ACCESS TO CREDIT FACILITIES AND ITS IMPACT ON ENTREPRENEURIAL DEVELOPMENT IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The significant potential for employment generation and income generation, along with their role in fostering entrepreneurship, underscores the importance of Small and Medium Enterprises (SMEs) in driving economic development and sustainability, particularly in developing nations. However, SMEs serve as incubators for entrepreneurship, creating employment opportunities, fostering innovation, and advancing technological progress (Mullei, 2019). They often introduce new business practices, products, and services that contribute to the revitalization of underdeveloped agricultural sectors and other transitioning economies, thus absorbing labor that might otherwise face poverty (Mwabili, 2018). SMEs also excel in job creation compared to larger firms, thanks to their propensity for innovative ideas, products, and business approaches (Nguyen et al., 2018).

Similarly, SMEs play a substantial role in various economies, contributing over 55% of Gross Domestic Product (GDP) and over 65% of total employment in high-income countries, more than 60% of GDP and over 70% of total employment in low-income countries, and over 95% of total employment and approximately 70% of GDP in middle-income countries (OECD, 2018). Ofoegbu, Akanbi, and Joseph (2018), highlighted that focusing on SMEs can lead to job creation, income equality, increased production of goods and services, and the nurturing of skills, while also facilitating backward integration and driving technological innovation, particularly in refining emerging technological advancements. SMEs contribute to higher living standards, foster local capital formation, and enhance productivity and capability (Olowe F.T. et al., 2020).

Furthermore, recognizing the crucial role of SMEs, policies aimed at supporting their sustainability in both developing and developed economies are essential. However, given the government's ambitious target of transforming Cameroon into an emerging economy by 2035, ensuring the sustainability of SMEs is paramount. However, the viability of SMEs in Cameroon faces a significant hurdle known as the challenge of accessing credit. Conceptually, the term accsess to credit refers to the ability of individuals, businesses, or other entities to obtain loans or lines of credit from financial institutions or lenders. According to Subeyl & Muturi (2019), it encompasses the availability and ease of obtaining credit facilities such as loans, mortgages, or credit cards, as well as the terms and conditions associated with these financial products. Having access to credit is crucial for various purposes, including funding business ventures, making large purchases, investing in education or real estate, or managing cash flow during periods of financial strain. Nevertheless, numerous factors impede the growth of SMEs in Cameroon, including corruption, lengthy administrative procedures, inadequate infrastructure such as roads and electricity, a flawed legal system, and exorbitant transaction costs and customs duties at ports of shipment (Piabuo et al., 2018). These obstacles often compel SMEs to resort to inefficient production methods or outdated technologies (NIS, 2019). Despite the establishment of the Ministry of Small and Medium-sized Enterprises, Social Economy, and Handicraft in December 2004, as well as the recent creation of a bank dedicated to financing SMEs , access to credit for SMEs remains severely constrained (Piabuo et al., 2018). Consequently, many SMEs struggle to survive, let alone grow. The reasons behind the limited sustainability of a significant portion of these SMEs remain poorly understood. An analysis of the Cameroonian financial system reveals a sparse landscape, with only seventeen main banks, and the criteria for accessing credit within these institutions often favor larger firms, leaving SMEs with inadequate support. Therefore, a survey will be conducted on access to credit facilities and its impact on entrepreneurial development in Cameroon.

1.2 Statement of the Problem

Despite the efforts to promote entrepreneurship, access to credit remains a significant challenge for entrepreneurs in Cameroon. Financial institutions often impose stringent requirements, collateral, and high-interest rates, limiting the ability of entrepreneurs, particularly those from disadvantaged backgrounds, to obtain loans. Additionally, the lack of financial literacy and awareness among entrepreneurs further exacerbates the issue of access to credit ( Subeyr and Muturi, 2019). The limited access to credit facilities has profound implications for entrepreneurial development in Cameroon. Akanga (2017) asserts that entrepreneurs in Cameroon face difficulties in securing capital for business start-up, expansion, and working capital needs. This constraint hampers innovation, limits job creation, and stifles economic growth. Furthermore, the reliance on informal sources of funding, such as family and friends, may not provide the necessary financial resources for sustainable entrepreneurial ventures (Bin, J. M., Emmanuel, S. M., & Theodore, B. N., 2019).

Several studies have investigated the relationship between access to credit facilities and entrepreneurial development in various contexts. Research findings highlight the positive correlation between access to credit and the growth of entrepreneurial activities. However, the literature also acknowledges the challenges and barriers that entrepreneurs face in accessing formal credit, particularly in developing countries like Cameroon. Thus, it is in the light of these that the study seeks to examine access to credit facilities and its impact on entrepreneurial development in Cameroon.

1.3  Objectives of the Study

The main purpose of this study is to examine access to credit facilities and its impact on entrepreneurial development in Cameroon. Specifically, the study will;

Identify sources of financing entrepreneurship in Cameroon.

Ascertain the credit facilities available to enhance entrepreneurship development in Cameroon.

Determine the extent the available of credit facilities aids to the development of entrepreneurship in Cameroon.

Identify the factors affecting access to credit  facilities among entrepreneurs in Cameroon.

 1.4 Research Questions

The following questions have been prepared for the study:

What are the primary sources of financing for entrepreneurship in Cameroon?

What credit facilities are accessible to support the development of entrepreneurship in Cameroon?

To what extent do the available credit facilities contribute to the advancement of entrepreneurship in Cameroon?

What factors influence the ability of entrepreneurs in Cameroon to access credit facilities?

1.5 Research Hypotheses

Ho: There is no significant relationship between access to credit facilities and entrepreneurial development in Cameroon

Ha: There is a significant relationship between access to credit facilities and entrepreneurial development in Cameroon

1.6 Significance of the Study

The findings of this study have important significance for Cameroonian businesses, development organizations, financial institutions, and governments. Stakeholders will be able to create targeted interventions and policies to promote an environment more favorable for entrepreneurship by identifying the obstacles to loan availability and how they affect the creation of new businesses. Also, expanding access to credit options can help Cameroon achieve sustained economic growth, the creation of jobs, and a reduction in poverty. Additionally, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to access to credit facilities and its impact on entrepreneurial development in Cameroon

1.6 Scope of the study

The scope of this study is to examine access to credit facilities and its impact on entrepreneurial development in Cameroon. Empirically, this study will identify sources of financing entrepreneurship, ascertain the credit facilities available to enhance entrepreneurship development in Cameroon, determine the extent the available of credit facilities aids to the development of entrepreneurship in Cameroon and identify the factors affecting access to credit  facilities among entrepreneurs in Cameroon.

Geographically, the study will be delimited to residents of Douala, Cameroon

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. 

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.8 Definition of Terms

Entrepreneurship: refers to the process of identifying, creating, and pursuing opportunities to generate value through innovative ideas, products, or services.