CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Micro finance institutions can be traced back as long as the middle 1800s
when the theorist Lysander Spooner was writing over the benefits from
small credits to entrepreneurs and farmers as a way of getting the people
out of poverty. The today use of micro financing has its roots in the
1970s. In 1974 an economics lecturer at the University of Chittagong,
Bangladesh, lent $27 to a group of impoverished villagers. Mohammed
Yunus founded the Grameen bank whose research pioneered the concept
of providing micro-banking services and non-collateralize loans or the
poor in order to alleviate poverty in 1983 to make very small loans –
perhaps $15 a time – to the poor and uncreditworthy. Since then it has
loaned about $3 billion to more than six million of the very poorest in
Bangladesh and across the Asian sub-continent. The bank’s impact
research suggests that each year, only 5% of their clients (Grameen bank)
are lifted out of poverty. The Grameen bank is now experimenting with a
holistic approach where basic medical care is available at the same place
the customer would go to repay an instalment of the loan and offering
adult education. It funds 20 000 students loans a year and provides 50 000
scholarships for schooling. It is also trying to find ways of helping
creditors survive disaster, whether it is a personal accident or a major
flood.

Realizing microfinance’s prominent role in development validates the

importance of studying how mobile banking might improve micro
finance. Microfinance is a term for financial services that are provided to
poor people, and is most commonly associated with micro loans, but can
include savings accounts, insurance, and other financial services.
Traditional banks, as opposed to MFIs, make loans, but many poor
people were unable to get loans from banks, as banks generally do not
loan in the small amounts that a poor person could afford. Traditional
banks do not offer smaller sized loans due to the higher cost of managing
the loan per dollar lent.

Thus, millions of poor people worldwide were unable to get loans from
financial institutions and were left completely without financial services.
In 1974, Mohammed Yunus, who is commonly recognized of the founder
of microfinance, gave a loan of $27 to a group of villagers, and they
successfully repaid him, and an idea and a movement was born in order to
fill the gap of access to financial services (Perkins, 2008).

The idea of microfinance is that access to small loans that poor people
can afford to pay off can help them escape from poverty as they use the
loans to invest in small businesses and then generate income for
themselves. Another function of microfinance is to help poor people
smooth their income, by saving or repaying loans when times are good,
and borrowing when there are unexpected shocks. The benefits of
microfinance are evidence through the high demand that poor people
have on receiving loans. The MIX market monitors over 1100 MFIs that
serve over 74 million clients who have a collective $38 billion in loans,
according to the MIX Market in 2009 (Microfinance Information
Exchange, 2009).

Mobile money was first launched in Cameroon in 2011. The

Cameroonian subsidiaries of telecommunication leaders MTN and
Orange pioneered the concept and officially launched it in 2012. The
circumstances which prompted its launching were similar to those of
most developing countries, particularly concerning the small numbers of
members of the population who held bank accounts. As had been the case
in the other countries in which the concept had been launched, many
households and Mobile money in Cameroon had been effectively
excluded from the traditional banking system and without access to
funding in the formal sector.

Although the services which mobile money provides in Cameroon do not

include financing now, its introduction had significantly increased the
financial inclusion rate (29%) by 2017, from 9% in 2012. As a direct
consequence, many citizens have been able to ply trades and launch
startup enterprises, which have resulted in indirect employment for over
5000 people.

The introduction of mobile money has enabled Cameroonian households

to incur reduced costs by saving and reduce the risk of loss and theft
which had accompanied saving in the past, the mobile money service in
Cameroon is provided through a partnership between commercial bank,
MFI and mobile network operators (MTN Cameroon, Orange Cameroon,
CAMTEL, and Nexttel) because only MFIs, MFI are allowed to issue
electronic money, and the mobile network operators own the
telecommunication infrastructures and technologies to deploy the
platform. This regulating arrangement of convenience is the status
currently prevailing in Cameroon and will surely deter the significance of
the MM in the long run.

Although its importance is affected by factors related to regulation,

infrastructures and customs, Mobile Money appears to be the solution to
the multiple problems, namely, liquidity, means of payments, debt
collection, working capital and financing faced by Mobile money .
1.2 Problem of the Statement

Mobile money operator faces unique challenges due to the nature of their
operations. Their need for payment and transactional services are not
always served by banks. This is due to lack of capacity to qualify them to
access financial services from financial institutions since they experience
low capital base and lack of collateral property to secure loans. They also
do not find it very cost effective to embrace banking services because
their target customers are mostly the unbanked.

Additionally, they lack proper mode of receipts and payments, debt

collection procedures and access to finance and this makes them to be
faced with problems associated with liquidity and working capital
management (Higgin at el, 2012). This scenario is likely to have an effect
on the growth and performance of the Mobile money. The inception of
the mobile phone financial transactions has changed how business is
being done. It has made financial transactions to be easy and faster and at
the same time provided a saving avenue for those without bank accounts.

However, Kanyi and Maharaj (2011) observe that despite the exponential
growth in the use of mobile money in East Africa, only few studies have
focused on its impact on the financial performance of Mobile money.
This means that the effect of using mobile money on the performance of
MFI’s has not been effectively assessed. Consequently, there was need to
study how this financial innovation has affected the performance of
Mobile money. Therefore, this study will sought to determine the effect
of mobile money transactions on the performance of Microfinance
Institution in Cameroon by seeking answers to the following questions;
What is the effect of Cash deposits, Cash transfer and Cash withdrawal
on the performance of Bamenda Police Co-operative Credit Union
Limited?

1.3 Research Objectives

The objective of this study will be divided into main and specific
objectives

1.3.1 Main Objective

The main objective of this study is to determine the effects of Mobile

Money Transactions on the performance of microfinance institutions in
Cameroon.
1.3.2 Specific Objective

The specific objectives of this study include:

To investigate the effects of Cash deposits, Cash transfer and Cash

withdrawal on the performance of Bamenda Police Co-operative Credit
Union Limited.

To make recommendations based on the findings.

1.4 Research Hypothesis

One hypothesis will be formulated and tested in this research which

holds that

H0: Cash deposits, Cash transfer and Cash withdrawal does not seem to
have a significant effect on the performance of Bamenda Police Co-
operative Credit Union Limited
H1: Cash deposits, Cash transfer and Cash withdrawal seem to have a
significant effect on the performance of Bamenda Police Co-operative
Credit Union Limited.

1.5 Significants of the Study

This research will be of great significance to the education community,

common citizens who also came across this work will benefit from it
since it analyze and showcase which is the most secure way of handling
their funds as well as the limitations of both mobile money and
microfinance. To the education community it will be of great importance
since copies of this work will be handed to the department of banking and
finance as well as to the school library and this will facilitate the task of
other upcoming researchers in this domain since they will make use of
this piece of work to carry their own investigations and bring their own
contribution to the evolution of science.

This study will also be of great help to microfinances and companies

operating mobile money transactions since it will help them improve on
their services especially on their limitations which will be pointed out in
this work as well as propose solutions to remedy these problems.

For me as a researcher, the significance of this study is immense, it helps

me to understand the recent decline in customers of some microfinances
in Cameroon since the introduction of mobile money services, the work
also pinpoints out the incapability of the government to protect these
microfinances against the two giants offering mobile money services in
the territory, hence another significance of this study is the protection of
local companies especially the small and medium size companies like
MFIs.
1.6 Organisation of the Study

This research will be based on the Microfinance Institutions in the

financial sector with case study Bamenda Police Co-operative Credit
Union Limited. Data will be collected for a period of five (4) years that
is from 2020 to 2024. This work will be divided in to five chapters as
follows

Firstly chapter gives background information of Mobile Money

Transactions on the performance of the financial sector. The chapter
expose the statement of the research problem which is the core issue of
this research, the objectives of the study which is derived from the
statement of research problem, research hypothesis which are the
conditional statement to be investigated, justification of the study or
significant of the study and scope and period of the study.

The second chapter will explain the different concept of Mobile Money
Transactions, review related and empirical, conceptual and theoretical
literatures of Mobile Money Transactions written by different authors.

The third chapter will explain the various ways in which data will be
collected in this chapter and also the method of data presentation and
analysis (research methodology).

The fourth chapter will be talking on how the various data collected will
be presented and analyzed bringing out various facts.

The fifth chapter will be the summary of the work, conclusion and then
recommendation.