The Liquidity-Financial Performance Nexus: Investigating the Role of Effective Liquidity Management in Microfinance Institutions in Bamenda, Cameroon

Nsoh Conrad Nsoh; Njimanted Godfrey Forgha; Njekang Dieudonne Nkwati; Maurice Ayuketang Nso

doi:10.59573/emsj.9(1).2025.3

Authors

Nsoh Conrad Nsoh
Njimanted Godfrey Forgha
Njekang Dieudonne Nkwati
Maurice Ayuketang Nso

DOI:

https://doi.org/10.59573/emsj.9(1).2025.3

Keywords:

Capital Adequacy, Cash Management, Financial Performance, Liquidity Management, Microfinance Institutions

Abstract

The idea of liquidity management is spreading throughout the world, especially in light of the current financial situation and the state of the global economy. In order to meet their responsibilities when they become due and to increase profitability and shareholder value, business owners and managers throughout the world are concerned about coming up with a plan for handling their daily operations. The main objective of this study is the effect of liquidity management on the financial performance of micro finance institutions in Bamenda. The study was also guided by the following specific objectives; to assess the effect of loan repayment on the financial performance of micro financial institutions in Bamenda-Cameroon, evaluate the effect of cash management on the performance of micro financial institutions in Bamenda-Cameroon, investigate the effect of capital adequacy on the financial performance of micro financial institutions in Bamenda-Cameroon. A total of eight category one MFIs were sampled for the study from where secondary panel data was collected from 2018 to 2022. The panel corrected standard errors along the lines of Beck and Katz was used to analyze the data given that some of the assumptions of OLS were violated. The results indicate that capital adequacy, cash management and loan repayment in terms of their magnitudes were respectively statistically significant on the financial performance of MFIs in Bamenda. It was therefore recommended that MFIs should incorporate new funding sources in their strategic plans, put in place cash management manuals and procedures which mainstream the insurance together with security component in managing cash. Above all, holistic loan collection policies and procedures should be upgraded by incorporating new challenges in loan management.

References

Abdirahman, A. M. (2020). The Effect of Loan Quality on the Financial Performance of Commercial Banks in Kenya (Doctoral dissertation, University of Nairobi).

Abioro, M. (2013). The impact of cash management on the performance of manufacturing companies in Nigeria. Uncertain Supply chain management, 1(3), 177-192.

Agbada, A., & Osuji, C. C. (2013). An empirical analysis of trends in financial intermediation and output in Nigeria. Global Journal of Management and Business Research Finance, 13(9), 19-30.

Ahmad, F., Tahir, S. H., & Aziz, B. (2014). Impact of loan loss provision on bank profitability in Pakistan. TIJ's Research Journal of Social Science & Management, 3(12), 34-41.

Aldrich, J. (2023). Good, Economic Welfare, And The National Dividend—Pigou’S Welfare Triad. Journal of the History of Economic Thought, 45(3), 403-426.

Alex M N., Samuel N K., & Duncan M N. (2020). "Liquidity Management and Financial Performance of Microfinance Institutions in Kenya," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 6(11), pages 943-953, 11-2020.

Angelica, L. (N.D.). The Effects of Cash Management on the Profitability of Microfinance Institutions in Cameroon. PH-Project House.

Asongu, S., & Odhiambo, N. (2022). The role of mobile characteristics on mobile money innovations. Quality & Quantity, 56(6), 4693-4710.

Bari M. A. et al. (2019, March). Effect of Cash Management on Financial Performance of Food and Beverage Retailers in Puntland state of Somalia: A Case of Garowe District. International Journal of Contemporary Applied Researches, 6(3).

Bergh, A., & Nilsson, T. (2010). Good for living? On the relationship between globalization and life expectancy. World Development, 38(9), 1191-1203.

Chikalipah, S., & Makina, D. (2019). A survey of microfinance institutions and informal finance in Africa. In Extending financial inclusion in Africa (pp. 113-135). Academic Press.

Das, M., Gopinath, G., Kim, T., & Stein, J. C. (2022). Central Banks as Dollar Lenders of Last Resort: Implications for Regulation and Reserve Holdings (No. w30787). National Bureau of Economic Research.

Dzapasi, F. D. (2020). The impact of Liquidity Management on Bank Financial Performance in a subdued economic environment: A case of the Zimbabwean Banking Industry. PM World Journal, 9(1), 1-20.

Edem, D. B. (2017). Liquidity management and performance of deposit money banks in Nigeria (1986–2011): An investigation. International Journal of Economics, Finance and Management Sciences, 5(3), 146-161.

Elle, S. M. (2018). Financial and institutional innovations in microfinance institutions and commercial banks in Cameroon. International Journal of Financial Innovation in Banking, 2(2), 143-157.

Feng, J., & Yuan, J. (2016). Effect of technology innovation and spillovers on the carbon intensity of human well-being. SpringerPlus, 5, 1-8.

Gopinath, P. M., Parvathi, V. D., Yoghalakshmi, N., Kumar, S. M., Athulya, P. A., Mukherjee, A., & Chandrasekaran, N. (2022). Plastic particles in medicine: a systematic review of exposure and effects to human health. Chemosphere, 303, 135227.

Mwambui, M. W., & Koori, J. (2019). Liquidity management and financial performance of microfinance banks in Nairobi City County, Kenya. International Academic Journal of Economics and Finance, 3(4), 186-203.

Ndegwa, K. K. (2018, November). The effect of capital adequacy on the financial performance of MFI Banks in Kenya. University of Nairobi.

Ndirangu, E. W., Kiragu, D., & Ngunyi, A. (2020). EFFECT OF MOBILE BANKING ON PERFORMANCE OF MICROFINANCE BANKS IN KENYA. European Journal of Business and Strategic Management, 5(2), 64-78.

Ngumo, K. O. S., Collins, K. W., & David, S. H. (2020). Determinants of financial performance of microfinance banks in Kenya. arXiv preprint arXiv:2010.12569.

NGUYEN, H. C. (2022). Factors affecting liquidity risks of joint stock commercial banks in Vietnam. The Journal of Asian Finance, Economics and Business, 9(4), 197-212.

Nhavira, J. D., Mudzonga, E., & Mugocha, E. (2013). Financial regulation and supervision in Zimbabwe: An evaluation of adequacy and options. Zimbabwe Economic Policy Analysis and Research Unit.

Njeru, M. D., Njeru, A., & Ondabu, I. T. (2015). Effect of loan repayment on financial performance of deposit taking Saccos in Mount Kenya Region.

Njeru, M. D. (2016). Effect of Liquidity Management on financial performance of Deposit Taking Saving and credit co-operative society in Kenya (Doctoral dissertation, Business Administration (Finance), JKUAT).

Njimanted, G. F., Akume, A. D., & Aquilas, N. A. (2017). Modelling the impact of liquidity trend on the financial performance of commercial banks and economic growth in Cameroon. International Journal of Financial Research, 8(3), 121-134.

Njue, A. (2020). Liquidity Management and Financial Performance of Microfinance Institutions in Kenya (Doctoral dissertation, University of Embu).

Ofeh & Jeanne. (2017, March 18). Financial Performances of Microfinance Institutions in Cameroon. International Journal of Economics and Finance, 9(4), 207-224.

Omar, N. A. (2017). Influence of Financial Management Practices on the Growth of Family Businesses in Kenya (Doctoral dissertation, COHRED-JKUAT).

Roziq, A., Sumartin, D. P., & Sulistiyo, A. B. (2021). Capital, Efficiency, Non-Performing Financing and Profitability: Sharia Banks in Indonesia. International Journal of Management (IJM), 12(1).

Sinha, P., & Grover, N. (2022). The Nexus between liquidity creation and capital: Evidence from Indian Banks. Finance India, 36(2), 485-502.

Sobseh, E. Y., & Ndale, T. M. (2024). Bamenda Grassfields Communities in Bamumland, 1972-2021: Land Acquisition, Conflicts, Agricultural Development and Challenges. Social Science and Humanities Journal (SSHJ), 8(06), 3777-3790.

Teresia, K. L., & Maryanne, W. K. (2015). Talent Management Approaches for Restructuring: A Case of Non-Governmental Organizations in Kenya.

Ul Mustafa, A. R., Ansari, R. H., & Younis, M. U. (2012). Does the loan loss provision affect the banking profitability in case of Pakistan?. Asian Economic and Financial Review, 2(7), 772.

Wambe, L. K. (2024). The Effectiveness of Regulatory and Technological Mechanisms of Banking Internal Control: An Exploration Based on the Origins of Banks. Risk Governance & Control: Financial Markets & Institutions, 14(2).

Wangechi, S. W. (2023). Working Capital Management Practices and Financial Performance of Deposit Taking Savings and Credit Cooperative Societies in Central Region, Kenya

Wardoyo, D. U., Melati, N., & Oktavianta, M. (2021). Effect of liquidity management, asset management, debt management on profit. Jurnal Kelola: Jurnal Ilmu Sosial, 4(2), 1-6.

Wijesiri, M., & Meoli, M. (2015). Productivity change of microfinance institutions in Kenya: A bootstrap Malmquist approach. Journal of Retailing and Consumer Services, 25, 115-121.

Wuryani, E. (2022). Capital Structure and Financial Performance: The Case Of Microfinance Institutions Of Indonesia. International Journal of Economics and Finance Studies, 14(2), 381-398.