Implications of Credit Risk on the Growth Sustainability of Microfinance Institutions in Buea Municipality in Cameroon from 2008 – 2015

Molem Christopher Sama¹ and Mbinkar Wiysanyuy Benard^1,

¹Department of Economics and Management, University of Buea, Cameroon

Cite this paper:
Molem Christopher Sama and Mbinkar Wiysanyuy Benard. Implications of Credit Risk on the Growth Sustainability of Microfinance Institutions in Buea Municipality in Cameroon from 2008 – 2015. Journal of Finance and Economics. 2016; 4(6):176-183. doi: 10.12691/jfe-4-6-2

Abstract

This study aimed at investigating the extent at which strategic credit risk management can leads to sustainable growth of microfinance institutions in the Buea municipality of South West Region of Cameroon was studied from two perspectives: profit and outreach. This signifies the dual objectives of microfinance institutions (MFIs) of improving the social status of the poor and maximizing returns from asset liability management. A restricted probability clustered random sampling of Ten MFIs of different categories in Buea municipality was used for the survey. Secondary data were collected from Fako Camccul chapter report from 2008 to 2015.The effect of default, risk coverage and credit policy culture on performance and growth of MFIs was measured by profit and breadth outreach respectively. The relationship between variables was measured by linear correlation and a multiple regression model of two equations tested at 5% level of significant was employed. The result was validated by a Hausmann test of endogeneity. The result indicate that that profit had a direct relation with credit policy but an inverse relation with default and risk coverage, while outreach showed a positive effect of investigative variables on outreach, but only credit culture was significant at 1% level of significant. It was therefore concluded that credit risk was a big handicap to the sustainable growth of MFIs in both profit and breadth of outreach. As a result proactive strategies like strong management information system, effective internal control and redesigning of suitable customers’ oriented products were recommended.

Keywords:
microfinance financial inaccessibility joint liability outreach credit risk credit policy culture

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