The Effect of Loan Repayment Method on Loan Delinquency in Micro finance Institutions in the Buea Municipality.

Friday, December 2, 2022

The Effect of Loan Repayment Method on Loan Delinquency in Micro finance Institutions in the Buea Municipality.

Department: Banking and Finance

No of Pages: 63

Project Code: BFN2

References: Yes

Cost: 5,000XAF Cameroonian

 : $15 for International students

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Current business trends have made it imperative for almost all organization to maintain an internal control system.


This study focused on examining the effects of loan repayment method on loan delinquency in Micro Finance Institutions in Buea with case study of 5 micro finance institutions (mutengene savings and loan, ntarinkon cooperative credit union, community Credit Company, UNICS Plc. and P& T credit union) all found in Buea.


The study employed quantitative and qualitative research technics as the research design. In achieving the research objective, primary and secondary data was used. The primary data was collected through a well-structured questionnaire.


Simple random sampling was used to select the 5 MFIs under study and purposive sampling was used to select the 20 employees of each micro finance and investigate from them various loan repayment methods and their experiences on how these affects loan delinquency.


The study uncovered impactful effects on how loan repayment method affects loan delinquency. In light of loan default, pure discounting and loan amortization revealed a significant effect on loan delinquency as compared to interest only with no significant effect. The study also evaluated the types of loans given out by MFIs with a majority being school fee loans and building loans followed by car loans.


The study concludes that repayment method can significantly affect the likelihood of a loan going delinquent as such; the researcher recommends that customer loan repayment method be adopted for specific customers based on their ability, reputation and collateral.


Also, the governmental units involved should establish credit rating agencies that rates loan buyers to ensure that their credibility can be evaluated.






The history of micro finance is closely linked with poverty reduction. Although the beginning of cooperatives, savings and credit activities can be traced back as far as in 1849 with the foundation in the Rhineland of the first cooperative society of saving and credit by Raiffeisen, it is truly with Yunus in 1976 with the creation of the Gramen Bank that one can situate the birth of  “modern microfinance” (Blondeau, 2006).

Before the emergence of micro financial institutions, most poor people could not benefit from commercial bank loans as they were not able to fulfill collateral or security requirements. Sometimes lack of credit history and credit worthiness was regarded as the main problem for not sanctioning loans to the poor.


Consequently, these people who could not obtain loans from commercial banks where being exploited by money lenders. Exploitation ranged from high interest rates to complicated conditions of lending.


These are some of the reasons that led to the creation of micro credit as an alternative source for people to borrow money on favorable terms (Fotabong and Akanga, 2005; Dieckmann, 2007). Micro finance was originally conceived as an alternative to banks, which in most developing countries serve only 5 to 20% of the population (Gallardo et al.,2003), and informal moneylenders. With the passage of time, the micro finance sector has evolved.


The evolution of credit unions started in the United States of America even before the outbreak of WW1 (Brook 2005). The Credit Union Extension  Bureau (CUNEB) was created in 1921 to provide the legislative, organizational and operational services that enabled their growth. Credit unions have been among one of the fastest growing enterprises in recent years.


Credit unions were organized originally to extend short term credits at reasonable interest rates to their members. They have always been found extending credit to help business enterprises and individual customers.


The receiver of the credit is been helped with capital to run his or her own business (in the case of a business customer) and to improve on his or her standard of living (in the case of a household). The extents to which these credits are taken by customers depend on the credit policies which the union applies (Brook, 2005).


In the past micro finances were considered as a cluster of people who have little to offer in terms of development and economic welfare (Ross, Westerfield and Jordan, 2002 and 2003); but today, credit unions through their participative management approach and non-profit making motive, have remained distinct from other financial institutions.


They have succeeded in breaking socio-cultural, economic and financial barriers and have instilled the idea of the communion of sharing in showing mutual assistance to their members (Ross, Westerfield and Jordan, 2002 and 2003).



The continent of Africa has experienced exponential growth in the last few decades, which has attracted attention and investments from several multinational firms and corporations. International corporations such as Facebook and Google have then concentrated on accessing this booming market of newly prosperous consumers. 

The World Economic Forum has  recorded the astronomical growth of African markets and outlined a very optimistic and trajectory for many of its developing nations.


The Forums findings revealed that the “continent demonstrated an average real annual GDP growth of 5.4% between 2000 and 2010, adding $78 billion annually to GDP. Growth continued annually at 3.3% from 2010 to 2015.”


A major reason for Africa experienced this high level of growth is the recent influx of micro finance institutions providing affordable loans to farmers across the continent (Anand Tayal).


The micro finance industry in Africa currently has a gross loan portfolio of $8.5 billion and attracts a customer base of 8billion people. According to mix market micro finance institutions data, the African continent has developed one of the fastest-growing MFI bases (Anand Tayal, The benefits of microfinance institutions in Africa).


In Cameroon, the history of micro finance dates back to more than one century in its traditional form popularly known as “Njangi or Tontine”. The introduction of “modern” micro finance in Cameroon started in 1963 by a catholic priest Father Alfred Jansen, in Njinikom in the North West Region of Cameroon (Creusot, 2006).

This idea of credit unionism spread all over the North West and South West regions of Cameroon and by 1968, 34 credit unions that were already in existence joined together to form the Cameroon Cooperative Credit Union League (CAMCCUL) Limited.


Camccul is therefore the umbrella organization of cooperative credit unions and the largest MFI in Cameroon and the CEMAC sub-region ( As at December 31, 2017, 700 accredited micro finance institutions were operating within CEMAC.


According to their aggregated data, these institution’s assets is CFA 1.158 billion. This was revealed by COBAC, the banking sectors regulatory agency within CEMAC. The total deposit in those institutions was CFA 907 billion and the total loan was CFA582 billion.


The Cameroon Cooperative Credit Union League (CAMCCUL) Ltd is a network of Credit Unions in Cameroon. It is like governing organization for about 191credit unions in Cameroon and has a total of 196992 members both in de urban and rural areas. It manages savings worth over 41thousand million (41 billion) FCFA (


The fundamental issue that frequently results to instability and further to the collapse of MFI, is illiquidity caused mostly by loan delinquency. Loan delinquency is a canker worm that is and continues to be a nightmare in the micro finance sector in Cameroon.

Reducing loan delinquency is crucial for a micro finance institutions survival. In MFIs, loan delinquency is a continual problem which when left unsolved, delinquency becomes the institutions nightmare.


A loan is delinquent if installments are delayed and in default if one or more installments are never repaid (Fotabong, 2011). A proper analyses and measures of specific delinquency ratios could serve as an appropriate tool for institutions to put things under control. In this light setting up a meaningful delinquency monitoring is an important control tool.



In yesteryear, lenders have faced difficulties with collecting their debts from borrowers. This became an issue so much that even humans were been used as instruments to repay loans.


In the finance world, institutions go through a lot to analyze the credit worthiness of borrowers. As if this is not enough, to collect or see to it that borrower pay on time or past time limit is even more strenuous.


This has been an issue so much that solutions such as discounting, factoring, refinancing was introduced in a bit to pipe down the rate of delinquency and default. The question which remains is; do these institutions not take into consideration collateral security from the borrowers?

As practical as it is, we know that collateral is the least aspect to consider in analyzing a borrower’s credit worthiness. It is so difficult to sell a customer’s asset and use proceeds to repay their loans but if the case maybe then financial institutions would rather not prefer a default.


In trying to solve the problem of delinquency and subsequent default, supervisory bodies of financial institutions as MINFI, COBAC, OHADA have laid down certain conditions to be regarded by these institutions before carrying out lending.


As stated, Repayment terms of a loan should be realistic (Tegwi P N), so are those instituted by the supervisory bodies. The methods of loan repayment that exist within the finance world today are; lump sum, interest only, amortization and payment on demand.


The above explanation brings us to the problem statement

What effect does loan repayment method have on delinquent MFI LOANS?

From the above, we can come out with the following research questions.


Research Questions

  • What are the types of loans given at micro finance institutions?
  • What are the types of loan repayment methods?
  • Aside from method of loan repayment what are other controls put in place to reduce delinquency.
  • How do these repayment methods affect delinquency?
  • What are the effects of delinquency to MFIs.



  • The main objective of the study is to examine the effects of loan repayment method on loan delinquency in MFI.


The specific objectives are;

  • To investigate the type of loans and loan repayment method available at MFIs.
  • To know the other controls put in place to reduce delinquency.
  • To evaluate the effects of loan repayment method on loan delinquency.
  • To evaluate the effects of delinquency to MFIs.
  • To make recommendations based on findings.

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