Performance assessment and definition of improvement paths for microfinance institutions: an application to a network of village banks in Cameroon

• Author: Joseph Nzongang,Isabelle Piot‐Lepetit
• Date: 01 July 2019
• Published date: 01 July 2019
• DOI: http://doi.org/10.1111/itor.12572

Intl. Trans. in Op. Res. 26 (2019) 1188–1210

DOI: 10.1111/itor.12572

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RESEARCH

Performance assessment and definition of improvement paths

for microfinance institutions: an application to a network of

village banks in Cameroon

Isabelle Piot-Lepetitaand Joseph Nzongangb

aMOISA, INRA, Economics and Management Division, University of Montpellier, Montpellier, France

bFaculty of Economics and Management, University of Dschang,Dschang, Cameroon

E-mail: isabelle.piot-lepetit@inra.fr [Piot-Lepetit]; jonzongang@gmail.com[Nzongang]

Received 30 November2016; received in revised form 28 September 2017; accepted 8 June 2018

Abstract

The objective of this paper is an assessment of the financial and social performance of a network of village

banks in Cameroon and the provision of data-driven guidance to managers helping them in their decision-

making process. An analysis framework in three stages is developed. First, a data envelopment analysis

(DEA) is implemented for measuring efficiency, identifying best practices, and setting goals to less efficient

microfinance institutions. Then, a DEA operating frontiers (DEA-OF) model is designed to identify im-

provement paths setting short-term goals toward their long-term DEA objective and providing effective and

time-dependent guidance to managers in their efficiency improvement process. Finally, DEA and DEA-OF

results are translated into financial andnonfinancial indicators daily used by managers through three different

and interrelated scorecards. Results of this third stage areused for identifying village banks ready for the new

phase of development of the network aiming to fund community projects.

Keywords: microfinance; data envelopment analysis; DEA operating frontiers; financial and social efficiency; OR for

development

1. Introduction

Cameroon is a country with vast natural resources and a population of 23 million people. It is also

culturally and geographically very diverse, with nearly 250 different linguistic groups, two official

languages (English and French),and all major climates and vegetation of the African continent on its

territory. This country is currently considered as a lower middle-income country bythe World Bank

(2016) with social indicators and levels of poverty that are below those for comparator countries.

However, the government of Cameroon aims to achieve the state of higher middle-income country

by 2035. The World Bank considers that there exists a huge potential for economic growth and

C

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International Transactionsin Operational Research C

2018 International Federation ofOperational Research Societies

Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA02148,

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I. Piot-Lepetit and J. Nzongang / Intl. Trans. in Op. Res. 26 (2019) 1188–1210 1189

poverty reduction in Cameroon.Indeed, over the last decade, the country has been characterized by

positive economic growth from 4.6% in 2012 to 5.9% in 2015, spurred by large public investments

in infrastructure. But, to attainthe higher middle-income status by 2035, growth needs to accelerate

further; requiring a substantial increase in the level of investments from 20% to 32% of GDP (World

Bank, 2016). As the public sector alone cannot bring this about, much more private investment is

necessary as well as improvements in the business environment (Piot-Lepetit, 2017).

However, despite economic growth, national poverty has remained almost unchanged. While

Cameroon is urbanizing rapidly, poverty remains a rural phenomenon and is increasingly concen-

trated in Northern Cameroon. In 2014, poverty was at 38% with more than 90% in rural areas and

57% of all poor people located in the north of the country. Indeed, poverty decreased from 40% in

2001 to 38% in 2014, but with a declined in urban areas from 18% in 2001 to 9% in 2014 and an

increase in rural areas from 52% in 2001 to 57% in 2014. Besides, the rapid increase in poverty in

Northern Cameroon occurred beforeBoko Haram activity. But, poverty estimates for the Northern

region should be considered as lower bounds, since the consequence of the increased influence of

refugees, internally displaced persons, and the closure of markets, roads, and frontiers has not been

taken into account by national statistics (World Bank, 2016). Thus, the Millennium Development

Goal of 25% of poverty by 2015 is not achieved (Miamo Wendji, 2017).

Microfinance is an activity that supplies financial services to low-income population, which

normally does not have access to the conventional banking system. Microfinance services mainly

include loans and savings, but some microfinance institutions (MFIs) also provide microinsurance

as well as other financial services such as remittances or mobile telephony, among others. Usu-

ally the poor have no access to loans from the conventional banking system, because they cannot

put up acceptable collateral and/or because costs of screening, monitoring the activities of the

poor, and enforcing their contracts are too high for banks to make lending to this group prof-

itable (Hermes and Lensink, 2007). Lack of access to credit is generally seen as one of the main

reasons why many people in developing countries remain poor. For Professor Yunnus, founder of

the Grameen Bank and the 2006 Nobel Peace Prize, the poor have skills that remain un- or un-

derutilized mainly because existing institutions or policies do not offer them the support they need

(Seelos and Mair, 2005).

In Cameroon, the Mutelles Communautaires de Croissance (or MC²) network is a community-

based development model conceived to fight against poverty by mobilizing savings and resources

within rural communities. Founded in 1992, this network of village banks provides microfinance

services in rural Cameroon with the objective of improving living conditions of targeted populations

and promoting agriculture and rural development. Nowadays, there exist more than 70 microbanks

within this network (Piot-Lepetit and Nzongang, 2014). Each entity providesstructures that people

trust and help them escape the poverty trap and gain control over their lives. Designed on local

needs, these nonprofit social enterprises have a mission of providing financial services that cater

directly to basic human needs remaining unsatisfied by more conventional institutions in both the

economic and social domain (Seelos and Mair, 2005). Thus, these MFIs have a dual nature and

face a “double bottom line” (Yaron, 1994): a financial bottom line that is to achieve financial

sustainability and self-sufficiency, and a social bottom line that is to financially support individual

business projects. A successful management of MFIs is seen as a simultaneous expansion of both

components without trade-offs between the objectives of financial sustainability and outreach to

the poor (Morduch, 2000).

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2018 The Authors.

International Transactionsin Operational Research C

2018 International Federation of OperationalResearch Societies