The Effect of Loan Policies and Recovery Expenditures on the Sustainability of Microfinance Institutions in the Ndian and Meme Divisions of the South West Region in Cameroon

Abstract Many see microfinance institutions as an answer to low income earners, a means to promote economic development, employment and growth as these institutions help support small businesses through microcredit. This study looked at the effect of loan policies on the sustainability of microfinance institutions in Ndian and Meme Divisions of the South West. Microcredit deals with the provision of loan facilities to the low income earners. Adopted the lending and performance theories of modern portfolio theory, and credit risk theory the study formulated a relationship between Loan delinquency as a measure of sustainability and the loan policies in place. A COBAC regulation was measured using a scale of 14 prudential norms. Technique of analysis was panel data where the fixed and random effects were estimated on a sample of 22 micro finance institutions for six years (2015-2020). The nature of the data in the study was primary data collected using questionnaires. The targeted population of the study was category one and two microfinance institutions in Ndian and Meme Division. The result of the study revealed that loan delinquency has significant impact on sustainability of microfinance institutions. The study went further to conclude that when there is high loan delinquency in a microfinance institution, the sustainability of the institutions staggers and when loan delinquency reduces the microfinance becomes more sustainable. The study recommended that microfinance institutions portfolios management strategies should focus more on the internal causes of delinquency which they have more control over and seek practical and achievable solutions to redress delinquency problems. It was also imperative for regulatory authorities to devise strategies to strengthen microfinance institutions financial position as well as ensuring enabling environment that will enhance the achievement of microfinance social objectives.