The effect of capital adequacy on the financial performance of micro finance institutions in Bamenda, Cameroon

Abstract

The concept of investment performance is gaining momentum globally, particularly in view of the present-day financial climate and the status of the world economy. The sustainability issues related to Micro Finance institutions' operations are of concern to business owners and managers worldwide, as it helps them fulfil their obligations on time and enhances economic viability and shareholder value. For this reason, the purpose of this research is to determine how capital adequacy affects the financial performance of micro finance institutions in Bamenda, Cameroon. For the study, secondary panel data was gathered from 8-Category 1 MFIs in total between 2018 and 2022. This research focused on Cameroonian category One Mirco Finance Institutions, with a focus on Bamenda, the birthplace of the country's credit union movement. As a result of some OLS assumptions being broken, the data was analyzed using the panel corrected standard errors according to Beck and Katz. The findings show that capital adequacy is a positive and statistically significant predictor of the financial performance of MFIs in Bamenda, Cameroon. Thus, it was suggested that Micro Finance Institutions should tackle new funding sources in their strategic plans, as well as mainstream credit unions' non-profit-making aspect into their daily business activities. Since the socio-political crisis in the North West and South West Regions has impacted these regions' businesses negatively there is a decreased ability and desire to save, which means that these institutions' activities should be more focused on crisis-related funding sources such as donations and sponsors for crisis related projects such as humanitarian and crisis recovery project.