The Performance of Microfinance Institutions in Cameroon: Does Financial Regulation Really Matter?

Abstract

Microfinance and its origin are associated with poverty reduction. Despite increased regulation on microfinance institutions, challenges in terms of financial sustainability and social responsibility still persist. The main goal of this paper is to assess the effect of financial regulation on the dual performance of microfinance institutions in Cameroon. The Data Envelopment Analysis method and the censored Tobit model were used on data of 169 microfinance institutions of the Cameroon Cooperative Credit Unions League network for the year 2009. The results reveal that the input oriented efficiency level of the network is estimated at 0.422 when return to scale was constant and 0.534 when they were variables. Further findings reveals that elements of financial regulation such as risk coverage ratio and fixed assets coverage ratio significantly compromise MFIs efficiency where as the size of the MFI, the deposit interest rate and belonging to the Anglophone regions significantly has a positive influence on the MFIs efficiency. The paper therefore recommends the adoption of regulatory rules which account for country peculiarities.

Keywords: Performance, Microfinance, Financial regulation, DEA, Tobit

JEL classification: C14, C24, C61, C67, E44, G21, G28.