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Advances in Social Sciences Research Journal – Vol. 11, No. 11
Publication Date: November 25, 2024
DOI:10.14738/assrj.1111.17855.
Bin, A. K.-N. (2024). The Microfinance Institution in Cameroon: Historical Perspectives. Advances in Social Sciences Research Journal,
11(11). 122-128.
Services for Science and Education – United Kingdom
The Microfinance Institution in Cameroon: Historical
Perspectives
Anyekezeh Kum-Ngong Bin
Pan African University, Institute of Governance,
Humanities and Social Sciences
ABSTRACT
Using the sociological approach to critical analysis, my paper examines the
evolution of the microfinance institution in Cameroon from a historical perspective.
It argues that due to a number of significant changes on the national and
international scene, the institution has undergone a number of palpable changes to
become what it is obvious today. I aim at showing how these varied changes on the
socioeconomic landscape have been informing templates of the banking sector and,
by extension, the microfinance sector in the country today.
Keywords: Microfinance, History, Sociological theory, Change.
INTRODUCTION
This paper examines the intersection between finance, sociology, and history in Cameroon as it
traces the historical evolution of the microfinance sector in the country. The idea is to
understand how this entity has come to occupy the central place it has in the country’s finance
sector today. The objective is to underscore the fact that while the microfinance institution has
received considerable attention as a financial instrument per se, an evaluation of the different
socioeconomic developments that have informed the sector in significant ways, is worth the
kind of attention I pay to it in the paper. However, before I proceed along these lines, it would
be expedient to define what the microfinance institution is.
Several scholars have noted the complexity in the definition of a microfinance institution (see).
This may stem from the confusion often noticed between the concept of ‘microcredit’ and the
broader ‘microfinance’. While these terms are sometimes employed interchangeably, it is
crucial to underscore that they represent distinct concepts. In general, microcredit refers to the
practice of providing modest loans to persons with low incomes, particularly women, who are
unable to get credit from traditional mainstream banks. The notion of microfinance, on the
other hand, encompasses a wider scope in comparative terms. The range of services offered by
microfinance includes microcredit, micro saving, microinsurance, money transfer, health care,
business training, education, and many other financial services (Van Rooyen et al., 2012).
Microcredit is thus among the diverse range of services under the domain of microfinance. In
definitional terms, (Robinson 2001) says a microfinance institution provides small-scale
financial services, such as credit and savings, to individuals engaged in microenterprises. These
microenterprises constitute various activities like the production, recycling, repair, and sale of
goods, as well as the provision of services. Additionally, microfinance targets individuals who
earn wages or commissions, generate income from renting out small amounts of land, vehicles,
draught animals, or machinery and tools, and other individuals and groups at the local levels of
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Bin, A. K.-N. (2024). The Microfinance Institution in Cameroon: Historical Perspectives. Advances in Social Sciences Research Journal, 11(11). 122-
128.
URL: http://dx.doi.org/10.14738/assrj.1111.17855
developing countries In the Cameroon context which informs my paper, the Central African
Banking Commission, known by its French acronym COBAC, refers to microfinance as the
operations conducted by authorised businesses that are not classified as banks or financial
institutions. These entities engage in the collection of savings or deposits, provision of credits
or loans, and offer specialised financial products to individuals who are often excluded from
traditional banking networks. Both definitions indicate that this sector deals primarily with the
population that cannot easily liaise with banks for their activities. To have evolve over time in
its dealings with small scale enterprises is an indication of the historical importance of this
sector on a global scale. But what about Cameroon, my focus in this paper? How has this
important economic sector evolved over time? What are the significant historical milestones
that have informed it? These questions and more constitute the motivation of this paper.
I employ sociological criticism in my evaluation of how the microfinance sector in Cameroon
has come to occupy the place it has in the economic sector of the country. While the study of
financial markets, money and banking has been the purview of economics, the discipline of
sociology, Lisa A. Kiester (2002) affirms, has contributed greatly to understanding financial
relations since the early history of this discipline. This means that the discipline of sociology is
crucial in coming to terms with situations of how the microfinance sector has come to play an
important role in the finance space in the country today. For instance, the sociological approach
can enable one examine questions of process, transition, and outcomes regarding the banking
sector; issues which definitely hinge on the sociological. In this light, Bruce G. Carruthers (2018)
affirms this when he notes in “What is Sociological about Banks and Banking?”, that banks and
banking are sociologically interesting even so because they are embedded in a variety of social
and economic networks and have played significant roles in the modern economy over time.
This critical tool is important in my paper because it is useful in underlining how different
socioeconomic parameters have undergird the microfinance space in Cameroon. The question
then remains, how has this sector evolved over time in the country? What are the significant
markers of its growth? Before I answer these questions, it would be important to briefly talk
about the growth of this sector globally, given that microfinance banking is not indigenous to
Cameroon, even if it occupies a strategic place in the country’s economic development.
BACKWARD GLANCES: MICROFINANCE SECTOR IN THE GLOBAL ARENA
Generally, the beginnings of microfinance are traceable to countries like Indonesia, India,
Nigeria, Pakistan, and Germany (Mia et al., 2019). Morduch (1999) isolates Germany as the
birthplace of contemporary microfinance because of Friedrich Wilhelm Raiffeisen’s inaugural
credit cooperative in the country in 1864 (Guinnane 2001). For Morduch, the German credit
cooperative movement was meant to enhance the well-being of rural communities by means of
microfinance with the ultimate goal of liberating them from the clutches of informal
moneylenders. From this time onward, the cooperative movement grew to embrace Europe,
North America, and some emerging nations globally (Helms 2006).
To begin this historical overview thus is not to negate the development of the notion of
microfinance which goes back several centuries with the establishment of pawnshops in
Europe around the early 1500s. These substitutions for exploitative money lending methods
(Helms, 2006), constitute early indications of microfinance banking even if they weren’t as
developed along the lines that we have today. At another level, official financial institutions,
attending to the needs of the unbanked population, have existed in Europe for several years.
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For instance, Jonathan Swift, a prominent figure in Irish nationalism, established the Irish Loan
Fund System in 1720 providing small loans to the poor in his country (Hollis and Sweetman,
2001). The changing fortunes of the scheme notwithstanding (Helms 2006, Hollis and
Sweetman 2004, Seibel 2005), the system served as an early illustration of financial inclusion,
which is a hallmark of the microfinance sector. In Africa where Cameroon is found, the practice
dates back to the 17th century with Nigeria establishing indigenous rotating saving and credit
associations (RoSCA), also referred to as 'ajo' and 'esusu' (Mia et al., 2019; Seibel, 2005).
As the institution evolved globally, a number of noteworthy regional/local trajectories, came to
define it. In 1895 Indonesia, for instance, the People's Credit Banks/Bank Pembiayaan Rakyat
Syariah (BPRs) emerged as the most expansive microfinance system in the country, with
around 9,000 branches, thanks to its emphasis on financial inclusion (Helms 2006). In Latin
America, during the early 1900s, a number of rural financial initiatives saw the light of day
whose ownership and operation included commercial banks and government organisations.
Their major objectives were to alleviate burdensome lending practises for the rural
impoverished population, stimulate investment through credit, encourage savings
mobilisation, and facilitate the modernization of the agricultural sector. Between the 1950s and
the 1970s, several donors and governmental entities, in these contexts, provided agricultural
loans to small and disadvantaged farmers, with the aim of improving their production and
income levels (Helms, 2006). At the same time, farmers' cooperatives and state-owned
development finance institutions were active in providing help to farmers through lending
initiatives. Even though resultant corruption and the inability of some clients to adhere to
repayment obligations depleted capital reserves, leading sometimes to the closure of these
institutions, suffice it to say that they showed the development of the microfinance sector over
time.
From the 1970s, ACCION International of the USA and Grameen Bank of Bangladesh were
instrumental in the establishment of the contemporary microfinance system, through provision
of modest credit to individuals engaged in petty trading activities in Latin America and South
Asia (Chiu, 2015). Their achievements in this domain have inspired several other organisations
in this regard. The Grameen Bank, in particular, has emerged as a well-recognised banking
paradigm on a global scale. When one comes to the 1990s the emergence of Islamic
microfinance institutions (MFIs) that introduced a profit-sharing loan model, aimed at offering
interest-free loans to those living in poverty across Asia and Africa, stand out. This has
contributed in no small way to the global evolution of the microfinance sector. As it were, the
Islamic model has proven its success in mitigating poverty. This brief global overview helps us
to understand how, from a social level, the advancement of contemporary microfinance is
informed by the progressive growth of credit unions/cooperatives and other associated
microfinance initiatives, which have benefited from centuries of experiential learning, hinged
on both failures and successes (Mia et al., 2019). I now move on to examine the evolution of this
institution in Cameroon.
THE MICROFINANCE SPACE IN CAMEROON: HISTORICAL ANTECEDENTS
As far as Cameroon is concerned, history has it that the beginnings of the microfinance
institutions (MFIs) are traceable to the establishment, in 1963, of the first credit union in
Njinikom, located in the Northwest Region. This, however, does not deny the existence of
tontines/njangis all over the national territory before this time. Tontines/njangis refer to
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Bin, A. K.-N. (2024). The Microfinance Institution in Cameroon: Historical Perspectives. Advances in Social Sciences Research Journal, 11(11). 122-
128.
URL: http://dx.doi.org/10.14738/assrj.1111.17855
informal community-based organisations that facilitate the borrowing and saving of funds
among individuals within a localised setting. The establishment of cooperative credit unions
signified the initial stride towards the formalisation of inclusive banking. It must be stressed
that the majority of the initial cooperatives primarily focused their activities in the agricultural
sector. This explains the rationale behind their oversight falling under the purview of the
ministry of agriculture, as opposed to the ministry of finance which oversees banking
operations in the country. In addition to overseeing their activities, the ministry of agriculture
occasionally allocated financial resources to the cooperatives, which were then disbursed by
the MFIs to their farmers or breeders at reduced interest rates.
In paying attention to these cooperatives, the Cameroonian government aimed to enhance the
agriculture sector, which served as a primary source of livelihood for a substantial portion of
its population. The cooperatives demonstrated their utility not only in facilitating local
development, but also assumed paramount significance in light of the financial crisis that hit
the country in the late 1980s and early 1990s, leading to the closure of bank branches in rural
regions. In order to enhance the advancement of cooperatives, the government enacted two
significant laws: Law n◦ 90/053 in December 1990, which pertains to the freedom of
association, and Law n◦ 92/006 in August 1992, which pertains to cooperative societies and
common initiative groups. The legislation, numbered 90/053, grants authorization for
associations and cooperatives to engage in saving and loan activities. Additionally, the law,
numbered 92/006, expressly addresses the operations of non-bank entities involved in
financial intermediation, particularly saving and lending cooperatives. According to Mayoukou
(2000), the establishment of cooperatives became contingent upon a straightforward
registration process with the ministry of agriculture, rather than being subject to the approval
of appropriate authorities. In addition, it is worth noting that cooperatives have gained the
ability to operate autonomously, without necessary association with CAMCUL (say what this
is), as highlighted by Mayoukou (2000). All these rules were the catalyst for the emergence of
financial cooperatives in the country. It must be underlined that a significant number of the
cooperatives that emerged, subsequent to the enactment of these legislations, were once
structured as tontines, which we talked about above. As it were, the tontines/njangis took
advantage of the newly enacted legislation to legitimise their operations.
The government, by means of the twin legislative measures, mentioned above, effectively gave
impetus for the establishment of financial cooperatives, thereby reducing the barriers to entry
and expanding financial access for those in the agricultural sector who had historically faced
exclusion from the formal banking system. These measures further underlined Cameroon’s
uniqueness, globally, in promoting the microfinance movement in Cameroon. As it were,
cooperatives could now offer savings and lending services to those who were situated on the
periphery of the conventional banking sector, consequent on these legal frameworks.
Interestingly, former bankers and entrepreneurs from many industries, who perceived
microfinance banking as a lucrative economic prospect, took advantage of these laws to venture
into the sector. This led established cooperatives, as well as pre-existing ones, to undertake
activities that bore resemblance to those of traditional banks, as they expanded their operations
by establishing branches around the nation, offering financial services to the wider public,
rather than just catering to their own members. This expansion aimed to address the needs of
those who had been excluded from the conventional financial system.
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This period of the exponential growth of the microfinance space in the country, equally saw the
notable rise of another type of microfinance organisation that aimed to operate similarly to
traditional banks. This type offered loan and savings services to the public, even though it may
not have possessed the necessary regulatory qualifications to do so. The functioning of this
novel type of institution did not align with the cooperative model as stipulated by regulations,
leading the government to enact a decree in 1998, mandating the placement of Microfinance
Institutions (MFIs) under the supervision of the Ministry of Finance (MINFI).
It is important to stress that due to the lack of categorization for these emerging institutions,
which did not align with the existing frameworks of cooperatives or banks, there were no
established regulations controlling their operations. The result was that several of these
institutions became involved in high-risk practices that posed a threat to the overall stability of
the financial system in the country, even so because there was a notable absence of oversight
by the appropriate regulatory bodies. Instances were reported where institutions implemented
interest rates on loans as high as 78% per annum (Fouda Owoundi, 2010), leading to elevated
levels of default. In response to an observed rise in fraudulent incidents and the evident lack of
organisation and professionalism within the microfinance sector, the government opted to
implement some regulations aimed at establishing a sense of order within the sector. It became
crucial to include all the various types of microfinance institutions in terms of regulation and
enhance the oversight and monitoring of the microfinance industry (Creusot, 2006). These
developments at the social, political, and economic levels significantly informed the
microfinance sector in Cameroon. At this juncture, it would be important to examine the
legislature that has structured the sector in the country today.
THE MICROFINANCE REGULATORY FRAMEWORK IN CAMEROON
As noted above, the enactment of the microfinance legislation was a direct response to the
issues encountered by the government in relation to the operations conducted by cooperatives.
Since the issuance of the 1998 decree, the Ministry of Finance has been responsible for
overseeing Microfinance Institutions (MFIs) in the nation. In this wise, it collaborated with the
Central African Banking Commission (COBAC); a collaboration that resulted in the emergence
of a new legislation, law n◦ 01/02/CEMAC/UMAC/COBAC, in April 2002. The legislation
pertains to the regulation of the parameters governing the implementation and oversight of
microfinance operations within the Central African Economic and Monetary Community
(CEMAC) zone. This regulatory framework established three distinct classifications for
Microfinance Institutions (MFIs), namely, Category one which encompasses primarily
cooperatives and mutual associations that exclusively provide financial services to individuals
who become members of the MFI. Category two, for its part, consists of public limited
companies that offer specialised financial services to the general public. Category three has to
do with MFIs that solely operate as credit institutions. This law, which was ratified by the seven
countries of the Central African Economic and Monetary Community (CEMAC), entrusted the
Banking Commission for Central Africa (COBAC) with the responsibility of overseeing the
microfinance industry throughout all its member countries. This notwithstanding, the
responsibility for carrying out the control and supervision mission remains the preserve of the
ministries of finance in each of the respective countries.
The regulatory framework was designed to guide the behaviour of practitioners in the
microfinance industry and to combat the growing prevalence of dangerous practices that
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Bin, A. K.-N. (2024). The Microfinance Institution in Cameroon: Historical Perspectives. Advances in Social Sciences Research Journal, 11(11). 122-
128.
URL: http://dx.doi.org/10.14738/assrj.1111.17855
followed the sector's development. Under the newly implemented legislation, it became
mandatory for all Microfinance Institutions (MFIs) to get a licence. At another level, MFIs, falling
under category two and three, were subjected to a minimum capital requirement. In light of the
fact that microfinance institutions (MFIs) were offering financial services akin to banks, albeit
on a smaller scale, the regulatory framework implemented in 2002 established 21 prudential
norms. These norms englobe many aspects such as capital adequacy, liquidity, and portfolio
quality. Microfinance institutions (MFIs) were granted a period of five years to adhere to the
established standards and regulations. Although the 2002 regulatory framework had several
limitations, it played a fundamental role in establishing the structure of the microfinance
industry.
In 2008, the Cameroon government enacted a new law, (Law n◦
04/08/CEMAC/UMAC/COBAC), in response to the inadequate governance practices observed
in the microfinance sector. The purpose of this law was to promote the adoption of best
practises in governance by microfinance institutions, with a specific focus on the composition
and operations of their board of directors.
In the year 2010, COBAC enacted a regulation pertaining to the accounting plan of Microfinance
Institutions (MFIs), in accordance with the standards set out by the Organisation for the
Harmonisation of Corporate law in Africa (OHADA law) for commercial companies and
economic interest groups. Microfinance institutions (MFIs) were mandated to produce their
obligatory declarative/financial statements and annual accounts in accordance with the
accounting plan of MFIs, which was developed in 2010. The purpose of implementing these
reporting criteria was to provide uniformity in the account statements across microfinance
institutions (MFIs) in the country.
In 2014, the regulatory authorities implemented law n◦ 02/14/CEMAC/UMAC/COBAC/CM,
pertaining to the management of financial institutions, particularly microfinance institutions
(MFIs), facing challenges within the Central African Economic and Monetary Community
(CEMAC) area. The enactment of this legislation was prompted by the observation that a
considerable proportion of authorised Microfinance Institutions (MFIs) were encountering
financial challenges. This led to the temporary placement of several prominent MFIs under
governmental control. A regulatory framework to address such problems and facilitate
progress thus became necessary.
After a period of over a decade, it became evident that the regulatory framework established in
2002 had become outdated and no longer effective. The development of complementary
legislation was deemed insufficient. The existing regulatory system required substantial
modifications. In 2016, COBAC initiated a reform of the 2002 framework in order to align it
with the current realities and developments in the microfinance industry. In late 2017, a new
regulation was ratified and then enforced on January 1, 2018. By it, microfinance institutions
(MFIs) were required to comply with the new rule within a timeframe of 24 months. The newly
implemented legislation placed significant emphasis on the imperative for microfinance
institutions (MFIs) to achieve financial sustainability, driven by the objective of mitigating the
occurrence of many bankruptcies experienced in previous periods. One of the notable
regulatory adjustments had to do with the minimum capital requirement, which rose from 50
to 500 million CFA francs for those microfinance bodies obtaining in category two.
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CONCLUSION
This historical overview of the development of the microfinance sector in Cameroon has shown
how socioeconomic as well as political and other issues have informed it. As far as the question
of regulation is concerned, the sector, as I have shown above, has undergone significant
changes, with regulators seeking to enhance their control and supervision of the industry. I
have equally shown that this regulatory intervention has been driven by an increasing
familiarity with the unique characteristics of the microfinance sector, and a desire to prevent
the recurrence of previous failures. More stringent regulations with simultaneous ensuring that
microfinance institutions (MFIs) are able to fulfil their purpose of promoting financial inclusion,
come into play. While the legislation has made significant improvements and enhanced the
professionalism of the microfinance sector, there are still regulatory concerns that hinder the
ability of microfinance institutions (MFIs) to fulfil their social objectives.
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