International Journal of Social Science & Economic Research
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Title:
THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK

Authors:
VISEMIH WILLIAM MUFFEE (Ph.D)

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VISEMIH WILLIAM MUFFEE (Ph.D)
Higher Institute of Commerce and Management, The University of Bamenda, P.O. Box 39, Bambili, Bamenda, Cameroon

MLA 8
MUFFEE, VISEMIH WILLIAM. "THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK." Int. j. of Social Science and Economic Research, vol. 4, no. 7, July 2019, pp. 4849-4897, ijsser.org/more2019.php?id=371. Accessed July 2019.
APA
MUFFEE, V. (2019, July). THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK. Int. j. of Social Science and Economic Research, 4(7), 4849-4897. Retrieved from ijsser.org/more2019.php?id=371
Chicago
MUFFEE, VISEMIH WILLIAM. "THE EFFECTS OF CAPITAL STRUCTURE ON THE PROFITABILITY OF MICRO FINANCE INSTITUTIONS IN THE FAKO CHAPTER OF THE CAMEROON COOPERATIVE CREDIT UNION LEAGUE (CAMCCUL) NETWORK." Int. j. of Social Science and Economic Research 4, no. 7 (July 2019), 4849-4897. Accessed July, 2019. ijsser.org/more2019.php?id=371.

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Abstract:
The Microfinance sector is very important to any country's socio-economic development given the fundamental role it plays in financial inclusion. However, the sector has been facing numerous challenges which have threatened the survival and growth of the industry. It is based on this background that this research aimed at examining the extent to which capital structure affects the profitability of MFIs under the CamCCUL network was undertaken. The research adopted the Ex-post facto causal research design with main source of data being secondary data collected from the period of 2007-2015 using a sample of nine (9) credit unions selected from Fako Division. Using panel regression and specifically random effect regression to examine the effect on profitability measured by Return on Assets (ROA) of equity and debt capital alongside membership and liquidity, the study found that for the selected credit unions, both forms of capital negatively affect their profitability. However, we found that whereas the effect of debt capital on profitability is significant, that of equity was insignificant. Overall, we found that debt capital, equity, liquidity and membership accounted for only 37.9% of the total variation in the profitability (ROA) of the selected credit unions. Hence, it is recommended that the choice of debt as a source of capital finance should be done in line with the costs and benefits associated with its use because any change to the capital structure is likely to provoke some form of market reaction. Therefore, it is necessary to determine how any change e.g raising more debts will be perceived by shareholders, lenders and rating agencies. Strategies should be put in place for monitoring, reporting and reviewing liquidity levels to ensure the long and short term stability of the entire system. The gearing ratio should also be calculated to be able to know whether the credit unions are highly leveraged or not and this will enable them know the best option to maximize. It shows that high debt credit unions perform less than low debt credit unions. The difficult objective is therefore to find that capital structure that satisfies all parties and offers the best tradeoff between capital cost, financial needs, bankruptcy risks, and market perceptions.

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