Governance of microfinance institutions (MFIs) in Cameroon: what lessons can we learn?

Abstract

Abstract:The aim of this paper is to find out the effects of the COBAC regulations regulating the Microfinance industry on the governance of MFIs in Cameroon.

An empirical investigation into the risk management strategies of MFIs in Cameroon

“…Following the reorganisation of the microfinance industry and with the implementation of law number 92/006 of August 14, 1992 restructuring Cooperative societies operating in Cameroon, CamCCUL re-registered with the Banking Commission of Central Africa (COBAC) on February 10, 1994. It is worth mentioning here that as per the 1994 laws on Cooperatives in Cameroon, all MFIs affiliated to CamCCUL are classified as category one MFIs (Akanga, 2016). Category one MFIs in Cameroon following COBAC regulations, can collect savings and grant loans to members only.…”

“…Category one MFIs in Cameroon following COBAC regulations, can collect savings and grant loans to members only. For a full discussion of MFI categorisation in Cameroon, see Akanga (2016). This restructuring was following a period of uncertainty in the late 1980s where most MFIs were considered as have reached financial self-sufficiency, were competing amongst themselves and for customers (Zeller & Meyer, 2002).…”

“…This resulted to huge debts and losses within the sector. COBAC being an organisation in charge of regulating banking activities within the Monetary Union of Central African States (CEMAC), was called in to regulate the microfinance sector (Akanga, 2016). As of December 2014, CamCCUL reported total assets of USD 306 million and a gross loan portfolio of USD 188 million outstanding to 81,000 borrowers.…”

“…Strategic risk in the form of governance is another potential risk for MFIs. This is risk associated with poor governance (Akanga, 2016). However, to protect against this governance issue, most MFIs have started to get a mix of people with different skills and backgrounds on their boards (Bakker et al, 2014).…”

“…However, many risk features of financial institutions are not directly related to the MFIs. Some of these risks are awarding large loans to a single borrower that can put the total bank's capital at risk, awarding multiple large loans that can put the whole enterprise capital at risk or where managers and owners can use their influence to award loans of significant size to borrowers (Berenbach & Chruchill, 1997, Akanga, 2016. In the case of MFIs, they are hardly exposed to same risks as financial institutions becase their loan sizes are usually small and in smaller volumes (Berenbach & Chruchill, 1997, Hermes et al, 2011.…”