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Governance and performance of MFIs: the Cameroon case

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Abstract

The main challenge of microfinance institutions and social economy firms remains their survival, and to meet this challenge, MFIs need to be competitive. The poor performance of MFIs is usually attributed to their decision-making and operational processes. The governance of MFIs is therefore identified as one of their main risks. Despite this, governance is still little explored in these organizations and empirical studies find a weak relationship between classical governance mechanisms and MFI performance, especially for the MFIs situated in Africa (Thrikawala et al. in Asian J Financ Account 5(1):160–182, 2013a). In this study, we examine whether the effect of governance mechanisms on the performance of MFIs differs according to their legal status in the Cameroonian context. On the one hand, our empirical results show that there is a significant relationship between some specific governance mechanisms and MFIs’ performance. On the other hand, adjusting the governance mechanisms according to the MFIs’ legal status improves their efficiency. The analysis of the impact of the governance mechanisms on the performance of MFIs requires not only an approach that is specific to this sector but also an approach that is adapted to their legal status. Moreover, from a managerial point of view, it would be desirable to adjust the governance mechanisms, depending on the legal status of the MFIs, to make them more efficient from the social as well as the financial standpoint.

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Notes

  1. In private companies, the General Manager (GM) is the Chief Executive Officer (CEO). In this study, we use the term CEO in both cases.

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Authors and Affiliations

  1. FSEG, University of Dschang, Dschang, Cameroon

    Léopold Djoutsa Wamba & Isidore Bimeme Bengono

  2. IDRAC Business School, Lyon, France

    Jean-Michel Sahut

  3. HEG Fribourg, HES-SO, University of Applied Sciences Western Switzerland, Delemont, Switzerland

    Jean-Michel Sahut

  4. IPAG Business School Paris, Paris, France

    Frédéric Teulon

Authors
  1. Léopold Djoutsa Wamba
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  2. Isidore Bimeme Bengono
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  3. Jean-Michel Sahut
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  4. Frédéric Teulon
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Correspondence to Jean-Michel Sahut.

Appendix: Legislation on microfinance institutions in cameroon

Appendix: Legislation on microfinance institutions in cameroon

The microfinance sector in Cameroon is governed by regulation no. 01/02/CEMAC/IMAC/COBAC relating to the conditions of exercise and control of microfinance activity in the CEMAC. This regulation is sub-divided into two parts: (1) the regulation itself decreed by the ministerial committee and (2) the various regulations prescribed by the banking commission; these regulations give the precise details about the various provisions of what could be called the General Regulation. It deals with organization, agreement and prior authorization, and control through its 21 prudential rules. In particular, rule 2002/01 defines the level of patrimonial funds below which the relieving measure concerning the prudential and reporting standards for the MFI of the first category, the said “small-size” MFIs, are applicable: the last line of the balance sheet lower than or equal to 50 million FCFA.

Every year, the first-category MFIs should reserve 20% of their profit (regulation 2002/06). Regulation 2002/07, relating to risk coverage, defines a solvency ratio to limit the risk taking of MFIs. The ratio between the net patrimonial funds and the net equity capital (at the numerator) and the credits lessened by the provisions made (at the denominator) must be permanently higher than or equal to 10%.

Regulation 2002/08, concerning the distribution of risk, stipulates that the first-category MFIs should not record for the same borrower a credit liability higher than 15% of their net patrimonial funds.

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Wamba, L.D., Bengono, I.B., Sahut, JM. et al. Governance and performance of MFIs: the Cameroon case. J Manag Gov 22, 7–30 (2018). https://doi.org/10.1007/s10997-017-9381-9

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