Rotating Savings and Credit Associations, An Alternative Source of SME Financing: The Case of the Inhabitants of the Western Region of Cameroon

Abstract

The relevance of SMEs to the economy is a globally accepted truth. These small actors generally constitute the largest category of businesses and contribute significantly to vital economic indicators. Despite their relevance, this category of businesses experiences considerable challenges obtaining financing: especially formal financing. This limited access to capital has been reported to constitute a major cause of high SME failure rates. This is mainly because these businesses lack the collateral necessary to access formal financing. Despite the above literature, it is reported that inhabitants of the Western Region of Cameroon, also referred to as the Bamelikes make extensive use of Rotating Savings and Credit Associations (ROSCA) for business financing and that this is partly responsible for their increased success in entrepreneurial activities. However, empirical studies establishing the impact of the usage of ROSCAs on SME access to capital in this region are almost inexistent. Given the above, it is the aim of this study to investigate and empirically establish whether the usage of ROSCAs significantly impacts SME access to capital in the Western Region of Cameroon. Using stratified random sampling, 500 participants from the major settlements of the Western Region of Cameroon were selected for this study. The questionnaire for the study was administered to these participants. 414 questionnaires were returned and after consistency verification, data from 401 respondents were retained for this study. The data was analyzed using the One-Way ANOVA analytical tool in the IBM SPSS software (version 21). The finding disclosed that ROSCAs usage has a statistically significant impact on SME’s access to capital in the Western Region of Cameroon. It is therefore recommended that SME owners/managers join such associations or come together to create such associations to improve their access to capital. In addition to that, since these organizations are widely spread across Africa and developing economies, they could be repurposed for business financing reasons instead of consumption.