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1 Online Open Access publishing platform for Management Research Copyright by the authors - Licensee IPA- Under Creative Commons license 3.0 Research Article ISSN Microfinance as a means of poverty alleviation: Case of Solidarity Funds for Development (SOFDEV) in North West and South West regions of Cameroon 1, Bime M-J. W 2, Manu I. 3, Kafain E.K 4 1- Department of Agricultural Economics, Faculty of Agronomy and Agricultural Sciences University of Dschang, Dschang West Region Cameroon. 2- Department of Agricultural Economics, Faculty of Agronomy and Agricultural Sciences University of Dschang, Dschang West Region Cameroon. 3- Department of Agricultural Extension and Rural Sociology, Faculty of Agronomy and Agricultural Sciences University of Dschang, Dschang West Region Cameroon. 4- Department of Agricultural Economics, Faculty of Agronomy and Agricultural Sciences University of Dschang, Dschang West Region Cameroon. mimeliet001@yahoo.com ABSTRACT Though many studies commend microfinance as the way forward for the poor rural communities, several failures have been registered by institutions and schemes in the past usually due to institutional unsustainability and inaccessibility to financial services by the poor. This study was aimed at assessing the performance of the SOFDEV scheme (BASOFDEV and OCOSAL institutions) in creating sustainable financial institutions accessible to the poor. Data was obtained through random sampling of members participating in the scheme and examination of institutional records. Results are obtained shown that the two institutions had a membership of 1742 respectively, with female proportions of 52%. The results also show that for the five years of existence, 400,293,885CFA was mobilized by the institutions. This is fairly good given that both institutions are located in rural areas. Number of loans disbursed so far were 2476 with the average amount of loan disburse being 140,038CFA. Further analysis shows that the operating efficiency ratio for BASOFDEV was 5.87 while that of OCOSAL was The two institutions under study are efficient. The ability of an institution to carry out its operations without external funding is a measure of its self-sufficiency. The OSS ratios for BASOFDEV and OCOSAL were 2.35 and 2.39 respectively, implying that the two institutions generate more than twice what they spend. Results further show that 67 percent of the respondents are situated at an average level in terms of meeting their basic needs. Also SOFDEVs as a micro-credit NGO has afforded the rural areas of Bamendankwe and Owe better access to agricultural finance. It is therefore recommended that possible sensitization campaigns should be organized to improve on the level of outreach and also a more elaborate collection process should be developed by the institutions. Keywords: Microfinance, poverty, solidarity scheme, development, Cameroon. 173

2 1. Introduction In a world where money is the sole means of acquiring goods and services that determine well-being, the importance of the provision of financial services and its accessibility to the poor in both rural and urban communities cannot be overemphasized. Savings and deposit services, credit, insurance and transfer services being the major services offered by financial institutions have played key roles in the life changing ventures especially when it comes to investment. However, the AusAID Report (2010) stated that there are as many as 2.7 billion people in developing countries that still do not have access to banking services. According to Zuvekas (1979), the rural poor need capital to acquire income generating assets and build small businesses which will permit them to participate in other financial activities. As one of the major points of the millennium development goals, poverty reduction will subsequently lead to social and economic development at the level of the household, communities and even at the national level. However, there are many advantages of using capital for poverty alleviation which cannot be realized if the poor and low incomes have very little or no access to financial services. According to World Bank (1990), more than 80% of all poor people in Africa live in the rural areas also the report states that poor people are concentrated in communities that the benefits of modern development are lacking. Over the years and in many countries of the world, microfinance has been considered the unique means of accessing financial services by the poor. According to Karlan and Goldberg (2007), microfinance is basically the supply of small-scale financial services to low income individuals who usually do not have access to traditional banking services. The situation of microfinance is fairly uniform with an increased dependence on informal financial services by the rural populations. Most of the development-oriented microfinance institutions are products of projects implemented by development institutions. Apparently, most of the programs put in place by governments, donor organization and other development agencies with the common objective of developing the society do not meet their target. In Cameroon, microfinance institutions exist both in the urban, semi-urban and rural areas. However, most of the institutions are found in the urban and semi-urban areas, making their services inaccessible to the rural poor. In Cameroon and other developing countries, intermediaries like the commercial banks, which have objectives far from development and poverty alleviation have continuously been interested only in profit making. According to Moulende (2002) many institutions put in place by the Cameroon government to provide credit to the rural poor failed due to the following: distribution of loans based on political rather than technical criteria; lack of professionalism on the part of the officials; heavy and less adapted procedures; exaggerated costs of structures. Sinha (2003) stipulated that in the face of the glaring inability of the formal financial sources to meet the needs of rural farmers, the informal financial sources have taken over the challenge. This is in the form of participation of non-governmental organizations (NGOs) in the agricultural credit market. The NGO s are notably in the areas of microfinance, which is a major anti-poverty strategy being supported by many international organizations. These institutions provide services based on solidarity, trust and other social ties. Many NGOs are in operation now in Cameroon that offer financial services to the rural people, but notably amongst them is the Africa Institute for Economic and Social Development (INADES formation). INADES formation, among other projects and in line with their objectives has recently been involved with the social and economic development of rural communities through support projects. One of such initiatives is aimed at accompanying the rural communities in the establishment of their own local financial institutions called Solidarity Funds for Development (SOFDEVs) 174

3 as an appropriate scheme for the mobilization of financial resources and socioeconomic empowerment in some rural areas of Cameroon. The initiative of the SOFDEVs though put together in 2002 was actually implemented in 2004 with the creation of two SOFDEVs in the rural communities of bamendankwe (North West Region), and Owe (South West Region). Beside the role of these schemes to provide a means of pooling the financial resources of its members, it also creates opportunities for them to have access to credit that is adapted to the socioeconomic and cultural setting of the rural areas in Cameroon. The financial services provided by these institutions, enables beneficiaries to improve their welfare and contribute to the development of their communities as well as eradicating poverty. According to Matovu (2006) poverty would not have been a problem, but for the fact that it is extremely persistent and, like HIV/AIDS seems to be an incurable socioeconomic disease. 2. Solidarity Funds for Development by INADES Formation Cameroon In conformity with the needs of the excluded rural poor, the idea of the solidarity funds for development by INADES formation Cameroon was designed as an exemplary model of innovations in the microfinance domain with the overall goal of providing financial services to the rural communities who usually lack an efficient means of mobilizing their financial resources. The SOFDEVs besides being instruments of increase access to financial services, they also promote the movement of the rural communities from informal levels of formal world of finance. It is for this reason that these institutions seek to meet-up with the perspective of legally becoming loans and savings cooperatives, thereby giving them a more formal position in the society. These institutions were put in place to provide microcredit adapted for the members, thereby developing the natural resources and reinforcing the capacities of the men and women that make up the community. Like the Grameen bank of Bangladesh, they are based on the policies of solidarity and trust (Grameen Foundation, 2011). Microcredit is the most active service due to the banking services of commercial banks being limited to urban areas, and rural people are unable to receive such services, especially loans from the banks (Vada 2010). The scheme is group based and membership is open to all who are willing to save. The objectives of SOFDEVs include: train and educate members on possible income generating opportunities; promote a spirit of savings amongst members; facilitate access to credit by members through the provision of credit services which respond to the financial, social and economic needs of members; contribute to community development projects such as construction of social and community infrastructure; encourage self-income generating activities among the members in order to reduce unemployment, alleviate poverty and hence reduce rural-urban migration. Given these premises, the research question pose by this paper is: what is the impact of SOFDEVs through micro financing on the rural poor? How are the services offered by SOFDEVs affecting the lives of those being reached? How sustainable are the services offered by the SOFDEVs? What are the shortcomings of this system of financial resource mobilization and what do these institutions need to be highly performing? In seeking to responses to the above questions, the study aims at assessing the outreach of the SOFSDEVs in target communities as well as assessing the institutional performance of the SOFDEVs in the delivery of services. Also the study assesses the extent to which SOFDEVs have changed the lives of its members in particular and the communities in general as well as identified the problems faced by these SOFDEVs. 175

4 3. Methodology The study was carried out in the North West and South West Regions of Cameroon. The population of these areas has mostly agrarian activities in nature. This study used primary data collected through questionnaires and interview guide from SOFDEV members in bamendankwe (BASOFDEV) and Owe (OCOSAL) villages. Data solicited from respondents include age, education level, family size, loan size, primary occupation and impact of scheme for members etc. A simple random technique was used to randomly select 100 respondents from the two SOFDEVs in the two locations. The data collected were processed and analysed using descriptive statistics and other economic statistics tools. 4. Results and discussions 4.1 Socio economic characteristics of respondents The socioeconomic characteristics of the respondents are presented in table 1. According to the table 31 % of the respondents fall between the age ranges of years while 30 % fall between the age bracket of years. This can be explained that most people between these age brackets shoulder a lot of responsibilities and as such, they need the services of financial institutions to better manage their finances. The lowest proportion (3 %) was people above 60 years old. This can be explained by the fact that older people prefer to hoard the little money they have and are also relatively slow in accepting new technologies and innovations. More than half of the respondents (52 %) were females while the rest (48 %) were males with 57 % of them married, 20 % single and 21 % widowed. The percentage of females is a good representative since women very now much involve in decision making and contributing to the upkeep of their families. Most of the respondents (37 %) had attended a primary school while (23 %) had no formal education. Further results show that 44 % of the respondents were farmers while 14 % were involved with petty trading. Others were engaged in other income generating activities. Unlike other microfinance institutions, membership in all the SOFDEVs entails a certain level of ownership. Each member is a shareholder and therefore owns a small fraction of the institutions. Results further show that after five years of existence the SOFDEVs scheme through its institutions has 1742 members serving only about one-third of the active population. This may be attributed to the fact that the scheme is still young in the study area. Table 1: Socio-economic characteristics of respondents Variable Frequency Percentage Age Total Gender Male Female Marital status Single Married Divorced

5 Widowed Educational status No school Primary school Secondary school High school Tertiary education Total Primary occupation Farming Trading Technicians others Total Source: field survey data The SOFDEVs like other financial institutions encourages her members to save. Table 2 shows the amount of savings mobilized and other related variables. Table 2: Amount mobilized and loan disbursed by the institutions Institutions(amount of savings mobilized) Amount CFA BASOFDEV 314,875,222 OCOSAL 85,418,663 Total savings mobilized 400,293,885 Average amount of savings 26,515 Number of loans disbursed 2476 Average amount of loans disbursed 140,038 operational efficiency ratio(oer) BASOFDEV 5.87 OCOSAL 8.09 Average Operational Self-Sufficiency Ratio (OSS) BASOFDEV 2.32 OCOSAL 2.39 Source: field survey data The table shows that for the five years of existence, 400,293,885CFA was mobilized by the institutions. This is fairly good given that both institutions are located in rural areas. Number of loans disbursed so far were 2476 with the average amount of loan disburse being 140,038CFA. Most SOFDEV loans are small and are short term. This implies that they are payable within a short period of time. Further analysis shows that the operating efficiency ratio for BASOFDEV was 5.87 while that of OCOSAL was This implies that a cost of 5,870CFA and 8,090CFA are incurred by the institutions for every 100,000CFA that is disbursed. A financial institution has to be very efficient to have an OER of below 10 %. It can therefore be concluded that the two institutions under study are efficient. The ability of an institution to carry out its operations without external funding is a measure of its selfsufficiency. The higher the OSS, the higher the ability of the institution to cover cost of operations with income generated from its financial transactions. The OSS ratios for BASOFDEV and OCOSAL were 2.35 and 2.39 respectively. This implies that the two 177

6 institutions generate more than twice what they spend. Accumulation of income for growth and development is therefore rapid in the institutions. 4.2 Impact of scheme on members Though the SOFDEV scheme has been around for just about 5 years, it is still in the early stages of maturity with limited impact in terms of acquisition of physical income generating or non-income generating assets by its members, but with a considerable effect in solving basic household problems. This limitation can be understood from the fact that its members are subsistent low income earners. Table 3 shows the impact of the scheme on members Table 3: Percentage representation of impact of scheme on members Criteria Weak (%) Average (%) Good (%) Cumulative = 3 (%) Health situation/ability to meet up health expenses Capacity to meet up with nutritional needs Capacity to educate children Capacity to acquire agricultural inputs and equipment Capacity to own a decent home Capacity to provide clothing for the family Capacity to organize social activities Average The target is set with respect to category 3 on the level of definition of the criteria. From table 3 we observe that 67 percent of the respondents are situated at an average level in terms of meeting their basic needs. The members of the SOFDEV are relatively better-off in terms of the ability to meet their health needs and capacity to organize some social activities. The lowest capacity level amongst the respondents is observed in the ability to acquire farm inputs and to provide for the nutritional needs of their family. This is justified by the very high prices of farm inputs as well as the rising prices of basic commodities in the market. Some members have been able to acquire physical assets like land, motorbike, sewing machine and engine saw. Also with income generated through its various transactions, the various SOFDEV have been able to carry out the following; assisting in loan for a water project, making donations to a village water project; providing holiday jobs for some youths; contributing for an electricity project and also providing support for deceased members family. As usual, most financial institutions faced some problems and the SOFDEVs are no exception to this. Some of the problems identified with the SOFDEVs include; ignorance among the population about formal micro-finance institutions; lack of communication skills; illiteracy and ignorance of the laws and policies of SOFDEVs; confusion between Njangi (informal associations) law and those of micro-finance establishments; low economic activities in some of the rural areas. 5. Conclusion Results obtained from the study shows that the SOFDEVs as a micro-credit NGO has afforded the rural areas of Bamendankwe and Owe better access to agricultural finance. One 178

7 thing stands out for sure; the SOFDEV scheme has been sustainable and well adapted to appropriate technology for the mobilization of financial resources with the potential of significantly alleviating poverty and developing the community in general. Therefore, for any meaningful project development, the nature of loan disbursed needs to be totally reviewed. That is, it has to be with a view of giving more long term loans for sustainable projects that will further enhance the living standards of all beneficiaries. It is therefore recommended that possible sensitization campaigns should be organized to improve on the level of outreach and also a more elaborate collection process should be developed by the institutions to regularly collect even the small amounts of income generated by members. 6. References 1. AusAid, (2010), Financial Services for the poor, available at accessed on Grameen foundation, (2011), Microfinance in South Asia: Current challenges and the way forward, available at accessed on Karlan D and N, Goldberg, (2007), Impact evaluation for Microfinance. Poverty reduction and economic management. Thematic group on Poverty analysis, Monitoring and Impact Evaluation. No 7. The World Bank, p Matovu D. (2006), Microfinance and Poverty Alleviation: A case study of Uganda Finance Trust. Master Thesis. School of Global Studies, Uganda, p Sinha S. (2003), Financial services for low income families: an appraisal. IMB Management Review, 15(2), pp Vada K. (2010), Cambodia Microfinance: Development and Challenges. (Country paper presented at the international conference of microfinance regulations. Who benefits? 13th 15th 2010). National Bank of Cambodia, p Zuvekas C. (1979), Economic Development: An Introduction. London, Macmillan press Ltd. 179