Liquidity Management and Profitability of Microfinance Institutions (MFIS) in the Midst of the Anglophone Crisis in Cameroon: Case of Mfis Affiliated to Mc2 Operating in the Crisis Zones of Cameroon

Abstract

Microfinance is a means of the struggle against poverty in developing countries in general and Cameroon in particular through financing activities that generate incomes for poor households especially those in the region hit by the Anglophone crisis. In order for these MFIs to continuously maintain their objective of poverty reduction, they need to be financially sustainable and liquidity management plays a very vital role in ensuring the sustainability of MFIs by guaranteeing profitability.

This paper tries to examine if liquidity management affects the profitability of MFIs affiliated to MC²in the midst of the ongoing Anglophone crisis especially MFIs operating in the crisis zones of Cameroon. Profitability was measured using return on asset, while Liquidity management was measured using cash ratio, current ratio and liquidity ratio. Data was collected from 70MFIs affiliated to MC²which are located in the crisis zones and a methodology based on the estimation of panel data for the retained model and SPSS 11.0 was used to analyze data. The results show that there is a negative and significant effect of liquidity ratio on the profitability of MFIs, there is a negative but insignificant effect of current ratio on the profitability of MFIs, and it is seen that cash ratio significantly enhances MFI profitability. In addition, the coefficient of rural zone of residence was found to be negative (-0.00160) which implies that rural residence negatively affects MFI profitability. Overall, the applied model was globally significant at 1% level. Thus, liquidity management captured by liquidity ratio, current ratio and cash ratio alongside size of the MFI, Zone of residence and lending interest rate significantly explained MFIs profitability in the crisis zone. Based on the study’s findings, it is highly recommended that MFIs in the crisis zones of Cameroon must develop appropriate strategies to manage their liquidity in order to enhance their profits.