THE NEXUS BETWEEN FINANCIAL INSTITUTIONS AND ENTREPRENEURSHIP GROWTH IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

African nations have witnessed robust economic expansion in the last ten years; in fact, The Times UK (2019) estimated an annual growth rate of 4.7%. An upsurge in financial services is observed, characterised by streamlined financial transactions and a surge in trade volume. According to Ellie (2018), financial innovations promote the expansion of the African financial sector.

Entrepreneurship and its significance in the development and expansion of an economy do not require further explanation. This function was acknowledged by Pendler (2019), who reaffirmed the creative and innovative endeavours that entrepreneurs orchestrate during the process of economic development. Their function can be analysed from various vantage points, including as a source of employment, a mechanism for alleviating poverty, contributors to the prudent utilisation of indigenous resources, providers of innovative technologies, and facilitators of competition. In addition, they serve as the primary generator of government revenue via taxation and contribute to the overall productivity of the economy. The aforementioned function is underscored by Eto (2018). Entrepreneurship, according to the author, is crucial for the sustained vitality of the contemporary market economy and for increasing the rate at which new businesses are established, thereby stimulating competition and promoting economic expansion. Undoubtedly, entrepreneurs serve as the catalysts for innovation and sustainable economic expansion within a given economy. 

Pendler (2019) posits that the entrepreneurial process revolves around the identification, establishment, and lucrative exploitation of service and product markets. In accordance with this context and the findings of Bush et al. (2020), entrepreneurship is defined as the endeavours undertaken by an individual or a collective with the intention of commencing economic activities in the established sector using a lawful business structure. Despite their forthcoming and critical contribution to the development of a nation, entrepreneurs and the entrepreneurial process encounter numerous obstacles in both developed and developing countries, with Africa experiencing the most severe of these obstacles. These limitations arise from various sources, including inadequate access to funds to launch businesses, low levels of technology, political instability (particularly in certain regions of Africa), unfriendly government apparatus, information asymmetry, poor institutions, high taxes, inadequate and inaccessible infrastructure, and low incomes and consequently low savings. Variations in the intensity of these constraints serve as a fundamental rationale for the disparities in productivity and, consequently, the development of nations across the globe, as well as the productivity divide that exists between developed and developing economies (Bush et al. 2020).

Lack of access to capital is considered the primary obstacle to entrepreneurship in Africa. In fact, according to a number of the World Bank's Enterprise Surveys, access to financing is cited by approximately 45% of companies in Sub-Saharan Africa as a significant barrier to their operations, whereas this figure drops to 13% for Organisation for Economic Cooperation and Development member states. The insufficiency of funds can be ascribed to their meagre savings, which in turn stems from their meagre revenues, unsuitable and inadequate collateral for loan applications, and other related factors. This hinders the development and expansion of new businesses in African economies (Amin, 2021).

As a consequence, stakeholders have placed greater emphasis on the development of their respective financial sectors through the implementation or regulation of policies, institutions, and factors that foster efficient intermediation and productive financial markets within their nations. In the near future, this will aid in the procurement of financial resources to foster entrepreneurship. This is due to the fact that financial development enables certain impoverished individuals to obtain credit and establish enterprises (Bianchi, 2010), thereby promoting or facilitating the formation of businesses. Additionally, the financial sector facilitates economic activities by acting as a medium for the exchange of commodities via payment services and mechanisms, by acquiring and processing information regarding businesses and potential investment projects, and by monitoring investments (Stone, 2019). Undoubtedly, the significance of financial development in fostering economic growth and the entrepreneurial process has been acknowledged in the past. For instance, Howell (2020) supports this notion, asserting that the services rendered by financial intermediaries incentivize innovation and contribute to economic expansion. Furthermore, Pendler (2019) supports this notion by stating that the absence of credit accessibility facilitated by the financial system severely biases investment strategy towards marginal fluctuations within the target range.

1.2 Statement of the problem

The issue of insufficient financial access has garnered interest from stakeholders in the entrepreneurial development and financial sectors of Cameroon. Examples of such initiatives include the expansion of formal financial sector services, the establishment of numerous microfinancial institutions through financial sector liberalisation, and the fortification of the Douala Stock Exchange Market (Amin, 2021). Concurrently, the nation has implemented a number of investment reforms in an effort to encourage domestic and foreign entrepreneurship, and consequently, investment. For example, the Investment Code of the nation offers substantial incentives to both domestic and foreign investors with the intention of stimulating the establishment and growth of their enterprises. The incentives encompass, among other things, the ability to invest and transfer profits overseas without incurring any taxes or levies for a duration of ten years; the freedom to operate foreign currency accounts in the domestic banking system; and the provision of a new Investment Charter featuring four regimes for tax benefits (Amin, 2021).

One would anticipate a significant influx of private enterprises aimed at addressing the scarcity of financial resources encountered by existing and potential entrepreneurs in the country, considering the proliferation and expansion of financial institutions in the midst of this predicament. Regrettably, the rate of enterprise formation, including the quantity of newly established enterprises and private capital formation by private individuals, remains relatively sluggish. This underscores the necessity for conducting this study.

1.3 Objectives of the study  

The general objective of this study is to investigate the nexus between financial institutions and entrepreneurship growth in Cameroon. The specific objectives include the following:

To determine whether financial institutions have a role to play in entrepreneurship growth in Cameroon.

To analyze the roles of financial institutions in entrepreneurship growth in Cameroon.

To examine the challenges of financial institutions in entrepreneurship growth in Cameroon.

1.4 Research Questions 

The following research questions will be answered in this study:

Do financial institutions have a role to play in entrepreneurship growth in Cameroon?

What are the roles of financial institutions in entrepreneurship growth in Cameroon?

What are the challenges of financial institutions in entrepreneurship growth in Cameroon?

1.5 Research Hypothesis

The following research null hypothesis will validate this study:

Ho: Financial institutions do not play any significant role in promoting entrepreneurship growth in Cameroon.

Ho: Financial institutions plays significant roles in promoting entrepreneurship growth in Cameroon.

1.6 Significance of the Study

Basically, the result of this study will also be useful to the following:

Government/Policymakers: It opens a thorough fare for government or policymakers in their efforts at evolving policies and programmes for the betterment of the Cameroon SMEs.  

The Public: This research will enlighten the citizens on what to expect from the government and their intervention in entrepreneurship.

Financial institutions: Financial institutions will see what their roles are in the whole business of making funds available to SMEs in Cameroon.

Academia/researchers: This study will be useful to students and other researchers as it will form part of existing literature on financial institutions and entrepreneurship growth in Cameroon.

1.7 Scope of the study

Generally, this study focuses on the role of commercial banks in the growth of small and medium scale enterprises in Cameroon. Empirically, this study focuses determining whether financial institutions have a role to play in entrepreneurship growth, analyzing the roles of financial institutions in entrepreneurship growth and examining the challenges of financial institutions in entrepreneurship growth.

This study will be carried out in Cameroon.

1.8 Limitation of the study

The researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing that financial institutions and entrepreneurship growth in Cameroon discourse is vast thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size covering only residents of Cameroon. Thus findings of this study cannot be used for generalization for other regions within Cameroon. Additionally, the researcher will simultaneously engage in this study with other academic work will impede maximum devotion to the research. Howbeit, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.

1.9 Definition of terms

Financial institution: A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions.

Entrepreneurship: Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk, and potentially involving values besides simply economic ones.

Growth: The act or process, or a manner of growing; development; gradual increase.