[ACCI-CAVIE] Microfinance institutions (MFIs) are financial structures that provide basic financial services such as loans, savings and insurance such as; credit unions, commercial banks, and financial cooperatives. Microfinance has proven its value in many countries as a weapon against poverty reduction and hunger. In Cameroon statistics show that over 850 registered MFIs existing under three principal categories, being a very strategic sector in the economy, its transformation is trigger by diversity of financial services offered. While in most cases credit and deposit is the central role, MFI play a crucial role in the development of micro projects like agriculture amongst others.

However, despites its vital role in project finances and support for investors MFIs face a series of challenges which narrow decision making process for microfinance managers. The main challenge of microfinances is survival; in order to survive they must be competitive and secure a good market share. Its poor performance however is closely attributed to weak decision-making and operational process, governance is identified as the main cause of poor decision making. However, this article seeks to analyze the challenge of microfinance particularly in governance and credit portfolio quality, and provide solutions for decision makers (manager of MFIs). It seeks to answer the question; how does governance mechanisms influence credit portfolio in MFIs in Cameroon, and what improvements can enhance their effectiveness?

The findings gathered through interviews with microfinance managers in northwest and west region of Cameroon shows that governance frameworks for loans approval are structured around the 5C’s of credit; capital, character, capacity, collateral, and conditions. Supported by the evaluation of customers financial history, presence of a guarantor and updated accounts. The involvement of credit committee in decision making, particularly for exorbitant amounts, coupled with an internal and external risk control mechanisms, reflects formalized governance system. Additionally, the existence of the Promotion and Education Committee (PEC) indicates awareness of the need to sensitize clients and reduce loan delinquency. These elements collectively demonstrate that microfinance institutions have established foundational governance structures aligned with standard credit risk management practices.

However, despite these structures, several limitations affect the overall quality of credit portfolios as most MFIs heavily rely on traditional assessment methods such as collateral and presences of a guarantor which may restrict access to finance for clients in the informal sector and limit portfolio diversification. Also, reliance on manual evaluation process and the absence of advanced data-driven tools reduce accuracy of risk assessment and delay decision- making, with loan approval processes taking up to 2 weeks. Furthermore, risk management practices appear to be more reactive than proactive, focusing on post-disbursement monitoring rather than early risk detection. Coupled with client insufficient financial literacy expands the gaps and contribute to increased exposure to non-performing loans and weaken the overall performance and growth of microfinance institutions.

To improve governance effectiveness and enhance credit portfolio quality, microfinance managers should integrate digital credit scoring systems and alternative data sources to complement the traditional 5C’s approach, thus improving risk assessment and expanding financial inclusion making institution more competitive. Also, streamlining loan approval process through decentralization and optimization can significantly reduce delays and improve client satisfaction. In addition, institutions should adopt proactive risk management tools such as early warning systems and continuous client monitoring to detect potential defaults at early stage. Strengthening financial literacy programs through structured and mandatory client education will reduce loan delinquency rates, while regular audits and enhanced oversight of credit committees will reinforce transparency and accountability within governance structures in the MFIs.

Microfinance institutions in Cameroon have structured governance, but reliance on traditional methods and slow approval process limits credit portfolio quality, enhancing risk management, and loan approval while ensuring internal and external proactive risk control mechanisms and integrating data driven assessment tools reduces defaults. Strengthening client finance education further improves portfolio performance.

ADU SALAMATU A. stagiaire/volunteer at CAVIE