CREDIT UNIONS AS CONDUITS FOR MICROFINANCE DELIVERY IN CAMEROON

Annals of Public and Cooperative Economics 85:2 2014 pp. 287–304

CREDIT UNIONS AS CONDUITS FOR MICROFINANCEDELIVERY IN CAMEROON

byNathanael OJONG*

Graduate Institute of International & Development Studies, Geneva, Switzerland

ABSTRACT: While financial inclusion is the buzzword now, especially in develop-ment finance studies, research on the role of credit unions in the financial inclusiondebate in the global South is sparse. This study helps to fill this gap by analyzing therole credit unions play in the delivery of financial services to the ‘unbankables’. Weanalyze the strategies used by credit unions to reach the unbankables. We show howcredit unions have been able to attract new members and offer a variety of financial ser-vices through linkages with informal savings and credit clubs, and by using domesticremittance services to build relationships.

Kreditgenossenschaften als Leitungsrohr furMikrofinanzdienstleistungen in Kamerun

Wahrend finanzielle Inklusion derzeit das Modewort ist, insbesondere in Studien uber Entwick-lungsfinanzierung, findet kaum Forschung uber die Rolle von Kreditgenossenschaften in der De-batte uber finanzielle Inklusion im globalen Suden statt. Diese Studie tragt dazu bei, die Luckezu schlieβen, indem die Rolle analysiert wird, die Kreditgenossenschaften bei der Bereitstellungvon Finanzdienstleistungen an “Unbankables” spielen. Wir analysieren die Strategien, die Kre-ditgenossenschaften anwenden, um die “Unbankables” zu erreichen. Wir zeigen, wie Kred-itgenossenschaften es geschafft haben, neue Mitglieder anzuziehen und eine Vielzahl von Finanz-dienstleistungen anzubieten - durch Verbindungen zu informellen Spar- und Kreditclubs sowiedurch Nutzung heimischer Uberweisungsdienstleistungen zwecks Anknupfung von Beziehungen.

Las cooperativas de credito, vectores de las microfinanzas en Camerun

A pesar de que la “inclusion financiera” es un tema de actualidad, especialmente en los estudiosrelativos a la financiacion del desarrollo, la investigacion sobre el papel de las cooperativas decredito en el debate sobre la “inclusion financiera” en el Sur no es habitual. Este estudio ayudaa cubrir este vacıo, analizando el papel de las cooperativas de credito en la provision de serviciosfinancieros a la poblacion excluida del sector bancario. El autor examina las estrategias desarrol-ladas por las cooperativas de credito para atender a esta poblacion. Muestra como estas entidadeshan sido capaces de atraer nuevos miembros y ofrecer una variedad de servicios financieros ligadoscon el ahorro informal y los clubes de credito, ası como utilizando servicios de pagos domesticospara desarrollar las relaciones.

∗ Email: [email protected]

© 2014 The AuthorAnnals of Public and Cooperative Economics © 2014 CIRIEC. Published by John Wiley & Sons Ltd, 9600 Garsington Road, OxfordOX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

288 NATHANAEL OJONG

Les cooperatives de credit, vecteurs de la microfinance au Cameroun

Alors que “l’inclusion financiere” est actuellement le theme d’actualite, specialement dans les etudessur la finance du developpement, la recherche sur le role des cooperatives de credit dans le debatsur l’inclusion financiere dans le Sud est rare. Cette etude aide a combler ce vide en analysant lerole des cooperatives de credit dans la fourniture de services financiers a la population exclue dusecteur bancaire. L’auteur analyse les strategies deployees par les cooperatives de credit pour touchercette population. Il montre comment les cooperatives de credit ont ete capables d’attirer de nou-veaux membres et d’offrir une variete de services financiers par des liens avec l’epargne informelleet les clubs de credit et en utilisant des services de versements domestiques pour developer lesrelations.

1 Introduction

Modern development theories lay emphasis on the pivotal role of access to finance. In-clusive financial systems enhance the efficient allocation of productive resources. Accessto financial services contributes to increasing income and decreasing vulnerability forthe low-income segment of the population, hence the importance of financial inclusion(Kendall et al. 2010).

There is an avalanche of evidence which demonstrates that access to financialproducts can make a positive change in the lives of the poor (Burgess and Pande2005, Karlan and Zinman 2009, Banerjee et al. 2009, Bruhn and Love 2009, Kotirand Obeng-Odoom 2009). The question which arises, is how best can we reach the ‘un-bankables’ to enable them maximize the benefits of financial inclusion? Credit unions,as one of the delivery channels, have a crucial role to play in this financial inclusionagenda.

Credit unions are financial co-operatives set up to meet the needs of their members,with surpluses or profits returned to members and staff in the form of surplus earnings,dividends, reinvestment in the institution, lower interest rates on loan products, orrebates of partial interest paid on eligible credit products (McKillop and Glass 2002,Bauer 2007, Goddard et al. 2008). Credit unions constitute a self-sustainable channelof reaching low-income unbankables. Their apparent neglect in mainstream economics(Kalmi 2007) and in the different events connected with financial services to low-incomehouseholds disguises their real significance (Cuevas 1999). Existing literature (Branchand Evans 1999, Arbuckle and Adams 2000, Evans 2001, Jones 2004, Nyirabega andFord 2005, Jones 2006) shows that credit unions have been able to meet the financialneeds of their members around the world. The recent financial crisis has shown thepower of co-operatives in general. The fact that the United Nations declared 2012 as theInternational Year of Co-operatives is not a coincidence. The pomp and pageantry thataccompanied various events organized that year, and the personalities involved are atestimony to the importance of co-operatives. In 2010, the largest co-operatives (2,190)from sixty-one countries had a turnover of 1,155.1 billion USD (excluding banking andinsurance sector).1

1 World Co-operative Monitor 2012.

© 2014 The AuthorAnnals of Public and Cooperative Economics © 2014 CIRIEC

CREDIT UNIONS AS CONDUITS FOR MICROFINANCE DELIVERY 289

Financial co-operatives and credit unions were resilient in the face of the bankingcrisis of 2007–2008 (Birchall and Hammond Ketilson 2009). In fact, between 2007 and2012 credit unions worldwide experienced significant growth. The number of creditunion members increased from 177 million in 2007 to 200 million in 2012. During thissame period, there was an increase in savings from 987.9 billion USD to 1,293.3 billionUSD; an increase in loans from 847.9 billion USD to 1,083.8 billion USD; an increase inreserves from 115.4 billion USD to 161.8 billion USD; and a rise in assets from 1,181.5billion USD to 1,693.9 billion USD.2 Turning to Africa, from 2007 to 2012, credit unionmembers increased from 15.1 million to 16 million; savings and shares from 3.5 billionUSD to 4.8 billion USD; loans from 3.5 billion USD to 4.9 billion USD; and assets from3.4 billion USD to 5.6 billion USD3

Those at the bottom of the pyramid have a preference for community-based finan-cial institutions such as credit unions, partly because of ease of access and their mistrustof mainstream financial institutions (Collard et al. 2003).4 Apart from their economicsignificance, their importance is also derived from their democratic governance, as wellas their perceived ability to deal with market failures (Jones and Kalmi 2009).

The governance system, co-operative values, as well as the organizational struc-ture give credit unions a comparative advantage over other financial institutions in theprovision of financial services to the low-income population. Several features arise fromtheir co-operative structure which could possibly add value. The incentives for highermonitoring may be greater since those who contribute time and resources have incen-tives to monitor management, just as common bonds could facilitate information flowsand also limit the scope for managerial risk-taking by restricting the range of productsto those suitable for the membership base (Kane and Hendershott 1994). The mainstrength of these institutions lies in the appeal of their philosophy and objectives to awide range of people, who wish to attain greater self-sufficiency in the conduct of theirfinancial affairs (Goddard et al. 2002). Key decisions are made by a board of directorswhose members are elected and accountable to the membership at the annual generalmeeting of the credit union (McArthur et al. 1993).

The target clientele of credit unions differs from that of other microfinance insti-tutions and NGOs (non-governmental organizations) that run microfinance programs.Unlike some microfinance institutions (hereafter MFIs) and non-governmental organi-zations (NGOs) that target the poor clientele, credit unions are open to the poor and lesspoor. In 2008, credit unions that reported to the Microfinance Information Exchange(MIX) had an average loan balance per borrower of 1,519 USD while non-bank financialinstitutions and NGOs had 739 USD and 286 USD respectively (MicroBanking Bulletin2010). This suggests that credit unions serve the less poor clientele than NGOs.

2 Statistical reports, 2007–2012, World Council of Credit Unions.3 Statistical reports, 2007–2012, World Council of Credit Unions.4 Mistrust of commercial banks remains strong in Cameroon due to the restructuring of thebanking sector in the 1990s. During this period of restructuring, a total of 10 banks were closed,restructured or sold. Mismanagement was rampant in these banks. This was largely due to thefact that a 1973 banking law made it obligatory for the state to acquire 25% of the share capitalin commercial banks. This made it possible for government officials to meddle in the running ofthese banks and the attribution of loans to cronies with no collateral that resulted in bad debts.


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Most studies on credit unions are focused on the UK (McArthur et al. 1993, Jones2002, McKillop and Glass 2002, Collard et al. 2003, Jones 2006, 2008) and the USA(Goddard et al. 2002, Leggett and Strand 2002, Goddard and Wilson 2005, Goddardet al. 2008). The experiences of credit unions in these developed countries are not simi-lar to those in the global South – such as Cameroon, our country of interest. While creditunions have some common basic principles irrespective of where they are located, theycannot be studied in abstraction of the location-specific social, economic and institutionalenvironment in which they operate. Strategies adopted to reach the target clientele indeveloped countries are different from those adopted in the global South. Also, hetero-geneity is a common currency among countries in the global South. Therefore, a numberof pertinent questions have remained unanswered over the years.

One area which has received little attention in the academic literature on financialinstitutions in Cameroon has been a focus on the role of credit unions in promotingfinancial inclusion. The leading writers on Cameroonian financial institutions (such asBouman 1976, Munkner 1978, Schrieder and Cuevas 1992, Baland et al. 2007, Ardener2010) have not focused on this area. Here lies the purpose of this paper. The paperexamines the membership growth strategies of these institutions as well as their role inpromoting financial inclusion in the country.

It is relevant to study the growth of credit unions as a result of the prevailingfinancial exclusion in the country. Just 15% of adults in the country are formally banked(Demirguc-Kunt and Klapper 2012). This means that there is a huge unbanked pop-ulation with no access to credit, savings, payment, and risk management products.Commercial banks have not been able to close this financial inclusion gap. As of Decem-ber 31, 2012, the country had 13 commercial banks (Ojong 2013), with less than 2 (1.43)commercial bank branches per 100,000 adults (Demirguc-Kunt and Klapper 2012). Inthis context, there is the desirability for growth of credit unions in the country as aresult of their ability to reduce the financial exclusion rate.

Furthermore, the growth of credit unions in the country is of relevance as a re-sult of the importance of economies of scale in such financial intermediaries (see forexample Taylor 1971, Koot 1978, Wolken and Navrath 1980, Crapp 1983, Murray andWhite 1983, Cox and Whigham 1984, Kim 1986, McKillop et al. 1995, Ferguson andMcKillop 1997, Sibbald and McAlevey 2003). Through economies of scale, credit unionsincrease efficiencies, thereby increasing market position and profitability. Economiesof scale improve monitoring since these institutions can utilize modern informationtechnologies to deal with borrower risk, screen loans as well as strengthen contractenforcement.

Data were obtained from the World Council of Credit Unions (WOCCU), Micro-finance Information Exchange, credit unions affiliated to the Cameroon Co-operativeCredit Union League (CamCCUL) – the largest network of credit unions in Cameroon.Since CamCCUL serves as the apex organization to credit unions affiliated to it, weobtained consolidated information on credit union activities in the country. In-depthinterviews were used to augment data from these institutions, thereby enabling betterunderstanding of the mechanisms used for the delivery of financial services to the targetpopulation. The interviews were conducted in the North West Region of Cameroon which



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Figure 1 – Credit union membership growth, 2005–2012.Source: Data obtained from WOCCU.

has the highest number of credit unions in the country.5 Thirty-six per cent of creditunions affiliated to CamCCUL are located in this region. The interviews took place fromJanuary to May 2011. In total, 18 interviews were conducted. Interviews were conductedwith six credit union staff members and twelve credit union members. Random samplingwas used to select the interviewees. Within the administrative divisions of interest, werandomly selected individuals for the study. Interviews with credit union staff focusedon their growth and operational activities aimed at bringing financial services to the un-bankables, while interviews with credit union members centered on their experiencesof using financial services offered by these institutions.

The rest of the paper is organized as follows. Section 2 focuses on the develop-ment of credit unions in Cameroon. Section 3 analyzes their role in promoting financialinclusion.

2 The development of credit unions in cameroon

The first credit union was established in Cameroon’s North West Region in 1963by Anthony Jasen, a Catholic Priest from Holland who had a vision of helping localcommunities generate the financial resources they needed. From the North West Region,it spread to other regions and subsequently led to the creation of the apex organization –Cameroon Co-operative Credit Union League (CamCCUL) in 1968. In 1969, there were65 credit unions with about 4000 members. Since then, there has been a steady growthin credit union membership (Figure 1). This steady growth of credit union membershipin Cameroon is different from that of the African Region, which has experienced somefluctuations since 2005. Between 2011 and 2012, there was 1.5% increase in the formerand 10.7% decrease in the latter. The same is true for 2008 and 2009, which saw a sharpdecline (by 20.6%) in credit union membership in the African Region, while Cameroonachieved 20% increase. Cameroon lags behind other African Countries such as Ethiopia,

5 Cameroon is divided into ten administrative regions: North, Far North, Adamawa, Centre,South, East, Littoral, West, South West, and North West.


292 NATHANAEL OJONG

Kenya, and Uganda which recorded an increase of 97%, 13% and 11% respectivelybetween 2011 and 2012. However, the expansion in Cameroon is faster than Senegalwhich recorded 29.5% decline in credit union membership during that same period.

As of December 2012, the CamCCUL network had 218 credit unions, serving over300,000 members, with close to 1.5 million people benefiting from their services. Net-works ensure economies of scale, liquidity management (as a result of cross-operationsbetween units), financing, exchanges of experience, and internal control (Labie andPerilleux 2008). In 2010, these credit unions had a gross loan portfolio of 141.5 mil-lion USD and total deposits of 172.1 million USD. Credit union membership is highlydominated by men. In 2011, men made up 61.9% of membership while women madeup just 38.1%. This preponderance of men in credit unions is in contrast to other typesof MFIs and NGOs around the world. According to the MicroBanking Bulletin (2010),credit unions recorded 41.6% of women borrowers against 55.1% and 78.1% for non-bankfinancial institutions and NGOs respectively.

In Cameroon, there is a high concentration of credit unions in the rural areas.Sixty-six per cent of these institutions are located in rural areas while 34% are locatedin urban areas. The high concentration of credit unions in the rural areas partly reflectsthe high demand for financial services in these areas. These institutions are the mainproviders of financial services in many rural communities since bank branches aremostly located in urban areas. These institutions provide more or less the same types offinancial products: savings, credit, money transfer, and salary payments.

It is evident that several factors account for the growth in membership, as well asthe usage of financial services offered by credit unions. What are some of these factorsand how do these institutions promote financial inclusion? This is the thrust of the nextsection.

3 Credit union membership growth strategies and the provisionof financial services

Credit unions in Cameroon take into consideration motivational and behavioralcomplexities when developing membership growth strategies. In this section, we focuson some major strategies.

3.1 Linkages with informal savings & credit clubs

Credit unions have been able to promote financial inclusion in Cameroon vialinkages with informal savings and credit clubs, generally referred in academic literatureas rotating savings and credit associations (ROSCAs) and accumulating saving andcredit associations (ASCAs). ROSCAs are ‘associations in which members regularlycontribute to a fund that is given in whole or in part to each contributor in turn’ (Ardener2010: 11). ASCAs differ from ROSCAs in that members distribute part of the fundcontributed as loans to members and each member gets their share of the fund at theend of the cycle. Such clubs have various names in different countries (see for exampleArdener and Burman 1995, Servet 2006). In Anglophone and Francophone Cameroon,these clubs are called ‘njangis’ and ‘tontines’ respectively. Thus, ROSCAs and ASCAs



are scholarly terms, not normally utilized by those who make use of these clubs (Ardener2010).

The argument that such informal savings and credit clubs are a temporary phe-nomenon which will gradually become less important as formal financial institutionsdevelop (Geertz 1962) has been called into question – Cameroon being a glaring exam-ple. These informal savings and credit clubs operate even in urban areas where onefinds a multitude of formal financial institutions. Their continuous existence is due tothe fact that these institutions are embedded in social networks and local culture. Theseinstitutions are not simply savings and credit mechanisms; they constitute a platformfor social interactions, a source of social capital and collective insurance – which are ofgreat value in communities with no formal social safety net. There are several of suchinformal savings and credit clubs in sub-Saharan Africa (see for example Servet 1985,Schrieder and Cuevas 1992, Shipton 1992, Bortei-Doku and Aryeety 1995, Servet 1995,Guerin 2006, Servet 2006, Anderson et al. 2009). These institutions are quite dynamicand are ‘chameleons’ able to adapt to their environment (Kane 2001: 298).

Perhaps it is as a result of their pervasive and enduring nature that credit unionshave decided to establish linkages with them. Credit unions and informal savings andcredit clubs share a common savings culture. There is a culture of saving especially inrural areas. In Warmington’s (1958) study, 60% of migrant workers on the plantationsin South West Cameroon were saving money using such clubs. Quite understandably,credit unions establish linkages with such clubs so that they can have access to thesesavings. This is important in this context because credit unions in the country dependsolely on members’ savings and shares and do not raise capital from external sources.

The relationship is also beneficial to informal savings and credit clubs due totheir many challenges. One of such weaknesses has to do with security. Some njangisdeal with huge sums of money. Some of our respondents belonged to njangis whereeach member contributes 50,000 FCFA (101.4 USD).6 For a njangi (that operates as anASCA), made up of twenty members, the treasurer collects a total sum of 1 million FCFA(2,028.50 USD). There was a need for a secure place to save njangi contributions. Creditunions have responded to this local demand by designing the Njangi Security Account – aspecial deposit and savings account for njangis. Mitayen Co-operative Credit Union andFundong Co-operative Credit Union are just two out of several credit unions that offerthis service to njangis. Its appellation is revealing; the insertion of the word ‘security’is purposefully aimed at assuring njangi members that their savings would be in asafe place – the credit union. Prior to the launch of the Njangi Security Account, thetreasurers of njangis (which operate as ASCAs) use to take funds collected (during njangimeetings) home, where, it was saved under the mattress, in a hole on the wall, amongclothes, under the rubbish bin or buried. This was risky not only for the treasurers(since their lives were at risk in the event of a robbery), but also for the entire njangibecause members could lose all of their savings. In areas where credit unions offerNjangi Security Accounts, funds collected by the treasurer of ASCAs is deposited insuch accounts. After the njangi meeting, the treasurer, accompanied by two or threenjangi members (who serve as witnesses) deposits the money in their Njangi SecurityAccount at the credit union. Part of the money is put into a savings account which

6 The exchange rate used throughout this paper is 1 USD = 490 FCFA.


294 NATHANAEL OJONG

permits them to earn interest on their savings at the end of the year when the njangicycle comes to an end, and the remainder is deposited in the deposit account whichmakes it possible to withdraw various amounts to meet the loan requests of njangimembers.

As a result of the usage of the Njangi Security Account, other njangi members whowere not yet credit union members become acquainted with the various products/servicesoffered by the credit union in question. This acquaintance with the various financialservices offered by the credit union leads such njangi members to subsequently registeras credit union members, which enables them to start benefitting from the range offinancial services offered by the credit union. In 2011, there were 26,912 of such clubshaving deposit and savings accounts with credit unions affiliated to CamCCUL in thecountry.

The linkage between credit unions and informal savings and credit clubs leads towin-win outcomes. Informal savings and credit clubs have access to the Njangi SecurityAccount which enables them to earn interest on their savings while keeping it in a secureplace. Njangi members who subsequently become credit union members benefit from thefinancial services on offer, while credit unions benefit from an increase in members andsavings portfolio. It should be noted that while this relationship between credit unionsand njangis facilitates access to financial services for some unbankables, it should notbe interpreted as meaning that all clients end up in the credit union only after thelinkage with njangis. Recent research (Collins et al. 2009) and field data suggest thatlow-income people use a variety of sources of finance at the same time.

The relationship between njangi and credit unions supports the argument thatthe latter plays a complementary role and does not serve as a substitute. This comple-mentary role is supported by the fact that all of our respondents remained members ofnjangis even after becoming credit union members. This suggests that the absence offormal financial services is not the reason for njangi membership. Njangi membershipprovides access to financial and non-financial resources. This partly explains why thepopulation does not regard credit unions as substitutes.

In fact, credit union members belong to multiple informal savings and creditclubs. Multiple njangi membership gives members access to financial and non-financialresources, vital for a living. In other words, belonging to multiple njangis increases aperson’s sources of social capital. Portes (1998) differentiated between the possessorof social capital, the sources of social capital, and the resources. Let us use a funeralevent as an example to illustrate this point. A njangi member who organizes a funeralevent serves as the possessor of social capital, while other njangi members who provide‘money gifts’ and other resources are the sources of social capital. On this basis, the moresources of social capital one has, the more financial and non-financial resources one gets.Access to these multiple sources of social capital provides resources in the form of cash,gifts-in-kind, labour and social support. Also, people who belong to multiple njangiscan easily raise the desired funds by negotiating with members for funds contributedto be given to them even if it is not their turn to get it. This is in addition to themonetary gift made by each njangi member towards the organization of a funeral eventof a fellow member. Respondents declared contributing between 500 FCFA (1 USD) and2500 FCFA (5 USD) towards funeral events of fellow njangi members. All things beingequal, a person who belongs to three njangis has several sources where claims can be



made, therefore, receives more contributions from other njangi members than a personwho belongs to one njangi and a credit union.

One can argue that the economic and social benefits just discussed, justify thesimultaneous usage of services provided by informal savings and credit clubs and creditunions. This highlights the importance of going beyond economic considerations to takeinto account social factors when it comes to how the financial behaviour of the unbank-ables are seen, analysed, and understood. A primary culprit is the orthodox economicsapproach which tends to separate the economic from the social. Similarly, one can ef-fectively argue that the simultaneous use of credit unions and informal savings andcredit clubs that bring together the ‘economic’ and ‘social’, reflects Sandbrook’s (2003)argument that people are not pleased with the outcomes of market fundamentalism,thus, inject social elements to humanize markets. Such ‘humane’ clubs resonate wellwith the low-income population in Cameroon.

Still in the spirit of complementarity, some respondents turn to credit unions whenthey need larger loans and go to njangis when they need smaller loans. In several cases,smaller loans from njangis were used to deal with emergencies such as illness, as wellas meet minor consumption needs. It is relatively easier to borrow a smaller loan froma njangi, to rush to the hospital than to apply for a loan from a credit union. For aloan request to be approved, the loan application file has to be studied before the fundscan be disbursed. In such circumstances, it is more convenient to quickly get a smallerloan from a njangi. Furthermore, the poor turn to njangis to get smaller loans becauserepayment can always be renegotiated as expressed by this respondent: ‘you can informthem [njangi members] that you are unable to repay the loan if you realize that youcannot repay it within the time frame and they will add you another month.’ Negotia-bility, flexibility and convenience are key elements that push low-income individualsto turn to njangis for loans. These three key elements partly explain why credit unionmembers use services provided by their credit unions and informal savings and creditclubs simultaneously. The complementarity between credit unions and informal savingsand credit clubs in Cameroon is not an exception. We come across the complementar-ity between microfinance and informal financial institutions in other countries (see forexample Guerin and Venkatasubramanian 2009, Guerin et al. 2011). On this premise,it could be argued that credit unions go beyond the conceptual pair ‘formal/informal’ tobridge the ‘formal-informal’ divide.

3.2 Using domestic remittances to build financial relationships with the unbanked

Most MFIs started offering remittance services in 2005 (Orozco 2008). We comeacross empirical literature on remittances and MFIs in several countries (see for exampleJaramillo 2005, Isern and Smith 2006, Mata 2006, Orozco and Hamilton 2006, Mata2009, Castello and Boike 2011, 2013). The objective of this section is to contributeto existing literature by showing how credit unions in Cameroon use the remittancechannel to increase their membership base.

The domestic remittance service offers a colossal opportunity for credit unions (es-pecially those in rural areas) in Cameroon. The decision by credit unions to be involved inthe domestic money transfer business is motivated by two main factors. First, the desireto fill the huge gap in the domestic remittance market especially for the rural population.


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Second, the need to build relationship that can serve as a platform to attract new mem-bers, hence, enable the provision of various financial services to these newcomers. Themain players in the domestic remittance market in Cameroon are Western Union, Mon-eyGram, Express Union, Money Express, and Money Cash. Express Union, a local fi-nancial institution, is the giant in the sector with 415 branches and 2400 employees asof 2012.

Prior to the offer of money transfer service by credit unions in the rural areas,(most) people in such areas that were not connected to a money transfer system reliedon informal remittance mechanisms such as sending money through bus drivers, com-mercial motorbike riders, friends and relatives. These mechanisms had their limitationssuch as delay in reaching the recipient, embezzlement, and theft. Prior to the launchof this service by Nkor Credit Union in 2010, the inhabitants of Nkor had to travel forover 30km on very bad roads to access money transfer services in Kumbo (the divisionalheadquarter of Bui Division).7 At present, the inhabitants of this local community haveaccess to a faster and safer remittance system. Based on data from twenty-four creditunions that launched the remittance system, the number of transfers sent during aneighteen-month period after its launch was 3,824, while the number of transfers receivedstood at 3,395.

For the credit unions, the remittance service serves as a channel to reach non-members who are unbanked. When non-members visit credit unions to send or receivemoney, they are encouraged to register for membership in order to benefit from the differ-ent financial services offered. Hence, this is an opportunity for credit unions to cross-sell.Credit unions in rural areas increasingly use this strategy to reach the unbanked popu-lation. Non-members register to become members because of the close proximity of creditunions. Unsurprisingly, this factor gives these institutions a competitive advantage overother financial institutions (Servet 2006). Also, credit union staff are most often fromthe local community, thus, have relatively similar socio-cultural characteristics withnon-members. Shared socio-cultural characteristics between the staff and non-membersmake the latter to feel secure and comfortable dealing with the credit union, whichends with registering for membership. Once they gain membership, these individualshave access to financial products such as loans, savings, and payments. The twenty-four credit unions mentioned earlier recruited 1,477 new members via their remittanceservice, during an eighteen-month period following the launch of the service. Duringthis same period the volume of savings managed by these credit unions increasedby 12%.

It must be noted, though, that in order to use the domestic remittance service as achannel to bring in new members, credit union staff have to establish social relationshipswith these potential members. It is through established social relationships that users ofthe remittance service end up registering to become credit union members. This showsthe role of social relationship in economic transactions. In The Great Transformation,Karl Polanyi (2001) makes a compelling point that in earlier economies, the economywas embedded in social relations and structures. It would be hard to exaggerate thecontrast between Polanyi’s discovery and the conception of human action in neoclassicaleconomics where social relations and structures have a minimal impact on production,

7 Nkor is a village in Bui Division, North West Region of Cameroon.



consumption and distribution – what Granovetter (1985) terms the ‘undersocialized’notion of human action.

3.3 Daily savings accounts

An essential axiom lies at the centre of bringing financial services to the unbank-ables. This has to do with meeting clients/potential clients where they are. The aimof the Daily Savings Account operated by some credit unions in Cameroon is to meetmembers and non-members where they are with savings services. These institutionshave agents who visit members or potential members such as small traders in marketplaces on a daily basis and collect the amount they wish to save. They are allowed tosave as little as 500 FCFA (1 USD). Deposit collection is widespread and much morecommon in Africa (Rutherford and Arora 2009).

This is a good strategy because it encourages people in diverse economic activitiesto save little amounts at their convenience without having to disrupt their activitybecause they have to go to the credit union to save money. The convenience of thisservice is captured in the statement of this respondent: ‘I think that if I can be saving1000FCFA [2 USD] each day, it would be very helpful than trying to save 15,000FCFA[30.4 USD] at once’. This strategy enables users to build sufficient savings which are usedfor various purposes. Some respondents used savings gathered through this mechanismto build their houses. The savings also serve as a buffer, used to cushion householdshocks. Twenty-two per cent (22.8%) of our respondents used their savings to pay thehospital bills of household members. Thus, the provision of this service contributes tohousehold development.

The Daily Savings Account also acts as a self-control device since people are en-couraged to save because they see their neighbour do so. For such people, this mech-anism constitutes the surest way to discipline themselves with regards to saving andachieving targets, since it prevents them from spending money earned on frivolousgoods. Several field studies (Ashraf et al. 2006, Gugerty 2007, Bryan et al. 2010, Kastet al. 2011) show the importance of self-control devices on savings. The fact that someusers save because their neighbour is doing so, suggests a self-control problem. It high-lights the fact that the unbankables are willing to save if they have reliable savingscommitment devices. It can be argued that providing a self-control device for savingon a daily basis, for example, can help users save optimally, and within their savingcapacity.

For some women, saving on a daily basis at their business premises is morethan a self-control device. It is a device which permits them to ‘hide’ money withoutthe knowledge of their husbands as suggested by this respondent: ‘My husband is adrunkard, so I have to keep my money secretly to take care of my children at home; Isave my money without telling him, [because] he can take it to go and drink.’ For thesewomen, saving away from home is appropriate due to high financial demands not only atthe family level but also from those in their social circle. It is difficult to resist requestsfor financial help from one’s social circle when there is money in hand, even when themoney has been earmarked for a particular purpose. The Daily Savings Account, as aself-control device, is of vital importance due to the liquidity constraints and array of‘temptations’ many of the poor holders of this account face.


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Credit unions use this strategy to reach new members. The Daily Savings Accountis open to the public. Put simply, people who are not credit union members can holdthis account at a credit union that offers this product, alongside credit union members.People are not required to become credit union members before using this product. Non-credit union members, who are holders of Daily Savings Accounts, are simply consideredas daily savers. This means that they cannot benefit from the various financial servicesprovided by such credit unions as regular members do. For instance, they cannot get aloan since they are registered as daily savers and not credit union members. It shouldbe noted that not all credit unions in the country offer this service.

We find a ‘savings-membership’ relationship, whereby, holders of a Daily SavingsAccount (who are not yet members of credit unions offering the product) save on acontinuous basis, and once their savings reach a considerable sum, they are encouragedby the credit union to register for membership. Becoming a credit union member insteadof remaining as a daily saver is advantageous because interest can be earned on savingsin one’s savings account, since money in Daily Savings Accounts earns no interest. Inorder to earn interest on their savings as well as get loans, daily savers who are notyet members of the credit union offering the product subsequently use part of theirsavings in their Daily Savings Account to register for membership. This means fillingan application form, paying the membership fee and buying shares.

This entire process from getting the unbankables to hold a Daily Savings Accountto becoming credit union members, hence, have access to financial services is revealing.Delaying current consumption in favour of future consumption is not always easy as aresult of self-control problem (Thaler and Shefrin 1981). There are (some) people whomention that they do not have the sum of money required to register to become creditunion members, while others procrastinate. The Daily Savings Account tackles thisself-control problem by ensuring discipline – account holders are ‘forced’ to accumulatesavings on a daily basis. Part of the savings which they were not able to save by theirown willpower is used to register them as credit union members. Put simply, the DailySavings Account serves as a first step to credit union membership for some people.Such people save first before they subsequently become credit union members. The vitalplace of self-control in various scenarios justify why it is of great interest to behaviouraleconomics theorists (see for example Laibson 1997, O’Donoghue and Rabin 1999).

4 Conclusion

The role of credit unions in the offer of financial services to the unbankables hasbeen neglected in the financial inclusion debate and academic literature, in spite of theirproven economic significance and ability to promote community development. The factthat they are community-based financial institutions puts them in a relatively betterposition when compared to commercial banks to offer financial services to the unbank-ables, due to their co-operative model, close proximity to the local population and theirability to offer these services at a relatively lower cost. This paper examines creditunions as effective vehicles for the delivery of financial services to the unbanked popula-tion in Cameroon. It analyzes credit union membership growth strategies and how theycontribute to promoting financial inclusion. Our analysis focuses on three main areas:linkages with informal savings and credit clubs, utilizing domestic remittance services



to build relationships, and design of daily savings accounts. Our analysis indicates thatmembership growth is influenced by the types of strategies devised to bring in newmembers. Strategies which are not client-oriented are not effective in increasing themembership base. Growth in itself is good for credit unions because of the advantagesof economies of scale.

Our analysis suggests that through the above-mentioned membership growthstrategies, credit unions in the country play a significant role in promoting financialinclusion. As of 2012, there were over 218 credit unions with over 300,000 members inthe country. Mindful of the fact that these members do not live as ‘islands’; the ben-efits therefore extends to millions of inhabitants in the country. In a country whereless than 20% of the population hold a bank account, such an important role played bycredit unions cannot be ignored – they may be considered as little drops in the financialinclusion ‘ocean’ but they matter.

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CREDIT UNIONS AS CONDUITS FOR MICROFINANCE DELIVERY IN CAMEROON

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