The Effect of Competition on the Financial Sustainability of Micro Finance Institutions in Cameroon

Abstract

This study aimed at investigating the effect of competition on the sustainability of Microfinance Institutions (MFIs) in Cameroon. Secondary data collected from the market mix data set was used for the study. The Herfindhal-Hirschman Index (HHI) was used to estimate the concentration (competition) index for MFIs while the random effect model was used as the estimation technique based on the Hausmann test. The results showed that an increase in concentration had a negative and statistical significant effect on return on asset. The result implies that as competition in MFIs increases, financial sustainability also improves. Other results showed that staff productivity, outreach, capital adequacy had a positive effect on financial sustainability while portfolio at risk had a negative effect on financial sustainability. The study therefore advocates for policies that can promote an environment conducive for competition in order to encourage MFIs to adopt innovative strategies to remain sustainable.

Keywords: Competition, Sustainability, MFIs, Cameroon

JEL Classification: G21, L1, O16