars and researchers that financial inclusion is an essential driver of economic growth and development. Giving access to the millions of men and women who are presently excluded from formal financial services would provide the possibilities for the creation of a large depository of savings, investable funds, investment and, therefore, wealth generation in Cameroon. Usually, the low-income earners constitute the most significant proportion of the population and so control an enormous chunk of the economy’s idle fund, albeit held in small amounts in the hands of each of the several million members of this group. Harnessing and accumulating these resources provides a vast source of cheap long-term investable capital that can benefit all forms of enterprises in the economy, leading to improve performance for enterprises and promoting growth in the economy.

However, most poor people who constitute the majority of informal microenterprise owners still lack access to sustainable financial services, be it savings, credit or insurance. Such a situation is due to the fact that informal microenterprises are considered to have inadequate financial capacity as well as high default risk. Financial exclusion appears to be greatest among poor people, especially the rural households that account for more than seventy percent of the population in the North West region of Cameroon. This may limit their ability to grow and thrive, thereby causing stagnation and failure of many micro-businesses and making it difficult for poor households to come out of poverty. This makes financial inclusion a crucial developmental issue that requires attention from the Cameroon government and policymakers.

Cooperative credit unions have grown in popularity in the North West region of Cameroon, lately. In this growth, they have also enjoyed increasing patronage by microenterprises that have accessed credit or business finance from there. In this direction of relationship, Cooperative credit unions are perceived as veritable routes to financial inclusion.

However, little empirical evidence has been produced to authenticate this perception and avail policymakers. This has created a research gap yearning to be filled. This study is, therefore, an attempt to fill this gap and definite evidence of the contribution of Cooperative credit unions to financial inclusion of the informal microenterprises and the impact on the latter’s performance.