The Effect of Risk Mitigation Practices on the Asset Quality of Some Selected Member-Owned Microfinance Institutions in the North West Region of Cameroon

Ngoh Christopher Sam (), Fonkam Mongwa Nkam (), Njekang Dieudonne Nkwati (), Ngong Kelvin Sam () and Humphred Watard ()

International Journal of Finance, 2025, vol. 10, issue 5, 52 - 70

Abstract: Purpose: The high level of non-performing loans (NPLs) at approximately 49.44% among member-owned microfinance institutions (MFIs) in the North West Region of Cameroon presents a serious challenge to the sector’s asset quality. This study aims to evaluate the effect of loan insurance, loan mortgages, internal risk management schemes, social responsibility activities and the number of branches on asset quality, measured by net outstanding loans across 40 MFIs. Methodology: A cross-sectional research design and robust multiple regression analysis on secondary financial data collected in June 2024, was used to examine the relationships between variables of the study. Findings: The findings reveal that loan insurance positively affects asset quality with a coefficient of 0.456, significant at the 1% level of significance, indicating a very high likelihood that this effect is not due to chance. Loan mortgages also positively impact asset quality with a coefficient of 0.789, significant at the 1% level, confirming their role in reducing credit risk. Internal risk management schemes exhibit a negative effect with a coefficient of -0.321, significant at the 1% level, implying that overly rigid controls may hinder asset quality. Contribution to Theory, Policy and Practice: Based on these findings, recommendations include developing context-specific insurance products, promoting transparent collateral valuation, and adopting flexible risk management practices tailored to institutional capacities. Implementing these strategies can improve asset quality, foster sector sustainability, and strengthen financial inclusion in the region.

Keywords: Asset Quality; Internal Risk Management Schemes; Loan Insurance; Loan Mortgages; Risk Mitigation (search for similar items in EconPapers)
Date: 2025
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