The development of microfinance in Cameroon: Focus on regulation

• Published date: 01 May 2020
• Author: Steffi Sandra Singhe,Céline Louche
• DOI: http://doi.org/10.1002/jsc.2333
• Date: 01 May 2020

RESEARCH ARTICLE

The development of microfinance in Cameroon: Focus

on regulation

Steffi Sandra Singhe

1

| Céline Louche

2

1

Economie et Management, University of

Nantes, Nantes, France

2

Business and Society Department, Audencia

Business School, Nantes, France

Correspondence

Steffi Sandra Singhe, University of Nantes,

Economie et Management, LEMNA, Chemin

de la Censive du Tertre, 44322 Nantes,

France.

Email: ssinghe@audencia.com

Abstract

While the microfinance regulations in Cameroon have a positive influence in profession-

alizing the microfinance sector, it seems to have also created hurdles for MFIs to fulfill

their social mission of financial inclusion. The evolution of activities of the microfinance

sector over the years led to changes in the regulatory environment through the estab-

lishment of new regulations that progressively professionalize the sector and controlled

certain derives. Financial inclusion has been hindered by insufficient supervision and

tight regulations in terms of board members' qualifications, loan documentation require-

ments, and provisioning and liquidity requirements. Regulations still need to reflect more

the specificities of the microfinance sector and be matched with adequate supervision in

order to achieve its dual role of financial inclusion and safeguarding the financial system.

KEYWORDS

cameroon, financial inclusion, microfinance regulation

1|INTRODUCTION

A significant share of the population in developing countries still does

not have access to financial services. Microfinance has the potential to

fill in this gap primarily if provided ona massive scale and a sustainable

basis (Ayayi, 2012; Drake & Rhyne, 2002; Otero & Rhyne, 1994). The

provision of financial services to the poor by microfinance institutions

(MFIs) on a massive scale calls for the need to regulate and supervise

MFIs under specific regulatory frameworks. Those frameworks have a

double role. First, it consists of promoting the development of

microfinanceso it can provide access to financial servicesto the highest

number of those excluded by the banks. Moreover, second, it needs to

safeguard savings and the stability of the microfinance sector in gen-

eral, implyingan emphasis on the financial sustainabilityof MFIs.

The conflicting nature of these objectives requires from regula-

tors to accomplish both their promotion and protection role in a way

that increased emphasis is not placed on financial viability to the point

that it instead favors mission drift in MFIs. Indeed, subjecting MFIs to

regulations and the associated supervision can be costly in terms of

frequent reporting and skilled labour (Cull, Demirguc-Kunt, &

Morduch, 2011), negatively impacting the financial inclusion of

microfinance, especially if the regulations are inadequate. Specifically,

in developing countries where microfinance is popular, most central

banks lack both a clear understanding of microfinance methodologies

and the staff to supervise them (Gallardo, Korotuomou, Randhawa, &

Steel, 2005). Brownbridge and Kirkpatrick (2000) point out that one

of the weaknesses in the prudential systems of developing countries

is the lack of the requisite personnel to carry out effective supervision

and the weak enforcement of prudential regulations by regulators

which can be attributed to regulatory forbearance or regulatory cap-

ture. This policy usually results in microfinance regulatory frameworks

clearly not adapted for the microfinance sector and thus hampering

the evolution of the sector (Gallardo et al., 2005; Siwale &

Okoye, 2017). Accordingly, it becomes fundamental to examine the

implications of the regulatory environment on the operations of MFIs

in developing countries, particularly in Sub-Saharan Africa (SSA),

which is a largely under-researched region (Siwale & Okoye, 2017).

In this study, we focus on a particular country within the SSA

region, Cameroon, to shed light on the contribution of regulation in

the development of microfinance. Most of the literature on regulation

has focused either on describing and comparing existing regulations

or, especially in the case of international institutions, on providing

JEL classification codes: G21, G28, I30.

DOI: 10.1002/jsc.2333

Strategic Change. 2020;29:341–353. wileyonlinelibrary.com/journal/jsc © 2020 John Wiley & Sons, Ltd. 341