DECLARATION

I, EWI KIZETTA CHOU (Mat No SM20C429) hereby declare that research subject

entitled “the effect of liquidity management on the profitability of micro finance institution in

Buea case of KUTCCUL” is written by me and is a result of personal research effort. All

borrowed ideas have been acknowledged.

Signature…………………………….. Date………………………

EWI KIZETTA CHOU

(Supervisee)

Signature…………………………. Date………………………

Prof. MESSOMO ELLE SERGE

(Supervisor)

i
 CERTIFICATION

This is to certify that this research project entitled “The effect of liquidity management on the

profitability of micro finance institution in Buea case of KUTCCUL” is the original work of

EWI KIZETTA CHOU (Mat No SM20C429) of the department of Banking and Finance of the

University of Buea. This project is in partial fulfillment for the award of Bachelor Science (BSc)

Degree in Banking and Finance, and is therefore approved for its contribution to the scientific

and literal presentation.

Signature………………………… Date………………………

Prof. MESSOMO ELLE SERGE

(Supervisor)

Signature………………………… Date………………………

PROF. MESSOMO SERGE ELLE

(Head of Department)

ii
 DEDICATION

This work is dedicated to my entire family, most especially my father

iii
 ACKNOWLEDGEMENT

This study owes its existence to the help and support of my supervisor, Prof. Messomo Elle

Serge despite your tied schedule; you still found time to guide me through my work and make

necessary adjustments and also gave me advice. Thank you for the tireless work and for your

time in making this project successful. I will also like to acknowledge Mr Pambe Landry for his

support throughout this work.

I owe my sincere gratitude to my beloved family; my parents Mr. and Mrs. Ewi Levis , my

siblings; Ewi Favour, Ewi Ransom, Ewi Richmond and Ewi Ashley, to my aunty; Aunty Mbi

Geraldine and my friends for their unconditional support and encouragement throughout my

research study and in my life a whole. I love you very much and will always make you proud.

Finally, tremendous thanks go to my heavenly father for the wisdom bestowed upon me and

seeing me through in the course of this work.

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 TABLE OF CONTENTS

DECLARATION...........................................................................................................................1

CERTIFICATION.........................................................................................................................2

DEDICATION...............................................................................................................................3

ACKNOWLEDGEMENT............................................................................................................4

CHAPTER ONE

INTRODUCTION

1.1 Introduction of the Study..................................................................................................5

1.2 Background of the Study......................................................................................................6

1.3 Problem Statement............................................................................................................8

1.4 Research Question:.........................................................................................................10

1.4.1 Main Research question................................................................................................10

1.4.2 Specific Research Question...........................................................................................10

1.5 Objectives Of The Study.................................................................................................10

1.5.1 Main Research Objective.............................................................................................10

1.5.2 The Specific Objectives.................................................................................................10

1.6 Hypothesis........................................................................................................................11

1.7 Significance of the Study.....................................................................................................11

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1.8 Operational Definition Of Terms.........................................................................................12

1.9 Scope of the Study..........................................................................................................14

1.9.1 Thematic scope.............................................................................................................14

1.9.2 Time scope....................................................................................................................14

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction..........................................................................................................................15

2.2 Conceptual Literature.........................................................................................................15

2.2.1 Liquidity Management..................................................................................................15

2.2.2 Profitability....................................................................................................................24

2.2.3 Conceptual Framework.................................................................................................26

2.3 Theoretical Literature.........................................................................................................28

2.3.1 Liquidity Preference theory...........................................................................................28

2.3.2 The Portfolio Theory.....................................................................................................29

2.3.3 The Shift ability Theory of Liquidity Management:.....................................................30

2.3.4 Liability Management Theory.......................................................................................31

2.3.5 Theory of Financial Intermediation...............................................................................31

2.4 Empirical Literature.............................................................................................................34

2.5 Research Gap.......................................................................................................................42

CHAPTER THREE

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 METHODOLOGY

3.1 Research Design...............................................................................................................43

3.2 Area of the Study..............................................................................................................43

3.2.1 Background information KUTCCUL............................................................................44

3.2.2 Products a67nd Services Offered By KUMBA TOWN COOPERATIVE CREDIT

UNION LTD..........................................................................................................................45

3.2.3 Members Benefits..........................................................................................................48

3.2.4 ORGANISATIONAL CHART OF KUTCCUL MFI...................................................49

3.4 Sampling and Sample Size...............................................................................................56

3.5 Instruments.......................................................................................................................57

CHAPTER FOUR

PRESENTATION OF FINDINGS

Table 4.6 Descriptive Statistics..............................................................................................59

CHAPTER FIVE

SUMMARY FOR FINDINGS, RECCOMENDATIONS AND CONCLUSSIONS

5.1 SUMMARY OF FINDINGS............................................................................................63

5.1.1 Different Cash Planning of MFIs in Buea.....................................................................63

5.1.2 Determinants of Liquidity in Financial Institutions......................................................63

5.1.3 Effect of Liquidity Management on the survival and profitability of Kutccul in Buea.

................................................................................................................................................64

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 5.2 RECCOMENDATIONS......................................................................................................64

5.3 CONCLUSION................................................................................................................65

REFERRENCES..........................................................................................................................66

APPENDICES..............................................................................................................................70

viii
 LIST OF ABBREVIATIONS

BEAC- Bank of Central Africa

CEMAC- Economic Community of Central African States

COBAC- Banking commission for Central African states

ROA- Return on assets

LTA- Quick-test Ratio

KUTCCUL- Kumba Town Cooperative Credit Union

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 CHAPTER ONE

INTRODUCTION

1.1 Introduction of the Study

The study is based on finding out the effects of liquidity management on the profitability of

micro finance in Cameroon with specific objectives of examining and evaluating the effect of

liquidity ratio, non-performing loan ratio and interest margin, and how return on asset affect the

profitability of Kumba Town Cooperative Credit Union Limited Buea- Cameroon. In order to

help, we achieve these aims; this research is based on 50 in depth questionnaires with managers

and liquidity officers of micro-finance institutions in Cameroon affiliated to the KUTCCUL

Buea-Cameroon so as to better understand the risk and how they are manage in micro finance

institutions in Cameroon.

This project is structure as follows; the next sections looks at the brief background of the study,

statement of the problem, research questions, objectives of the study, the hypothesis of the

study, the significant of the study, the scope of the study and the operational definition of terms.

While chapter two is titled literature review which comprises of conceptual review, theoretical

review, empirical review and research gaps. Chapter three is the methodology used in conducting

the research, it comprises of the research design, area of the study, population sample procedure

and sampling size, instruments, data collection, data analysis procedure and ethical

considerations. Chapter four is the presentation and discussions of findings (it focuses on data

analysis and interpretation of results) and lastly, chapter five shows the summary of the findings

conclusion, recommendation encounter during the research process.

1
1.2 Background of the Study

Liquidity is the lifeblood of every business. All businesses, financial institutions, and

organizations need liquidity to operate or function properly. Microfinance borrows short term

and lends long term giving liquidity risk the chance to prevail from the inevitable.

It is therefore important for Micro Finance Institutions to efficiently and effectively manage their

liquidity so as to make enough profit and as well balance liquidity and profitability to attain their

main objective which is to be liquid, profitability and safe.

Profitability does not mean liquidity in all cases. A company may be profitable and not liquid

therefore liquidity should be managed in order to obtain optimal levels.

Firm should manage their credit in such a way that sales are expanded to an extent to which risk

remains with an acceptable limit. These costs include; The credit administration expenses, debt,

losses, and opportunity cost of the fund in receivables, the aim of liquidity management should

be to regulate and control these cost that cannot be eliminated together (Berger,2008).

In addition, liquidity management is a concept that is recovering serious attention all over the

world especially because of the state of the economy and the world financial crisis which

brought about some changes in liquidity management proposed regulation , limited credit

extension increase in cash reserves, higher management standards increase monitoring on loan

granting etc.

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However, profitability greatly depends on the liquidity in other to increase the equity and more

profits to Micro Finance Institutions, the entire financial institution in the world depends on the

adequate liquidity and if a financial institution is facing liquidity risk, it affects the profitability

of the institutions and hence limiting the operations and bringing down the financial line because

the financial world is interlined to one another and the collapse of one might affect the others.

Every Micro Finance Institutions is require to keep certain percentage of their deposit as reserve

with a commercial bank and the league which is CAMCUL and it is being used when the

institution goes short of funds, Resend by COBAC with a percentage of 40% and according to

Gay(2011), Micro Financial Institution keep reserve for liquidity management.

Profitability is the ability of Micro Financial Institutions to generate revenue in excess of cost.

Strong profitability aids Micro Financial Institution, to withstand negative shock and contribute

to the firmness of their financial system. Profitability of Micro Financial Institutions can be

express as a function of internal and external factors. Internal factors can also be called Micro

factors and can be seen as a financial statement variable such as loan composition and External

factor can be seen as market growth and market share in ownership.

The Micro Financial Institutions in Cameroon over the years witnessed various changes ranging

from technological change and their aim is focused on how to maximize profit but times are

faces with dilemma like certain risk that can lead to them winding up like some cases mentioned

below. Following the collapse of COFINEST in 2010, it affects customers and members

negatively and in 2011 the government of Cameroon issued the closure and since then, there has

been a high regulatory system to control the activities of Micro Financial Institutions. Micro

3
Financial Institutions are made up of three categories which are category 1, 2 and 3 and all lies

on liquidity to make profit.

Because liquidity is an important aspect in Micro Financial Institutions, and thus serves as a

foundation and it is liquidity that keeps the Micro Financial Institutions in actions and gives great

capacity for growth.it is through this liquidity that Micro Financial Institutions can be chattered

and increases its performance on maximize profit and also meeting customer’s obligations in

granting out loans.

Finally, liquidity management and profitability are very important in the development, survival,

sustainability, growth and performance of banks, companies and the economy as a whole.

1.3 Problem Statement

The impact of liquidity position in management of financial institution and other economic unit

have remained fascinating, though very exclusive in the process of investment analysis through

portfolio management. Liquidity refers to the speed and certainty with which an asset can be

converted to cash whenever the asset holder desires, cash is the most liquid asset to all liquidity

management seeks to ensure attainment of the short term objectives.

A liquid financial institution is one that stores liquid asset and cash together with the ability to

raise funds quickly from other source to enable it to meet its payment obligation and financial

commitment in due time. Liquidity is considered as the success of financial institutions therefor

any ineffectiveness in its management can encounter a huge problem that affects the affairs of

the financial institution.

4
The financial sector as a whole has experienced some drastic changes in recent years, as

technology and globalization continue to create both opportunities for growth and challenges for

financial managers to remain profitable in their increasing competitive environment. The failures

of most financial institutions in the world have been due to the inefficiencies in the management

of the liquidity which in one way or in the other had something to do with either liquidity

inadequacy in their management of liquidity incompetence.

It is important for a financial institution to understand the effect of each of the liquidity

components on the firm’s profitability and also seek measures to maximize its liquidity level.

High liquidity risk can lead to reduction of profit in all Micro Financial Institutions because

liquidity is a crucial factor that impacts Micro Financial Institutions viability and soundness and

one of the major impacts it does on profitability. High liquidity risk occurs when their shortage

of fund in Micro Financial Institutions and are not able to meet their obligations in due time.

When there is no fund, Micro Financial Institutions cannot earn profit .overall statistics have

proven that many Micro Financial Institutions suffer liquidity risk because they don’t abide in

regulatory rules to keep 40% as reserve and also they didn’t keep asset near cash that is liquid

asset.

Micro Financial Institutions objectives is to make profit and profit cannot be make without

sufficient cash and liquidity risk have forced many Micro Financial Institutions to close down or

liquidated and that destabilizes its activities and thus reduce profits, Micro Financial Institutions

depend on liquidity and low level of liquidity might lead to low profitability. One of Micro

Financial Institutions objectives is profit maximization and this can happen only through giving

out of loans and if they can’t meet up due to liquidity risk the performance of profit reduces and

5
Micro Financial Institutions cannot survive without liquidity and if face by liquidity risk, the

profit margin drops greatly that is it leads to low profit.

Also, it’s been observe that customers who applied for loans and could not gain access to it,

closes their account from Micro Financial Institutions and thus our interest on this study is to

control, monitor and supervising making liquidity always available to meet the objective for

profitability bringing out solutions in other to benefit both Micro Financial Institutions and their

customers.

1.4 Research Question:

1.4.1 Main Research question

What are the effects of liquidity management on the profitability of Kumba Town Cooperation

Credit union (KUTCCUL) Buea- Cameroon?

1.4.2 Specific Research Question

 What is the effect of cash planning on the profitability of KUTCCUL Buea,

Cameroon?

 How does cash disbursement affect the profitability of KUTCCUL Buea, Cameroon?

1.5 Objectives Of The Study

1.5.1 Main Research Objective

To determine the effects of liquidity management on the profitability of KUTCCUL

Buea-Cameroon

1.5.2 The Specific Objectives

6
  To find out the effect of cash planning on the profitability of KUTCCUL Buea,

Cameroon

 To analyze the effect of cash disbursement on the profitability of KUTCCUL

Buea, Cameroon

 To evaluate the effect of cash position on the profitability of KUTCCUL Buea-

Cameroon

1.6 Hypothesis

This research statistically tests the following null hypothesis;

H0: Cash planning has no significant effect on the profitability of micro finance institutions

(KUTCCUL Buea-Cameroon).

H0: Cash disbursement has no significant effect on the profitability of KUTCCUL Buea-

Cameroon

1.7 Significance of the Study

The study is aimed at establishing whether there is any correlation between the effects of

liquidity management on the profitability of micro finance institutions in Cameroon. It also

brings out its relevant to micro finance institutions most especially KUTCCUL, policy

makers, academicians, and to other researcher as well. These groups will benefit from the

studies as follows;

To the micro finance institutions (KUTCCUL)

Managers of micro financial institutions who would use the study to gain an insight on the

impact of proper liquidity management on the revenue growth of their institutions.

7
Identification of liquidity levels that maximize profit enables managers revise and adopt

relevant strategies. Financial consultants especially in the area of microfinance will also find

this report useful in their quest to provide appropriate, feasible and informed advice to both

public and private sector organizations and other players.

For policy maker

The results of this study will be highly relevant. As the regulator devise standards

establishing appropriate level of liquidity for microfinance institutions, helping to ensure

adequate stability for overall financial system, they should bear in mind the trade-off between

resilience to liquidity shocks and the cost of holding lower-yielding liquid asset. While

holding liquid assets will make microfinance more resilient to liquidity shocks, thus reducing

the negatives externalities they might impose on other economic agents, holding too many

may impose a significant cost in terms of reduced profitability.

To Academicians;

This research will benefit academicians from information of the study as well as it will

contribute to the existing body of knowledge. The study will further provide the background

information to research organizations and scholars and identity gaps in the current research

for further research.

To Other Researchers

This study could be used as an initiation for researchers who are interested to conduct a

detail and comprehensive study in relation to liquidity management and profitability of

firms or other related topics. The study can also be used as source of references to other

researchers

1.8 Operational Definition Of Terms

8
 I. Liquidity

Liquidity refers to the ease with which an asset, or security can be converted into

ready cash without affecting its market price. Cash is the most liquid, while tangible

items are less liquid. The two main types of liquidity include; market liquidity and

accounting liquidity. Current, quick, and cash ratio are the most commonly used to

measure liquidity.

II. Liquidity Management

The goal of a liquidity management is to ensure the business has cash available when

needed. This is achieved by managing the company’s liquidity as effectively and

efficiently as possible. For companies that operate in the multiple countries and

currencies, and hold account with many different banks, managing liquidity can be

particularly complex. Effective bank liquidity means using a centralized process to

obtain full liquidity over a company’s liquidity. Efficiency meanwhile can be

achieved using new methods to achieve connectivity with sources of information

about the company’s cash.

III. Profitability

These are measures that are extent to which business generates a profit from the

factors of productions that is labour, management and capital. Profitability is the most

important measure of success of a business. A business that is not profitable cannot

survive, yet a highly profitable one has the ability to reward its owners with a large

return on investment. Profitability focuses on the relationship between revenue and

9
 expenses, and the level of profits relatives to the size of investment in the business

(mesquita and Lara, 2013).

IV. Cash Planning

This is a projection of cash payment and receipts through a cash budget. Cash

planning is a cash management tool which actually means cash budgeting through a

cash budget that shows projected cash payments (cash outflows) and receipts (cash

inflows) as it assist managers plan on how they will invest, borrow and control their

expenditure( both capital and recurrent). Also, it brings out the realization of the

objectives of ensuring there is enough cash to operate the entity throughout for better

performance (Hamza et al, 2015)

1.9 Scope of the Study

1.9.1 Thematic scope

This study the effect of liquidity management on profitability of Kumba Cooperative Credit

Union Buea-Cameroon. The sample was drawn from KUTCCUL management.

1.9.2 Time scope

The period for conducting the research was from February to June 2023. This study did act cover

other forms of cooperatives. The scope was alto limited to the stated objectives of the study

winch spells out the variables studied

1.9.3 Geographic scope

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The KUTCCUL is located in Kumba, with one of its branches located in buea and in other cities

in Cameroon

Buea is one of the biggest towns in the English-speaking region of Cameroon. It’s the capital of

southwest region of Cameroon the town has a very long and rich history. It was the capital of

German Kamerun from 1901 to 1919 it was also the capital of southern Cameroons from 1949 to

1961. The tallest mountain in the whole of west and central Africa, known as mount Cameroon is

found in this historic town. This mountain attracts tourists from all over the world. The town is

less than an hour drive from the sea side town of limbe and douala, the biggest and most vibrant

city in the country. The town is fast developing to become a metropolitan arty it host one of the

best universities in the country more and more universities and unversity

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

In this section, the researcher will review the theories that form the foundation for liquidity

management in the banking sector. Also, the conceptual review focuses on the evolution of

liquidity management and examines the different concepts and ideologies associated with

financial organization and how these concepts affect profitability in these organizations. The

empirical review looks at some literature that was written by some scholars in an attempt to

understand how liquidity management policies are formulated in organizations. The literature

review ends with the literature gap that examines the limitations of the various concepts and

empirical literature so far.

2.2 Conceptual Literature

2.2.1 Liquidity Management

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According to Investopedia .com (2016), Liquidity management describes the effort of investors

or managers to reduce liquidity risk exposure. Liquidity management can be challenging as

it is impacted by revenue and cost generating activities, capital and dividend plans and

tax strategies. Liquidity management is regarded as the life blood of the economy and in its

absence causes financial market to cease functioning efficiently (Molefe & Muzindutsi, 2016).

Persistent liquidity management constraints in the economy have resulted in reduced public

confidence in the banking sector as well as increased financial disintermediation (Alemayehu &

Ndung’u 2012).

Furthermore, Liquidity management involves a daily analysis and detailed estimation of the size

and timing of cash inflows and outflows over the coming days, weeks, and months to minimise

the risk that organisations will be able to meet their due obligations (Sanni, 2012). According to

(Sugar & Rejesh, 2013), success of any bank depends on the level of liquidity that is sufficient

for its operation. Liquidity Management is the ability of an institution to meet demands for funds

thereby ensuring that the institution maintain sufficient cash and liquidity assets to satisfy client

demand for loans and savings withdrawals and then meets its expected expenses (Samina &

Ayub, 2013). According to (Attom, 2014) liquidity management deals with the process of

ensuring that businesses have good cash balances to ensure that they continue to stay in business

or ensure sufficient cash to sustain the entity’s daily operations, finance continued growth and

provide for unexpected payments while not unduly forfeiting profit owing to excess cash

holdings. Thus prudent liquidity management ensures that a small business would be able to

honour its debt obligations as and when they fall due and also to facilitate the responsibility of

the firm to pay for its upcoming expenses. Banks needs to maintain adequate liquidity (Deger &

13
Aden, 2011). Hence companies that are over leverage must take steps to reduce the gap between

their cash in hand and their debt obligations.

However, the gap between cash expenses and cash collection enhances liquidity position,

profitability leading to overall business growth over a period of time (Brinchk, soeren &

Gemuenden, 2011).In addition, (Akinyomi, 2014), points out the relevance of managing liquidity

in business organizations as it helps in achieving liquidity in a business and proper control assists

in the planning towards reducing cash expenses and increasing cash receipts to ensure the

business is liquid; innovative procedures could be implemented for cash receipts and cash

payments in the business.

2.2.1.1 Factor Affecting Liquidity Management

According to pandey in (2015) and Ravi in (2014), the factors that affect liquidity

management are examined below;

Firstly, liquidity is affected by the nature of the business. The liquidity needed by an

organization depends mainly on the nature of its business. Trading, transport, and

financial less amount of liquidity are required because amount of liquidity depends on

cash receipt and sales of services in cash. However, manufacturing companies need a

large amount of quantity liquidity capital, because due to fluctuation in demand, they

need a higher of stock.

Also, liquidity is being affected by business seasons. Due to seasonal business fluctuation

demand of products may vary. They have product in particular seasons. The amount of

liquidity had also fluctuated according to the seasonal requirements. Some industries are

such in which the demand of these product remains in the whole year but the

production will be done in a particular season as sugar industry, woolen industry and

14
cola industries in India. In those types of industries, a large amount of liquidity is

required in the productive season

Furthermore, liquidity is affected by Production policy. No business concern can fully be on cash

sales. It has to sale on credit, if the credit period is less and collection department is

efficient than more liquid resources is required. If the collection period is long than high

amount of liquid capital is required. Thus, the ordering policy of a concern dictated the

amount of liquid capital.

Again, liquidity can be affected by the manufacturing cycle. The manufacturing cycle starts with

the purchase of raw materials and is completed with the production of finished goods. If the

manufacturing cycle involves a longer period the need for working capital will be more, because

an extended manufacturing time span means a larger tie –up of funds in inventories. Any delay at

any stage of manufacturing process will result in accumulation of work-in-process and will

enhance the requirement of working capital. Firms making heavy machinery or other such

products, involving long manufacturing cycle, attempt to minimize their investment in

inventories (and thereby in working capital) by seeking advance or periodic payments from

customers.

In addition, Liquidity can be affected due to credit terms granted by creditors. A company will

need less working capital if liberal credit terms are available to it. The availability of credit from

banks also influences the working capital requirements, for instance, a company that enjoys less

credit period than it gives its customers would have high incidence of working capital

requirements and the need for short-terms funds may become necessary. A firm, which can get

15
bank credit easily on favorable conditions, will operate with less working capital than firms

without such a facility.

Lastly, liquidity can be affected as price changes. Price is relevant to purchase of material,

printing of finished goods and eventual sales. The increasing shifts in price level make

functions of financial managers difficult. He should anticipate the effects of price level

changes on working capital requirement of the firm. Generally, rising price levels will

require a firm to maintain higher amount of working capital. Same levels of current

assets will need increased investment when prices are increasing.

2.2.1.2 Sources of Liquidity

The various sources of liquidity for a firm can be classified as primary and secondary sources.

These sources include:

1) Asset-Based Liquidity

Asset-based liquidity sources include cash, loans, and investments. Evaluation of asset-based

liquidity depends on the banks’ ability to convert assets to cash without material loss.

Cash

Cash is the most liquid asset-based source (cash on hand, cash received from sales, collection of

receivables, funds in transactional accounts, corporate accounts, overnight accounts, and

settlement accounts). A bank can liquidate overnight deposits immediately and without loss of

principal. Accordingly, available cash carries no liquidity risk.

Loans

16
Loans typically represent the largest category of assets on a bank’s balance sheet, and can

provide liquidity through:

Pay downs of principal and interest repaid on loans, the bank will receive periodic payments of

principal and interest.

Sales – Banks can sell the loans they originate (typically long-term real estate loans) to generate

cash. A bank may use an ongoing strategy to originate loans with the express intent to sell at

origination. By writing loans to secondary market standards, a bank can choose to sell these

loans to meet liquidity needs.

Participations – Banks can either buy or sell participations in high-balance loans or pools of

loans. Banks that buy loan participation can generate cash flow from periodic principal and

interest payments. Credit unions that sell loan participation will receive immediate cash flow

from the buyer.

Pledging as collateral – A Bank can use its loan portfolio as collateral for borrowing from

external sources (for example, FHLB, correspondent financial institutions, Federal Reserve

Discount Window).

Investments

A banks investment portfolio exists to provide a safe and ready source of liquidity and to

augment core earnings. Investments generate liquidity through maturing securities, the sale of

securities for cash, or by pledging securities as collateral for borrowings.

A bank should manage its investment portfolio to reasonably match expected investment cash

flows (maturities, periodic interest payments, and/or principal pay downs on amortizing

17
securities) against anticipated funding needs (for example, expected loan growth, share

withdrawals, or repayment of borrowings). High concentrations in long-duration investments

may pose undue liquidity risk during periods of market volatility.

For example, if interest rates rise or credit spreads widen, investment values (especially for

longer duration securities) may decline and can result in material losses if the bank needs to sell

them to raise cash. Declining investment values also hurt the ability of the bank to raise liquidity

through borrowing arrangements when the investments serve as the collateral.

For accounting purposes, GAAP requires banks to classify investments as held-to-maturity,

available-for-sale, or trading. The classification of an investment does not impair its

marketability, but it can mask its risk if longer-duration investments are placed in HTM. Many

banks are reluctant to sell HTM securities, as the sale may necessitate reclassification of the

entire investment portfolio as AFS or trading. Thus, if a bank carries a significant amount of

HTM investments that have an unrecognized loss (that is, market value is less than book value),

the bank may not be willing to sell any HTM investments.

2) Liability-Based Liquidity

Liability-based liquidity refers to the funding available from other sources on a bank’s balance

sheet, such as shares, deposits, uninsured shares, and borrowings.

Member Shares

Member shares are an important and relatively stable source of funds for banks. In many

instances, a member's decision to deposit funds in a bank is driven by service and relationship

factors and not merely by the rate of return. Banks with a high volume of core deposits—regular

18
shares, share drafts, club accounts—typically have a more diversified and stable funding base,

one that is less sensitive to changes in market interest rates and a bank’s financial condition.

Depositor predictability adds stability to operations and lowers the risk of potential withdrawals

(and lowers liquidity risk).

Historically, transaction accounts (for example, share draft accounts) generally have not

experienced high rate sensitivity, because members usually retain these accounts to manage their

primary financial needs, such as paying bills. Conversely, money market shares and short-term

certificates are more likely to be comprised of discretionary funds and are therefore considered

more volatile shares (a higher likelihood of withdrawal or migration to higher paying

alternatives).

Holding a significant concentration of funds from a single source (for example, large dollar

deposits, member business deposits, and brokered deposits) may represent an undue liquidity

risk. The loss of a single large deposit can be disruptive and destabilizing when it represents a

disproportionate percentage of total deposits. An overdependence on a single source of funds

undermines the principle of diversification and it can give the depositor excessive influence over

the interest rate.

One way a bank can grow deposits is to offer above-market rates. This strategy is not without

risks. It can lead to a higher cost of funds and more liquidity risk if the resulting share mix is

significantly more volatile in nature. Not only are new funds attracted, but existing members can

switch balances into the new higher-cost share products (share migration). In addition, any new

funds generated by high interest rates may prove to be highly rate-sensitive.

19
To retain those shares, a bank may be required to match prevailing market rates indefinitely.

Non-interest (that is, overhead) costs associated with member shares can also be substantial.

Costs associated with generating a large volume of new accounts can include personnel,

advertising, and operating costs, as well as the costs associated with branch expansion.

Deposits

The amount of deposits any credit union may accept to augment core funding is constrained by

law and regulations for federally chartered banks, for federally insured, state-chartered banks).

Banks can attract these sources quickly by offering favorable terms (for example, above-market

dividends). These can be directly accepted or raised through a broker. Attracting r deposits can

be an effective business strategy, if properly planned and managed. As with member deposits, a

banks pricing strategies will affect earnings and liquidity risk.

Depending on market conditions and the relative pricing, these sources may be considered

volatile funds because of their expected higher sensitivity to market rates (the funds have an

increased likelihood of withdrawal when better terms are available elsewhere in the market). As

a general rule, deposits are considered a higher-cost alternative with a potentially shorter-term

retention (compared to more stable member deposits).

Borrowings

Banks should have a specific purpose for entering into a borrowing arrangement and a

reasonable plan for repayment of borrowed funds. Management should understand all terms of

the borrowings, such as prepayment penalties and debt covenants. Some of the most common

borrowing sources include the FHLB and other financial institutions (for example, corporate

20
credit unions, banks, or other natural person credit unions). Frequent, chronic, and unplanned

borrowing may be evidence of underlying liquidity problems.

3) Asset-Based Cash Flow

Banks will generate cash flows from normal daily operations, as well as from ongoing business

activities. This is considered operating income, and it can be a source of funds that bolsters

liquidity. The firm can also generate working capital by effectively managing its cash.

Loan income includes any interest on loans to members; this source of funding can be affected

by changes in interest rates and prepayment speeds.

Investment income includes any interest or dividends earned on investments a bank owns; this

source of funding can be affected by changes in interest rates.

Fee income includes fees charged to members for services (for example, overdraft fees, ATM

fees, credit card fees). Other sources of liquidity include:

Renegotiating existing debt contracts

Filing for bankruptcy

Liquidity measures the ability of the firm business to meet financial obligations as they become

due, without disrupting the normal, ongoing operations of the business. Liquidity can be

analysed both structurally and operationally. Structural liquidity refers to the balance sheet

(assets and liabilities) and operational liquidity refers to cash flow measures (Du Rietz &

Henrekson, 2010). Two recommended measures of liquidity are the current ratio and working

capital. The current ratio measures the relationship between total current firm assets and total

current firm liabilities and is a relative measure rather than an absolute dollar measure. The

higher the ratio, the more liquid the firm is considered to be. Working capital is a measure of the

21
amount of funds available to purchase inputs and inventory items after the sale of current firm

assets and payment of all current firm liabilities. Working capital is expressed in absolute

currency; therefore, determining adequate working capital is related to the size of the firm

operation (Du Rietz & Henrekson, 2010).

2.2.2 Profitability

Measures the extent to which a business generates a profit from the factors of production:

labour, management and capital. Profitability is the most important measure of success of the

business. A business that is not profitable cannot survive, yet a highly profitable one has the

ability to reward its owners with a large return on their investment. Profitab1lity analysis focuses

on the relationship between revenues and expenses and on the level of profits relative to the size

of investment in the business (Mesquita & Lara, 2013). Four useful measures of firm profitability

are the rate of return on firm assets (ROA), the rate of return on firm equity (ROE), operating

profit margin and net firm income. The ROA measures the return to all firm assets and is often

used as an overall index of profitability, and the higher the value, the more profitable the firm

business. The ROE measures the rate of return on the owner s equity employed in the firm

business. It is useful to consider the ROE in relation to ROA to determine if the firm is making a

profitable return on their borrowed money (Hadlock & James, 2012).

Net firm income comes directly off the income statement and is calculated by matching firm

revenues with the expenses incurred to create those revenues, plus the gain or loss on the sale of

firm capital assets. Net firm income represents the return to the owner for unpaid operator and

family labour, management and owner's equity. Like working capital, net firm income is an

absolute dollar amount and not a ratio, thus comparisons to other firms is difficult because of

firm size differences (Deloof &Jegers, 2013).

22
On their part, Palepu, Healy, & Bernard (2010) asserted that "the starting point for a systematic

analysis of a firm's performance is its return on equity (ROE) as well as return on assets (ROA)."

Return on assets (ROA) is an important determinant of ROE because it shows how much profit a

company is able to generate for each dollar of assets invested (Palepu et al., 2010). Although

ROE and ROA are commonly used to assess the performance of large companies, research into

SME performance has tended to focus on sales or profit, or growth in sales or profit (Fasciind

Valdez, 2006).While there is no doubting the importance of sales and profit to a business. It is

equally important to relate these output measures to measures of inputs (namely assets or equity)

when making comparisons of business performance.

Non-Financial Measures has also come out as a major factor to be considered especially in

today’s competitive environment where companies are competing in terms of product, quality,

delivery, reliability, after -sales service and customer satisfaction. None of these services is

measured by the traditional responsibility accounting system, despite the fact that they represent

the major goals of world-class manufacturing companies. Many companies are using both

qualitative and quantitative non-financial indicators such as; quality, lead time, number of

customer complaints and warranty claims, delivery time, non-product hours, and system down

time. Unlike traditional variance reports, measures such as these can be provided quickly for

managers, per shift, daily or even hourly. They are easy to calculate and also easier for non-

financial managers to understand (Bozec, 2015).

Although non-financial measures are increasingly important in decision-making and

performance evaluation, Shama et al (2015) cautions that companies should not simply copy

measures used by others. The choice of measures must be linked to factors such as corporate

strategy, value drivers, organizational objectives and the competitive environment. In addition,

23
companies should remember that performance measurement choice is a dynamic process

measures may be appropriate today, but the system needs to be continually reassessed as

strategies and competitive environments evolve.

2.2.3 Conceptual Framework

Liquidity management profitability

Deposit ratio

Return on Assets

Cash ratio

Fig2.2: Relationship between Liquidity Management and Profitability of KUTCCUL Buea

Source: Researcher’s 2021

The conceptual framework presented In figure 2.2 above, shows the relationship between

liquidity management and credit union profitability in KUTCCUL Buea-Cameroon. From the

conceptual model presented, liquidity management is independent variables measured in terms of

deposit ratio and cash ratio while the profitability of KUTCCUL Buea-Cameroon is the

dependent variable seen as profitability and measured in terms of Return on asset. Return on

asset is commonly used as indicator of the profitability. Hence on our research we will used the

return on asset as profitability measures.

Profitability

24
According to Aburime (2018), Profitability is the ability to make profit from business activities

of an organization resources in adding values to the business. Profitability may be regarded as a

relative term of measurable in terms of profit and its relation with other elements that can

directly influence the profit. Profitability is the relationship of income to some balance sheet

measure which indicates the relative ability to earn income on assets. Irrespective of the fact that

profitability is an important aspect of business, it may be faced with some weakness such

window dressing of the financial transactions and the use of different accounting principles

(Ajao, S. & Solomon s, 2012). Profitability is measured using ratios which measure the

efficiency with which a company turns business activities into profits. These ratios include

Return on equity, Return on asset, and Profit margin. Profit margin assesses the ability to turn

revenue into profits. Return on assets measured the ability to use assets to produce net income.

Return on equity compares the net income to shareholder equity (Brain, 2010). The reasons to

evaluate the profitability of banks include; to determine their operational results and their overall

financial condition; measure their assets quality, management quality and efficiency, and

achievement of their objectives; as well as ascertain their earning quality, liquidity, capital

adequacy, level of bank services.

2.3 Theoretical Literature

The Liquidity preference theory, the portfolio theory and the liquidity asset theory are at

the forefront of theories that have provided insight in explaining the links between

liquidity and profitability in the KUTCCUL system.

2.3.1 Liquidity Preference theory

25
This was discovered by John Maynard Keynes ( 1936) is out to explain why people hold

money in liquid form. According to Keynes, there are three motives behind the desire of

the public to hold liquid cash: (1) the transaction motive, (2) the precautionary motive,

and (3) the speculative motive. The transactions motive relates to the demand for cash

for the current transactions of individuals and businesses. Individuals hold cash in order

to bridge the gap between receipts of income and its expenditure. The demand for

money for transactions depends on income and interest rate. The precautionary motive for

holding money refers to the desire to hold some cash balances for unforeseen

contingencies. Individuals hold some cash to provide for illness, accidents, unemployment

and other unforeseen circumstances. Keynes holds that the transaction and precautionary

motive is known as the Active balance and are relatively interest inelastic, but is highly

income elastic. The amount of money held under these two motives (M1) is a function

(L1) of the level of income (Y) and is expressed as M1=L1 (Y). The speculative demand

for money suggested by Keynes relates to the desire to hold one’s resources in liquid

form to take advantage of future changes in the rate of interest or bond prices. Bond

prices and the rate of interest are inversely related to each other. If bond prices are

expected to rise, the rate is expected to fall, thus people will buy bonds to sell when

the price later actually rises. If, however, bond prices are expected to fall, people will

sell bonds to avoid losses. According to Keynes, the interest rate and the speculative

demand for money are inversely related. Algebraically, Keynes expressed the speculative

demand for money as M2 = L2 (r) where, L2 is the speculative demand for money, and r

is the rate of interest. The total liquidity is donated by M, that is the transaction plus

precautionary motives by and the speculative motive by M2, then M = M1 + M2. Since

26
M1 = L1 (Y) and M2 = L2 (r), the total liquidity preference function is expressed as M =

L (Y, r). However, this is limited since the demand for money has gone beyond M1 and

M2 in most advanced economies to include M3 and M4. That is the holding of money

in form of other assets such as land, buildings, petrol bong, government bonds, and

discountable bills of exchange among others.

2.3.2 The Portfolio Theory

This theory suggests that banks, as financial intermediaries generate financing from

depositors, equity-holders and debt-holder and then allocates these funds to a credit

portfolio made up of securities, loans and mortgages. As in any portfolio allocation,

banks face a risk-return trade-off . Specifically, for a given level of risk, banks attempt

to maximum returns. Equivalently, banks minimize risk for a given level of return. Banks’

investment portfolio can provide liquidity in three ways: (1) by the maturity of securities

(2) the sales of securities for cash (3) the use of securities as collateral security in a

repurchase agreement or other borrowings. The exact amount of liquidity that a

microfinance should hold is difficult to determine. One approach of dealing with

uncertainty in project returns is to increase the required rate of returns on risky

investments. Hence, a risk adjusted discount rate can be used in any situation involving

risk. The portfolio theory can be used to identify the optimal portfolio of assets and

liability that yield the desired return.

2.3.3 The Shift ability Theory of Liquidity Management:

Shift ability theory, developed by Bhattacharyya (2011), states that the level of defensible

financial institution liquidity management is having possession or investing in legal capital

capable of shifting solely to other investments in obtaining liquid equipment. Loan for instance

27
becomes secondary back up while secondary back up shifts to become primary back up. This

means shift ability theory suggests that financial institutions should give credit paid with

notification before they apply for commercial paper pawn.

According to this theory banks maintain liquidity if they hold assets that are marketable. During

a liquidity crisis such assets are easily converted into cash. Thus this theory contends that shift

ability, or marketability or transferability of bank assets is a basis for ensuring good liquidity

management.

Supposing when there are no hard cash, financial institutions tend to sell pawn goods on loan

aiming to obtain adequate cash. The friction happens because collateral which is illiquid turns

into liquid. Besides this they also often sell marketable securities like super common stock. As a

result, the shift ability theory is comprehended to give description and confidence of

management of financial institutions until certain degree of removable asset possession in

condition is needed to fulfill liquidity management. Under shift ability, the banking system tries

to avoid liquidity crises by enabling banks to always sell or repos at good prices

(en.wikipedia.org)

2.3.4 Liability Management Theory

This theory focuses on financial institutions issuing liabilities to meet liquidity management

needs (Lee & Lee, 2006). There is a close relationship between liquidity management and

liability management.

There are two aspects of liquidity management. First, is there is the buildup of a prudential level

of liquidity assets to control risk (Lee & Lee, 2006). Second, is the management of customer

28
deposits to meet their demand for cash (Lee & Lee, 2006). But imprudent borrowing can cause a

crisis if debt holders confidence in the bank.

Furthermore, The theory states that there is no need to follow old liquidity norms like

maintaining liquid assets, liquidity investments etc, banks have focused on liabilities side of the

balance sheet (scribd. com). According to this theory, banks can satisfy liquidity needs by

borrowing in the money or capital markets. The fundamental contribution of this theory was to

consider both sides of a bank’s balance sheet as sources of liquidity (1997).

2.3.5 Theory of Financial Intermediation

The theory regarding financial intermediation was developed starting with the 1960s, the

starting point being the work of Gurley and Shaw (1960). The financial intermediation theory is

based on the theory of informational asymmetry and the agency theory. In principle, the

existence of financial intermediaries is explained by the existence of the following attributable

factors: high cost of transaction, inadequate information in useful time; and the method of

regulation.

The unique factor in the studies regarding financial intermediation is constituted by the argument

regarding informational asymmetry. This asymmetry can be of type: exalted generating the so

called problem of adverse selection; concomitant generating the moral hazard (principal and

agent relationship); or ex post leading to the need of applying some costly verification and

auditing procedures or even the forced execution of the debtor. The informational asymmetry

generates imperfections of the market, deviations from the theory of perfect markets in an Arrow

-Debreu sense. Arrow-Debreu perfect markets synopsis of a near heaven, which depicts that if

they is an heaven, then the financial intermediaries would not be useful in the economy at large,

29
but since we are still on earth, it is certain that there will be imperfection and incomplete

information which serve has a benefit-cost effect for intermediaries and market.

According to the model of perfect financial markets in the neo -classical theory, they fulfill the

following conditions: no one participant can influence the prices; then placement/borrowing

conditions are identical for all participants; there are no discriminatory fees; the lack of

competitive advantages at the level of participants; all financial securities are homogeneous,

dividable and

transactional; there are no transaction costs for obtaining information or of insolvency; all

participants have immediate aces to the complete information regarding the factors and elements

that can influence the current or future value of the financial instruments.

Many of these imperfections generated by informational asymmetry lead to the emergence of

some specific forms of transaction costs. The financial intermediaries have emerged exactly to

eliminate, at least partially, these costs. For example, Diamond and Dybvig (1983) consider

banks as being a coalition of the depositors that ensures those who save up against the risks that

could affect their state of liquidity. Leland and Pyle (1977) define financial intermediaries as a

coalition that deals with the distribution of information. Diamond (1984) shows that these

financial intermediaries action as authorized agents of those who save up and that they can

achieve scale economies. Thus those who save up to rust their available funds to these

intermediaries in order to be invested in whichever projects they consider viable, the depositors

having the possibility to withdraw their funds at any time under the pre -established conditions.

The studies regarding informational asymmetry approach especially the problematic of

relationships between bank and creditors, respectively bank and debtors. In the relationship

between bank and borrower the main aspect analyzed is the function of the selection bank and

30
the tracking of the granted loans, as well as the problematic of adverse selection and moral

hazard. In the relationship between bank and depositors (creditors) a special attention is given to

the factors that determine depositors to withdraw their money before due date.

The second approach for the financial intermediation is founded on the argument of transaction

cost. This approach was developed by Benston and Smith Jr. (1976) and by Fama(1980). Unlike

the first approach this one does not contradicts the theory of perfect markets. This approach is

based on the differences between the technologies used by the participant. Thus intermediaries

are perceived as being a coalition of individual creditors or debtors who exploit the scale

economy at the level of transaction technologies. The notion of transaction cost does not

comprise just the costs regarding the transfer costs for the amounts or of foreign exchange, but

also those for research, evaluation and monitoring thus the role of financial intermediaries is to

transform the characteristics (due date, liquidity, etc.) of assets, the so called qualitative

transformation of financial assets, offering liquidity and opportunities for diversification of

placements.

The third approach of financial intermediaries is based on the method of regulation of the

monetary creation, of saving and financing of economy. This approach was developed by

Guttentag, and Lindsay (1968) and by Merton (1995). The method of regulation influences the

liquidity and solvability of intermediaries. Diamond and Rajan (2000) show that the regulations

regarding the capital of intermediaries influence their “health”, the ability for refinancing and the

method for recovering debts.

2.4 Empirical Literature

Flamini et al. (2011) examined the determinant of commercial bank performance in Sub

Sahara Africa (SSA) using a selected sample of 389 banks in 41 SSA countries. Return

31
on asset (ROA) was used to measure commercial bank performance. Both bank-specific

as well as country-specific determinants common to all SSA were used. The bank-

specific variables included credit risk, bank activity mix, capital, and bank size and

market power. Macroeconomic determinants included inflation, GDP per capita to control

for different levels of economic growth in each country and year. Using Ordinary Least

Squares technique, it was found that apart from credit risk, higher returns on asset are

associated with larger bank size, activity diversification and private ownership. Bank

returns are affected by macroeconomics variables, suggesting that macroeconomic policies

that promote low inflation and stable output growth do boost credit expansion. The results

also indicate moderate persistence in profitability. Causation in the Granger sense from

returns on asset to capital occurs with a considerable lag, implying that high returns are

not immediately retained in the form of equity increases. To strengthen financial stability,

support to a policy of imposing higher capital requirements in the region was

recommended.

Also, Bordereau and Graham (2010) assessed the effects of liquidity asset holding on the

profitability of banks for a sample of 55 U.S and 10 Canadian banks from 1997 to 2009

using a panel two-step Generalized Method of Moment Procedure. The results points to

a non- linear relationship between liquid asset holdings and profitability, measured as

Return on Equity (ROE). Bank profitability increases with an increase in liquid asset

holdings up to a certain point after which further increases in liquid asset holdings

diminish the bank profitability. Robustness checks were carried out using profitability

ratios like Return on Asset (ROA) and the ratio of outstanding repurchase agreements to

total liabilities, with similar outcomes. Empirical results further suggested that this

32
relationship varies depending on the bank’s business model and state of the economy.

The main policy implication drawn from this work is that the trade-off between

resilience to liquidity shocks and cost of holding lower-yielding liquidity assets must be

considered as the latter may influence the bank’s ability to generate revenues, increase

capital and extend credit.

Bordeleau (2010) investigated the effect of liquid asset holdings on the profitability of U.S. and

Canadian banks using the least square regression analysis. The empirical results from ordinary

least squares regression analysis of panel data of the banks suggested that profitability is

improved for banks that hold some liquid assets. However, there is a point at which holding -

further liquid assets minimize a bank’s profitability, all else equal. Furthermore, the empirical

results from the study also indicated that this relationship varies depending on a bank’s business

model and the state of the economy.

In addition, Imad (2011) studied a balanced panel data set of Jordanian banks for the purpose of

investigating the nature of the relationship between the profitability of banks and their liquidity

level for ten banks over the period 2001 to 2010. Using two measures of bank’s profitability: the

rate of return on assets (ROA) and the rate of return on equity (ROE), the results showed that the

Jordanian bank’s liquidity explain a significant part of the variation in banks’ profitability. High

Jordanian bank profitability tends to be associated with well-capitalized banks, high lending

activities, low credit risk, and the efficiency of credit management. Results also showed that the

estimated effect of size did not support significant scale economies for Jordanian Banks.

Again, Obiakor and Okwu (2011), examined the nature and extent of the relationship between

liquidity and profitability of Nigerian banks. A model of perceived functional relationship was

33
specified and estimated using correlation and regression analysis. The results indicated that a

trade-off existed between liquidity and profitability in the banks.

Ibe (2013) investigated that impact of liquidity management on the profitability of banks in

Nigeria. Three banks were randomly selected to represent the entire banking industry in Nigeria.

The proxies for liquidity management include cash and short-term fund, bank balances and

treasury bills and certificates, while profit after tax was the proxy for profitability. Elliot

Rosenberg Stock (ERS) stationary test model was used to test the association of the variables

under study, while regression analysis was used to test the hypothesis. The result showed that

there is a statistically significant relationship between the variables of liquidity management and

profitability of the selected banks.

The study by Kehinde (2013) critically examined the relationship between credit management,

liquidity position and profitability of selected banks in Nigeria using annual data of ten banks

over the period of 2006 and 2010. The results from ordinary least squares estimate found that

liquidity has significant positive effect on Return on Asset (ROA).

Again, Lartey and Boadi (2013) investigated the relationship between liquidity and the

profitability of banks listed on the Ghanaian Stock Exchange. The study was carried out on seven

of the nine listed banks. The researchers made use of the longitudinal time dimension model.

Specifically the panel method time series analysis and profitability ratios were computed from

the annual financial reports of the seven banks. The trend in liquidity and profitability were

determined by the use of time series analysis. It was revealed that for the period 2005 to 2010,

both liquidity and profitability had a downward trend. When liquidity ratio was regressed on the

profitability ratio, the result revealed that there was a positive and statistically significant

relationship between liquidity and profitability of the listed banks.

34
In the study of the determinants of liquidity and their impact on financial performance in

Nepalese commercial banks by Sushil and Bivab (2013), the results of regression analysis

showed that capital adequacy, bank size, share of non-performing loans in the total volume of

loans and liquidity premium paid by borrowers has negative and statistically significant impact

on banks’ liquidity. Growth rate of gross domestic product on the basis price level, short term

interest rate and inflation rate has negative and statistically insignificant impact on banks’

liquidity. And, loan growth rate has positive and statistically insignificant impact on banks

liquidity. Among the statistically significant factors affecting banks liquidity capital adequacy,

bank size and growth rate of gross domestic product on the basis price level had negative impact

on financial performance whereas, liquidity premium paid by borrowers had positive impact on

financial performance. In all, the impact of bank liquidity on financial performance was non-

linear. Results suggest that profitability is improved for banks that hold some liquid assets,

however, there is a point at which holding further liquid assets diminishes a banks’ profitability,

ceteris paribus

Lawrence (2013) study focuses on the effect of Account payable management on performance of

Nigerian banks. Relevant data were collected from financial report. The data was obtained from

a survey of some selected banks in Nigeria. The data collected were analyzed by the use of

regression using some performance indicators such as profit after tax, earnings per share and

dividend were used to measure the performance of the selected banks. The analyses reveal that

loan is predominate source of revenue, and effective management of loan portfolio and credit

function is fundamental to banks safety and soundness. While the test reveals that there is no

significant relationship between effective account payable management and the performance of

banks. Also, the work concludes that Account payable management has not affected the

35
performance of Nigerian banks and recommends that effective management of payable and

credit risk be strictly adhere to, and critical evaluation must be made and they should be

continuously checked for proper management.

Olongo (2013) investigated the relationship between liquidity and profitability for companies

listed at the NSE. The study established that cash conversion period and the current ratio as

liquidity measures negatively affected the profitability of the firms listed in the NSE over the 5

year period while the quick ratio as a liquidity measure did not significantly affect the

profitability of the firms listed in the NSE over the 5 year period

Furthermore, the effect of liquidity management on the performance of banks in

Cameroon was investigated by Forgha (2013) using a random sample of three banks with

data spanning from 1995 to 2010. Cash and short term fund, bank balances and treasury

bills and certificates were used as the proxies for liquidity management while profit after

tax was used as the proxy for profitability. Using multiple regression analysis, the results

suggested that liquidity management is a crucial problem in the Cameroon banking

industry. On the basis of the findings, it was therefore recommended that banks should

engage competent and qualified personnel who are capable of adopting the optimal level

of liquidity and still maximize profits.

Ruben Maina (2014) carried out a study which sought to establish the effect of liquidity

management on profitability of commercial banks in Kenya. The population of the study

comprised of all 44 banks in Kenya operating in the years 2009 to 2013. The study involved

secondary data collection of the return on assets to measure profitability, Cash and cash

equivalent to measure liquidity, Capital ratio and Deposit ratio as profitability determinants

during a specific year obtained from audited financial statements of the banks at the end of the

36
years of study. Data was therefore analyzed using descriptive statistics and regression analysis to

establish the relationship between the study variables. The response rate was 63% that is a total

27 out of 40 that satisfied the data collection criteria. However, the study found out that there is a

positive relationship between profitability and liquidity management of microfinance in Kenya.

According to Nwakaego (2014) on the study carried out to examines the impact of Account

receivables management on profitability of food and beverages manufacturing companies in

Nigeria using accounts receivable, debt and sales growth as variables. Secondary sources of data

were used for the period 2000-2011 and hypotheses were analyzed using the multiple regression

analytical tools. However, the findings show that accounts receivable had negative and non-

significant relationship with profitability, while debt had positive but non-significant relationship

with profitability of food and beverages manufacturing companies in Nigeria. Finally, sales

growth also had positive and non-significant relationship with profitability.

Also, Lukorito et al (2014) assessed the effect of liquidity on the profitability of

microfinance in Kenya using 43 microfinance which made up the microfinance banking

population from 2009 to 2013. The ROA ratios were used to measure profitability. Using

the Ordinary Least Squares Technique, findings showed that liquidity has a statistically

significant and positive relationship with banks’ profitability. The study therefore

recommended that banks should invest heavily in asset if huge gains have to be made,

maintain adequate levels of liquidity in the form of short term marketable securities so

as to realize profits and aggressively identify viable investment opportunities and link

such opportunities to customer deposit.

37
Maroza (2015) investigated the relationship between liquidity and bank performance for

South African banks from 1998 to 2014. Employing the Autoregressive Distribution Lag

(ARDL)-bound testing approach and the Ordinary Least Squares (OLS) technique, the study

observes negative significant deterministic relationship between net interest margin and

funding liquidity risk. The result also shows that an insignificant long run relationship exists

between net interest margin and the two measures of liquidity utilized; market liquidity and

funding liquidity. It was recommended that financial institutions should not only treat

liquidity as a short-run phenomenon but that further research should focus on liquidity in

the context of asset-liability mismatches..

Yemngang (2015) also carried out a study to examine the effect of managing liquidity risk

on the profitability of micrfinance in Cameroon, with KUTCCUL as the case study. With

data collected from the financial statements of the bank from 2003 to 2013, the multiple

regression analysis results showed that the profitability of KUTCCUL is inversely related

to cash and leverage but positively related to customer deposit. It was therefore,

recommended that banks should widen their scope of operations by creating more

branches in the country.

Finally, Stanley Kavale (2016) conducted a survey of the effect of liquidity management on the

profitability of microfinance in Mogadishu, Somalia. The study design was used in descriptive

survey. The target population of the study was 112 employees of miceofinance in Mogadishu. A

sample size of 87 respondents was selected using slogvan’s formula. Data collection methods

used included questionnaires. The selection sample technique was purposive judgmental

approach. Data was analyzed using SPSS Version. The key finding was that liquidity

management has a positive influence on the profitability of microfinance in Mogadishu, Somalia.

38
The overall results indicated that there was a significantly Linear relationship between

account receivables management, account payable and cash management on profitability in

microfinance in Mogadishu. The conclusion was that based on the fact that liquidity

management divers were found to significantly and positively influence profitability in

microfinance in Mogadishu Somalia. It is recommended that managers should study and

select the divers that best suits their banks in order to achieve maximum performance.

39
 2.5 Research Gap

From the literature review, there are indications that there still exits barriers to healthy

profitability which includes unrecoverable loans, capital adequacy, a mismatch between asset

and liabilities. However, the literature review reveals that most studies done on liquidity

management and profitability have been conducted mainly for the banking sector and there are

limited studies that have specifically focused on the microfinance sector, which is also equally

important to economic growth and poverty alleviation especially to those who cannot afford

mainstream banking services. Therefore, the present study will explore the effect of liquidity

management on the profitability

40
 CHAPTER THREE

METHODOLOGY

3.1 Research Design

Here, the descriptive research design will be used. This is because it explains what or how the

variables describe the others. A researcher uses research design to serve as a scheme or blueprint

or data collection, and to help him know how the variables will be observed, controlled or

manipulated to generate necessary primary data for the study (Asika, 2001). This research work

employs a casual research design to obtain data to enable the researcher to test the research

hypotheses. This method explores the relationship between the variable in the population by

selecting an unbiased sample and generalizing the findings on the entire population. The method

is quite suitable for our study because the study seeks to discover the relationship between

liquidity management and profitability of micro finance institutions in Buea-Cameroon.

Descriptive research design, which is the variant of casual design, involves one-time observation

of independent and non-manipulated variables. Here, the variable is the profitability of micro

finance institutions, which will be observed about liquidity management.

3.2 Area of the Study

This study is aimed to examine the effect of liquidity management on the profitability of micro

finance institutions in Cameroon. Liquidity management is the planning and controlling of cash

flows by individuals or managers in order to meet their day to day commitments. Thus this study

is to shed more light and give a basis on which liquidity can be managed by micro finance

institutions in Cameroon. In the cause of this work, we will use KUTCCUL Buea as case study

to set the basis on which our analysis will be drawn.

41
3.2.1 Background information KUTCCUL

Kumba Town Cooperative Credit Union Limited (KUTCCUL) is a savings and loans

cooperative society created in 1968. In the late 1970s, KUTCCUL and the Medical civil Savant

Cooperative credit union limited merged their activities but retained the name KUTCCUL. It is

affiliated to the Cameroon Credit Union Limited (CAMCUL LTD) and duly registered under

ministerial and COBAC decision NO D-2001/05 code NO 19477 OF 11 TH January 2001.

KUTCCUL exercises savings and credit activities in accordance with the microfinance laws and

regulations in Cameroon.

KUTCCUL is a joint stock institution owned and controlled by its members or shareholders in

which the shareholders have equal shares. KUTCCUL is managed by the board of directors

elected from amongst its members by her general assembly. The head office of KUTCCUL is in

KUMBA but they are other branches in Nguti, Yaoundé, Buea and Douala. They also have

collecting centers in Konye, Mator and Mbalangui. Anybody is qualified to join KUTCCUL

provided he or she fulfills the conditions of membership. The cooperative functions on the

financial sector by using money to make profit through interest, akaoh and potential members.

To become a member of this organization, you can visit any of Kumba Town Cooperative Credit

Union office and fill out a standard cooperative membership form with help of a staff with two

identification passport size photographs, one photocopy of national identity card alongside other

financial requirements.

42
3.2.2 Products and Services Offered By KUMBA TOWN COOPERATIVE CREDIT

UNION LTD

KUTCCUL has several products and services offered to its members, these products and services

include;

These are offered only to members namely;

 Share account

To become a member of KUTCCUL one must fulfill the first condition by opening a share

account with KUTCCUL. This account gives right to the member to participate in the activities

of KUTCCUL such as decision making process that is becoming a shareholder entails every

member has equal rights since the share value is equal.

 Saving account

Every member of KUTCCUL has the right to operate the savings account. This account yields

members interest from the savings during the financial year. The accumulated savings is giving

to members as loans at moderate interest rate and the interest can be calculated at the end of the

month or the period. Members who wishes to withdraw from his or her savings account, must

give a 1month notification before withdraw otherwise pays withdrawal charges of 1% of any

amount they want to withdrawals.

43
  Deposit account

this account is also known as current account, money deposited in this account can be withdrawn

by members at any point in time without charges of 500FRS on any amount whether the member

notify the union or not and this account earn no interest.

 Loans account

Before a member operates this account, he or she must have an active saving account. Loans are

granted to members for up to 48 months(4years) that is the amount of money given out as loan

will be owed by a member for less than or equal to 4 years. This loan can be short term, middle

term or long term loans.

 Minor account

This is an account opened for a child or children who have not yet attain the age of 21years. This

account is being controlled by the beneficiary who can be any of the parent or relative and this

account is handed over to the minor (children) when he or she becomes a major.

 Group account

This is an account operated by recognized groups like non-governmental organizations, “njangi”

houses, Common Initiative Groups. This account is at KUTCCUL to open a save guard group

finances. With this account, no withdrawal charges are involved whether notification is being

given to this union or not and at the end of the year, this account benefits from their savings

44
  Risk management scheme

The credit union ensures loans and services to all the members in an insurance scheme called

management through the league.

 Money transfer

KUTCCUL central cooperative credit union generates money from transfer money from the

general public and it members within their respective branches.

 Ngangi financing

This involves ngangi groups to better ensure that all members of the group benefits

from the Ngangi. The union gives a loan up to the amount that their share/saving and collateral

security can be allowed of which the interest rate is determined by the credit union.

 Term deposit

This account is one option available to investors or members who wants to get more out of their

savings and it is a fixed term investment which means that your money is locked away until the

end of the term when it reaches maturity. Other services include;

 Payment of salary

 Akawo loans (no savings are required)

 Contract financing

 Business counseling

45
3.2.3 Members Benefits

 Members are owners not customers.

 Savings accounts earn interest paid into their accounts at the end of the year.

 It’s a surer place to address financial problems and get the best solution from expert in

finance management free of charge.

 Savings and loans are given by CAMCCUL at no extra cost.

 Visit the offices and give opinions, advice and suggestions on the proper management of

the union.

 Attend annual general assemblies and participate in decision making.

 Members are sure that their financial problems will be solved.

 Members’ affairs are treated and kept confidential.

 Members can save through a standing order.

 The daily collector team can meet members in their offices or home for easy transactions.

 KUTCCUL offers the lowest in the financial market.

 Cheques can be used to make payment to a third party.

 At KUTCCUL, staffs are fast, accurate, sympathetic and just.

 KUTCCUL pre-finance member’s contract

46
3.2.4 ORGANISATIONAL CHART OF KUTCCUL MFI
GENERAL ASSEMBLY

BOARD OF DIRECTORS SUPPERVISORY BOARD

GENERAL MANAGER

ASSISTANT GENERAL MANAGER

THE INTERNAL CONTROLER THE LOAN MANAGER THE ACCOUNTANT

WOMENS COMMITEE

CREDIT COMITEE DAILY COLLECTORS

Figure 3.2: Organizational Structure of KUMBA TOWN COOPERATIVE CREDIT

UNION LIMITED BUEA BRANCH

Source: Researcher 2023

47
This organizational chart shows the flow of hierarchy from top to bottom. The general assembly

meets once a year in an Annual General Meeting (AGM) to review accounts and must be held

before the end of June each year. They can also meet for extra ordinary meeting or educative

meeting. During their meeting they present their financial statements, income and expenditure

account and conduct election and draft budget for the fort coming year. All resolutions are

forwarded to the board of directors and management and the general assembly is decided by the

president. The president of the general assembly has the following functions;

 He represents the credit union in any form if need be.

 He takes charge in signing any document concerning the union.

 He chairs Board of Directors meeting

 He chairs the annual general assembly

 The Board of Directors

The boards of directors are individuals elected by members themselves who have a term of office

for three years and are directly answerable to the president of the AGM and have the following

functions;

 They make agreement in the name of union.

 They determine main matters and policies concerning the union.

 They carry out the affairs in a way that will benefit the union.

 They are to approve loans to be granted out and also make certain decisions.

48
  Credit Committee

The credit committee takes charge in commissioning loans before the Board of Directors sign

and approve. They constitute the loan officers, the loan manager and some members of the board

of directors and they have the following functions

 They have as main functions is to recover delinquent loans.

 They calculate interest on loans

 They equally issue out letters to debtors to keep them aware of repaying their debt.

 Education Committee

The education committee is mainly for sensitizing and educating the general public on the

products and services of the union and the importance as whereas the advantages one will enjoy

if he or she join the union.

 Women and youth committee

The women and youth committee are mainly for sensitization of youths and women, they have

other functions as follows

 Inform women and youth on the type of product and services provided by the union and

how it is beneficial to them

 The committees equally try to encourage female members and youths to get involved in

the business in order to make regular savings.

49
  This committee tries to see into the problems of youths, try to reduce prostitution,

banditry, unemployment of youth by sensitizing them, and reporting to the board and

management if need be so as to ameliorate their condition.

 By trying to identify credit union women in productive activities who need financial

assistance so that the credit union can assist women if possible

 They equally try to see into the problems of youths and women.

 Supervisory Board

The supervisory board acts as an internal auditor and takes part in annual general assembly

meetings. The members of this board are elected by the general assembly. They carry out

activities such as;

 Checking the accounting books monthly

 Ensures that the loan granted are well monitored

 Check minutes of board of directors meeting to ensure that the resolutions taking are

implemented by management

 Check loans application and delinquent loan among board members and other union

members

 Check balance sheet and income statement to ensure they are correct

 Check bank account balance and their reconciliation.

50
  The General Manager

out in the The General Manager is the head of all the departments of Kumba Town Cooperative

Credit Union and is the highest authority staff of the credit union and is election by the Board of

Direction to ensure the direct functioning of the union and he is directly answerable to the Board

of Directors. The General Manager who is the head of staff of the credit union has the following;

 Planning, organizing, controlling, coordinating and leading the financial and human

resources of the credit union.

 The General Manager Implements decisions arrived at during the board of directors

general meeting.

 He equally ensures all expenditures are within the budget limit and appraises

employee performance and report periodically to the Board of Directors of that union.

 The general manager equally ensures good working conditions for all the staff of the

unions

Beneath the General Manager are the various departments of the union with their respective staff

and their functions they carry union as follows;

 Account Department

This department is made up of the accountant, accounts clerk, cashier and the customer/ member

service. The accounts clerk is answerable to the manager. The account clerk supervises other

staffs of the union especially the daily collectors and the customer/member service. The accounts

clerk has the following functions;

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  Prepare monthly financial statements, budgetary control, and ratio analysis

coverage report to the Board of Directors and copies of this are sent to the

Cameroon cooperative credit union league(CAMCCUL) for security

 The account clerk equally study analyze all bank statements and reconciliation of

all bank statements

 The accounts clerk equally updates all accounts and ensures that all receipts are

properly filed.

 The accounts clerk equally reconciles the cashier daily before closing and also

reconciles ledger and bank account.

 The account clerk equally files member individual ledger cards in numerical order

as the accounts are created.

 She is also responsible for cross checking daily collector’s record account to

know the total deposit and withdrawal before the money is paid to the cashier for

receipt to be issued.

 She also approves of any withdrawal to be made by a daily saver before the

withdrawal is made.

The cashier is also a staff of the accounts department and carries out the following functions;

 She is in charge of receiving money from members in terms of deposit or savings and in

any sort.

52
  She also pays out money to members/customers upon presentation of withdrawal slips

and passbook.

 She works in line with the accounts clerk to control the financial situation of the union.

 She equally safe guards the union’s money.

The customer/member service is the credit union receptionist and as part of the accounts

department carryout the following functions;

 She gets into contact with all customers (members and non-members)

 She gives advice on how to become a member of the credit union,

 She assists in filling membership forms for new members and updates member passbooks

 She reconciles the stock of pass books, loan policies, withdrawal slips and other loan

forms.

 She equally enters into membership register the names of all registered members.

3.3 Population of the Study

Borg and gall (1989) define population as “all members of real or hypothetical set of people,

events or objects to which an investigator wishes to generalize the results of the study.” The

target population for this study comprises of all categories one microfinance institutions under

CAMCCUL. They were about 169 category one microfinance affiliated under CAMCCUL.

Some of the existed category one microfinances are; Buea P.T Cooperative credit union LTD

(BPTCCUL), Buea Police Savings and Loans Cooperative (BPCCUL), Kumba Town Saving and

Loans Cooperative Society Credit Union ltd (KUTCCUL), Limbe Urban council Credit Union

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(LUCCU), Muyuka Town Savings and Loans Cooperative Society (MTCCUL) and Mutengene

Savings and Loans Cooperative Credit Union ltd (MUCCU). Population involves all elements,

individuals, or units that meet the selection criteria for a group to be studied, and from which a

representative sample is taken for detailed examination (Mugenda and Mugenda, 2003). The

population for this study was made up of category one Microfinance institution in Buea,

Cameroon, Southwest region of Cameroon, affiliated with CAMCCUL (the case of KUTCCUL).

The projected total population was fifty (50) made of owners, directors, general managers other

employees (workers), and account holders of KUTCCUL Buea-Cameroon.

3.4 Sampling and Sample Size

3.4.1 Sampling

The judgmental sampling technique was used to select the participants of this study because it

gives the researcher the opportunity to use his own personal judgment in selecting the respondent

for the study.

3.4.2 Sample Size

Gall et al. (1996) define a sample as a selection from the population that the researcher wants to

study. In qualitative research, determining sample size was entirely a matter of judgment; there

were no set of rules. To this effect, Gall et al. (1996) suggested that in-depth information from a

small number of people could possibly be very valuable, especially if the cases were

information-rich. Due to some limitations which are associated with time and cost the whole

population cannot be analyzed using random sampling. The major benefits of sampling

techniques are that is makes research easier and efficient in terms of time and cost whilst the

54
benefits of the sample size obtained is that it would be easier to conduct interviews over time but

can still be managed by an individual. Sample size will be 50.

3.5 Instruments

Data was collected using structured questionnaires and closed ended questions were asked. The

questionnaires were arranged based on the objectives structured or divided into three main

sections. Section one focus on the independent variables (liquidity management). Likert scale

type questions of five label were asked where 1-Disagree; 2- Strongly Disagree; 3- Neutral; 4-

Agree; 5- Strongly Agree from which the respondents were asked to pick one in each question.

Section two was on the dependent variable (profitability) and the questions were also on likert

scale. Section three was based on the demographic information which embraces age group,

gender, marital status, educational qualification and working experience of the respondents.

On the other hand, those of data analysis used where descriptive and inferential statistics. With

the descriptive statistics we look at frequency table, pie charts, and measures of central tendency

such as mean, median and standard deviation. On the other hand, instruments of inferential

statistics used where correlation and regression analysis. The correlation analysis enables us to

know the relationship between the variables in the study and the techniques used was the Pearson

correlation. Concerning the regression analysis we look at the multiple linear regressions. The

regression test is chosen because it is a simple technique of judging the significance such as

association or relationship between two attributes or two sets of data. In this study, the researcher

is to test for the relationship between the independent variable: liquidity management and the

dependent variable: profitability of microfinance institutions.

The multiple regression models is as follows;

55
Y = βo + β1 X1 + β2 X2 + Et

Where;

Y = profitability (dependent variable)

βo =constant or intercept

β1 and β2, are coefficients of the determinants of the relationship between liquidity management

and profitability of micro finance institutions

X1 represents cash ratio

X2 represent deposit ratio

Et = error term

56
 CHAPTER FOUR

PRESENTATION OF FINDINGS

Table 4.6 Descriptive Statistics

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

Cash Planning 108 1.07 2.29 1.7354 .29039

Cash Disbursement 108 1.00 3.00 1.9722 .53365

Cash system 108 1.00 2.67 1.8302 .42628

Valid N (listwise) 108

Table 4.6 presents the descriptive results of the variables studied for the first specific objective of

the study. From the above, we notice that the factors of liquidity management (Macro Economic

Factors, Cash Planning, Cash Disbursement and Cash system) have the following mean values of

1.8850, 1.7354, 1.9722, and 1.8302 respectively. The highest mean from the table is 1.9722 for

Cash Disbursement and the lowest mean is 1.7354 for Cash Planning. The standard deviation

shows the deviation of variables from the mean. From the table above, standard deviation shows

that Cash Disbursement has the highest deviation from the mean

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Inferential statistics

Table 4.7 Corelation Results

Correlations

Macro- Cash

Cash Economic syste

Cash Planning Disbursement Factors m

Cash Planning Pearson Correlation 1 .433** .430** .482**

Sig. (2-tailed) .000 .000 .000

N 108 108 108 108

Cash Disbursement Pearson Correlation .433** 1 .611** .321**

Sig. (2-tailed) .000 .000 .001

N 108 108 108 108

Cash system Pearson Correlation .482** .321** .359** 1

Sig. (2-tailed) .000 .001 .000

N 108 108 108 108

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**. Correlation is significant at the 0.01 level (2-tailed).

Table 8: Regression Results

Independent B Standard t Sig VIF

Variables error

Constant 0.483 0.225 2.149 0.034

Cash Planning 0.573 0.141 4.066 0.000 1.301

Cash 0.045 0.087 .515 0.607 1.692

Disbursement

F-Value 12.357

P-value (F 0.000

stats)

Adj R-square 0.242

Observations 108

The results above give us some statistical tools that will enable to validate and explain our

results. From the P-value of the F statistic, we conclude that the model is fitted for this study

since the p-value is less than 0.05 and all the other significance level that exist in statistics. In

59
addition, we have the adjusted R-square, whose value tells us that the independent variables that

explain liquidity management can explain the dependent variable at 24.2%. This implies that

there are many other liquidity management variables have not been used. Concerning the

significance level of the independent variables, only one of them, which is Cash Planning has a

significant effect on the profitability and sustainability of microfinance institution in Fako

dividion. The other independent variables do not have a significant. This is because they have p-

values that are greater than 0.05 and all the other existing significance level.

DISCUSSION OF RESULTS

The effect of Cash Planning on the Profitability of MFIs in Buea. Findings show that Kutccul

in Buea have effective Cash Planning. Effective liquidity management require well-regulated

sector, since the liquidity and financial risk exposure is very high. The findings of this study are

similar to those of Olongo (2013), Wanjohi (2013) and Kavale (2016). The assessment of Cash

Planning of the Kutccul in Buea by Wanjohi (2013) found a direct relationship between liquidity

management and financial performance. Also, Olongo (2013) found that the performance of

Kutccul is significantly affected by Cash Planning. The study found a positive correlation

between ROA and Cash Planning. However, the results contradict those of Bassey (2015),

Molefe and Muzindutsi (2016) and Vintila and Nenu (2016) who found a negative relationship

between the two variables.

Effect of Cash Disbursement on Profitability of Kutccul in Buea. The study found out that

Liquidity management has a positive impact on performance of Kutccul in Buea. Findings are in

line with findings of Athanasoglou, Delis and Staikorouras (2006) who carried out a study on the

60
effect of liquidity management on the performance of commercial banks and found out that

proper liquidity management positively affects the financial performance of Commercial banks.

CHAPTER FIVE

SUMMARY FOR FINDINGS, RECCOMENDATIONS AND CONCLUSSIONS

5.1 SUMMARY OF FINDINGS

The study examined the identify the different Cash Planning in MFIs, examined the different

determinants of Cash Planning in the survival and profitability of MFIs, as well as determinants

of liquidity in MFIs.

5.1.1 Different Cash Planning of MFIs in Buea.

The first objective was to identify the different Cash Planning of MFIs in Buea. The study found

out that MFIs in Buea stores enough cash to enable it meet its payment obligations, Kutccul

supplies or withdraws from the market the amount of liquidity consistent with desired level of

reserve money, Kutccul makes a thorough assessment of the needs for funds in order to ensure

availability of cash to fund normal bank activities, they carry out daily assessment of the

liquidity conditions in the banking system, so as to determine its liquidity needs, and the also

carry out a daily analysis and detailed estimation of the size and timing of cash inflows and

outflows over the coming.

5.1.2 Determinants of Liquidity in Financial Institutions.

61
The second objective was to examine the different determinants of liquidity in Kutccul in Buea.

The study found out that; Kutccul regularly monitor the quality of its assets in terms of over

exposure to specific risk trends in non-performing loans and health, and profitability of

borrowers, MFIs in Buea regularly captures large maturity mismatches to enhance its

profitability potential, hence reducing the risk of losses.

5.1.3 Effect of Liquidity Management on the survival and profitability of Kutccul in Buea.

The third objective was to determine the effect of Liquidity Management on the survival

profitability of Kutccul in Buea . The study found out that; Liquidity is a precondition to ensure

that MFIs are able to meet its short-term obligations, Inability to meet the short-term liabilities

affects the MFIs operations, hence may lead to losses, Inadequate cash or liquid assets on hand

may force a financial institution to miss the incentives given by the suppliers of credit, services,

and goods as well, Adoption of liquidity strategies by financial institutions increase Return on

Assets, Efficient liquidity management ensures successful operations of of the Kutccul in Buea

which ensures profitability, Poor liquidity management affects earnings and capital which may

even lead to insolvency and the institution failure.

5.2 RECCOMENDATIONS

Based on the findings obtained in the study the following recommendations are provided below

There is a need to invest the excess of liquidity available at the MFIs in BUea in various aspect

of investments in order to increase the survival and profitability of the MFIs and to get benefits

from the time value of the available money.

Kutccul should adopt a general framework for liquidity management to assure a sufficient

liquidity for executing their works efficiently, and there is a need to make an analytical study of

62
the liquidity evolution rates to assess the MFIs ability to achieve a balance between sources and

uses of funds

MFIs managers should identify and monitor key business drivers (e.g., Loan and deposit

margins) within the framework of analysis.

More so, MFIs officials should be trained in the areas of liquidity management and liquidity

changing conditions should not be handled with levity.

MFIs managers should be forward looking, and focus on operational efficiency of the industry

since past trends do not seem to be effective in the face of liquidity crisis.

5.3 CONCLUSION

Kutccul in Buea need to address the liquidity parameters critically to ensure that there is

adequate cash management policy within the institutions to ensure optimal financial performance

since they have a great role on the achievement of the Vision 2035 and the sector is a great

contributor of the financial sector in the Cameroonian economy. The management need to ensure

there are adequate internal cash management controls to ensure that there is optimal cash,

strategies are in place during minimal cash and surplus cash since either of the side will

contribute to liquidity risks to the institution.

63
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APPENDICES

APENDIX I: RESEARCH QUESTIONNAIRE

Dear Respondents,

I am a final year student of the Department of Banking and Finance from the University of Buea.

This questionnaire is designed to collect data in order to establish “The effect of liquidity

Management on the profitability of micro finance institutions in Buea, case of KUTCCUL.

The purpose of this study is to write a research in partial fulfillment of the award of a Bachelor

of Science (B.Sc.) degree in Banking and Finance. The data shall be used for academic purpose

only and it will be treated with confidentiality it deserves. The respondents are highly

encouraged to respond to the statements in this questionnaire in the most truthful and objected

68
way possible. Your participation in facilitating this study will be highly appreciated. Kindly tick

(√) and supply appropriate responses within the boxes and spaces provided.

Thanks for your understanding

Yours Sincerely

EWI KIZETTA CHOU

SECTION A: Assessment of cash planning on the liquidity of micro finance institution

For question a-c, on a scale of 1-5 indicate the extent of your agreement with cash planning and

its effect on liquidity.

Note: 1-Strongly Disagree; 2-Disagree; 3-Neutral 4- Agree; 5-Strongly Agree;

OPTIONS 1 2 3 4 5

1. Cash Planning

a) Recognition of time value and opportunity cost of cash has a

positive effect on the liquidity of banks

b) Understanding the firm’s cash operating cycle leads to better

liquidity management.

c) Preparing cash budgets is necessary and has a positive effect

on the liquidity of banks

2. Cash Position

a) Maintaining cash flow statements leads to better performance

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 b) Establishment of internal cash monitoring mechanisms has a

positive effect on the performance of commercial banks

b) Strict cash reporting policy have positive effect on the

performance of commercial banks

SECTION B: Performances achieved by Commercial Banks

Note: 1-Strongly Disagree; 2-Disagree; 3-Neutral 4- Agree; 5-Strongly Agree;

OPTIONS 1 2 3 4 5

1) Growth in sales has improved due to cash management

2) Profits of our enterprise have increased due to cash

management

3) Expansion of our firm has been achieved due to cash

management

4) Increase in competitive advantage due to cash management

SECTION C: Demographic Information

1. Age range?

a) 21-30yrs [ ] b) 31-40yrs [ ] c) 41-50yrs[ ] d) above 50yrs [ ]

2. Gender?

a) Male [ ] b) Female [ ]

3. Marital status?

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 a) Single [ ] b) Married [ ] c) Divorced [ ]

4. Your level of education?

a) Certificate/Diploma [ ] b) Graduate [ ] c) Post Graduate [ ]

5. How long have you worked in the institution?

a) Less than 1yr [ ] b) 1-3yrs [ ] c) 3-6yrs [ ] d) above 6yrs [ ]

Thank you for your participation.

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