PROVISIONAL TITTLE

What are the sources of finance available to small and medium size
enterprises in Cameroon? Is the government doing enough to guarantee
reliable finance? Case study: The city of Limbe, Cameroon.

INTRODUCTION
Small and medium size enterprises (SMEs) are very important to
every. They account for the largest number of enterprises existing in
the world. They provide millions of jobs to job seekers around the
world, thereby increasing the propensity to spend in an economy
and reducing the strain on the government's budget by reducing the
number of people running to the department of social services for
social benefits. Cameroon being a less developed country, the
situation is worse as most third world countries do not assist job
seekers in times when they have got no jobs. If SMEs can maintain a
continuous growth rate, the economic situation of an economy.
Being a developing economy, the government of the Republic of
Cameroon needs to do a lot to make sure SMEs can thrive. Reports
on global situation shows SMEs make up about 90% of the
businesses in the world. This definitely means SMEs make up a
greater part of businesses in the Republic of Cameroon. This calls for
concern to ensure their survival.

STATEMENT OF THE PROBLEM

Even though SMEs around the world contribute very much to the
survival of various economies, they are still being constrained by the
shortage of funds to finance working capital and investments.
Entrepreneurs have to make strategic decisions for survival which
can either come in form of postponing capital investments or worst
still cutting down staffing level in order to survive. It is becoming a
growing concern around the world for governments to come in to
see into the problems faced by SMEs. Governments, most especially
from less developed countries are not doing enough to guarantee
the survival of SMEs. Their sources of finance are not being
protected while the formal sources of finance consider them
uncreditworthy. This is because SMEs have got very little or no
collateral to guarantee loans. Financing the business mainly comes
from the entrepreneurs' personal savings and what he/she can raise
from friends and family. The survival of SMEs depends on their being
able to raise reliable finance for investment and other business
processes.

AIMS AND OBJECTIVES OF THE STUDY

This work will look at two parts of the research problem. The first
part aims to look at the entrepreneurs and how they are being
affected by the research question. It will identify and analyse the
reasons for the shortage of funds and how it affects current small
and medium size enterprises. It will also try to establish if there are
sources of finance available to entrepreneurs but due to their low
level education and lack of awareness, they are not able to access
available sources of finance.

Another focus will be on the government. This work will look at what
the government is doing to ensure the availability of finance to SMEs.
It will try to do a comparison to establish if it is doing enough. For
fairness sake, performance of the government will be compared to
the governments of other developing economies.

This work aims to carry out extant literature review on what other
scholars have research based on the research question. This is to see
if their conclusions still hold true in present days or there has been
some changes or improvements. It will aim to identify the causes of
the financing gap and to bring out recommendations that can be
helpful to both the government of Cameroon and entrepreneurs.

RESEARCH QUESTIONS
- What are the obstacles to SMEs raising finance?
- Where can innovative SMEs find funding?
- What can the government do to bridge the SME financing gap?

LITERATURE REVIEW
"A bond is a long term contract in which the bond holder lends
money to a company. In return the company (usually) promises to
pay the bond owners a series of interest payments, known as
coupons, until the bond matures" (Arnold, 2005). Statements like
this will normally sound very unusual to most of the owners of small
and medium size enterprises (SMEs). Mostly owned by partners or
single individuals, SMEs do not meet up to the ownership numbers
or required capital to obtain listing on stock exchanges. This makes
raising finance very difficult as shares or bonds cannot be sold out
easily but for private arrangements. Some of the sources of raising
long term finance will include "equity shares, preference shares, loan
notes and debentures, convertible loan notes, warrants, term loans,
asset-backed finance, leasing and grants from public funds"
(Mclaney, 2009). Of these sources mentioned, it is only the grants
from public funds that can be easily reachable by SMEs. The lack of
capital or collateral security makes it hard for SMEs to access formal
sources of finance. The secondary capital markets like stock
exchanges put up strict terms and conditions that must be attained
to be listed.

With all of these shortcomings, the situation is aggravated when u

consider the fact that banks and other formal sources of finance
consider SMEs as being uncreditworthy. Rosemary Atieno (2001)
write on "formal and informal institutions' lending policies and
access to credit by small-scale enterprises in Kenya" states that "the
limited use of credit reflects lack of supply, resulting from the
rationing behaviour of both formal and informal lending
institutions". If financial institutions can amend their lending policies
to favour the SMEs, then growth can be enhanced. Small and
medium enterprises need to invest in working capital and to finance
growth. Their growth potentials are not maximised because of the
shortfall in their finance. At low levels of income, the accumulation
of capital is difficult. Under such circumstances, loans, by increasing
family income, can help the poor accumulate their own capital and
invest in employment-generating activities (Hossain, 1988). The lack
of collateral by SMEs makes it more difficult as lenders turn to
classify them uncreditworthy.

Atieno (2001) goes ahead to bring out some sources of informal

finance as own savings, loans from money lenders, loans from
parents and relatives, supplier credit, sale of own property, income
from farming and gifts from parents and relatives. The formal credit
sources are identified as commercial banks, non-bank financial
institutions and corporative societies. It is evident that for initial
investment and operating capital, borrowers turn to rely on
borrowings from friends and relatives in Kenya (Atieno, 2001).

Even though SMEs are key to economic development, the failure of

capital markets and other institutions means the government needs
to come in to regulate the access to reliable finance to SMEs. From
this perspective, low entry and exit barriers, well-defined property
rights, effective contract enforcement and firm access to finance
characterise a business environment that is conducive to
competition and private commercial transactions (Beck and
Demirguc-kunt, 2006).

The ACCA, CGA Canada and CPA Australia (2009) in the journal titled
"access to finance for small and medium size enterprises: sector
evidence and conclusion" bring out the fact that small and medium
enterprises have champion the recovery of economies during
financial crisis situations in the past. This cannot be made possible if
reliable sources of finance are not available to SMEs. The asset
valuation models being used by lenders does not value the customer
base of SMEs rightly. Developing nations in Asia and Africa have got
high chances to grow as they still possess vast unexploited resources
and opportunities. If SMEs account for 99% of enterprises around the
world, this means there are great chances for their numbers to go
higher if provided with reliable financing facilities.

According to the EIU study, the SME sector has managed to create
jobs throughout the worst global downturn in post-war history and
expect to do so over the next two years (ACCA, CGA Canada and CPA
Australia 2009). Some factors need to be looked into which can be
the cause of the difficulties being faced by SMEs to raise finance. A
large number of factors can contribute to the rationing of small
business credit: lenders may be under capitalised, or extremely risk
averse, or they may still be facing a heightened cost of capital. Falling
asset prices will contribute to the credit squeeze if they affect assets
commonly used by SMEs. In such situations, SMEs are left with no
option other than to cut costs most especially as late payments turn
to strain their finances more. It should be noted that the negative
effects of cost reduction can out-weigh the benefits as economies
recover from the financial crisis situation. Because SMEs are trying to
preserve cash in their possession, lucrative investments are being
postponed and this affects SMEs as some firms turn to look up to
capital investment as a means of pursuing growth. This can
automatically affect their performance in the long.

RESEARCH METHODOLOGY
"Research is the systematic study of materials and sources etc, in
order to establish facts and reach new conclusions" (Oxford concise
Dictionary). There are various methods by which a research can be
carried out. The method chosen is very important as it can have an
influence on the conclusion drawn from the research. There are two
main research methods, that is the positivism and interpretivism
paradigms.

Looking at the positivism paradigm, (Remeneyi et al, 1998) states it

involves "working with an observable social reality and that the end
product of such research can be law-like generalisations similar to
those produced by the physical and natural scientists". In this
paradigm, the researcher is independent and does not affect or is
not affected by the research question (Remeneyi et al, 1998).

On the other hand, the interpretivism is a philosophy whereby

humans get to understand the realities of the world by putting
themselves in social positions and perceiving their own activities
(Hussey and Hussey, 1997).

In this research I will use the positivist research method because I do

not influence the research question or the data that will be analyse
in the research, and neither does it influence me. This will make sure
my findings and conclusions are unbiased and should add some value
to knowledge and can be used at any level. Personal feelings or
thought will not influence the research.

The research strategy that will be used in this work is the use of a
case study. According to Robson (2002), this is 2a strategy for doing
research which involves an empirical investigation of a particular
contemporary phenomenon within its real life context using multiple
sources of evidence". The advantage of using a case study is that the
research will focus on a particular area of an economy to pick out
every fact or evidence available. If this is extrapolated, it can give a
picture of what goes on in the economy as a whole.

This research will make use of both qualitative and quantitative data
analysis. The use of numbers, tables, graphs etc for analysis is
generally classified as quantitative analysis method while qualitative
is the use of literature or unquantified data (Smith, 1975). This is
because the conclusions drawn from the quantitative analysis will go
a long way to add more flesh to the findings of the qualitative
analysis.

RESEARCH METHOD
This research will make use of two sources of data, that is the
primary and secondary sources of data.

The two main primary sources of data will be interviews and

questionnaires. Interview sessions will be arranged with
entrepreneurs to get their personal experiences and bring out other
issues that will be relevant to the research question. A couple of
officials of financial institutions will be approached in order to pick
out information on how much use the SMEs make of their services.
Lastly, officials of government bodies most especially from the
ministry of trade and industry and the chamber of commerce, will be
approached to get information on how much the government is
doing and plans to do to secure reliable finance for SMEs.

Three sets of questionnaires will be developed for the purpose of

this research. The questionnaires will be developed in simple English
and will be very focused to the research question. This will be
directed to the same group of people as in the interview but will be
more extensive and reach out to more people. Questions will be very
simple and easily understood.

Secondary data will be used for the purpose of this research.

Secondary data is data that has been collected, processed and stored
for future uses (Saunders et al, 2007). This work will make use of
documentaries, surveys, internet and academic text books. There will
be an in-depth analysis of the literature of other scholars related to
the research question.

Most importantly, the privacy and rights of everyone involved in this

research will be upheld. Any detail relating to any individual involved
in this research will be kept private and there will be no forceful
collection of data.

ANALYSIS AND PRESENTATION

Qualitative and quantitative data will be used. The literature review
of other scholars will be compared to the findings from the primary
and secondary data collected. Graphs, tables, percentages and ratios
will be used. The A4 format of presentation will be used. Some
analysis will be presented in form of charts and other diagrams.

TIME TABLE
Complete proposal by 25/10/10

Complete literature review by 25/11/10

Complete field work by 20/12/10

Complete analysis by 20/01/11

Complete final report by 20/02/11.

REFERENCE LIST
- ACCA, CGA Canada and CPA Australia (2009), Access to Finance
for Small and Medium Size Enterprises Sector Evidence
- Beck T and Demirguc-kunt A (2006), Small and Medium Size
enterprises: Access to Finance as a growth Constraint
- Eddie Mclaney (2009), Businee Finance, Theory and Practice,
Eighth Edition
- Glen Arnold (2005), The Hand book of Corporate Finance, A
Business companion to Finance Markets, Decision and
Techniques, Prentice Hall, Financial Times.
- Hussey J and Hussey R (1997), Business Research, Macmillan
Press Ltd, Basingstoke
- Oxford Concise Dictionary (2009), compact Oxford English
dictionary, Oxford University press, Oxford
- Robson C (2002), Real world Research, second Edition, Oxford
- Rosemary Atieno (2001), Formal and Informal Institutions'
lending Policies and Acess to Credit by Small-scale Enterprises
in Kenya: An empirical assessment
- Saunders M, Lewis P and Thornhill A (2007), Research Methods
for Business students, Fourth edition, Harlow, Pearson
Education
- Smith H (1975), Strategies of Social Research: the
Methodological Imagination, Englewood Cliffs, NJ, Prentice Hall
BIBLIOGRAPHY
- ACCA, CGA Canada and CPA Australia (2009), Access to Finance
for Small and Medium Size Enterprises Sector Evidence
- Beck T and Demirguc-kunt A (2006), Small and Medium Size
enterprises: Access to Finance as a growth Constraint
- Eddie Mclaney (2009), Businee Finance, Theory and Practice,
Eighth Edition
- Glen Arnold (2005), The Hand book of Corporate Finance, A
Business companion to Finance Markets, Decision and
Techniques, Prentice Hall, Financial Times.
- Hussey J and Hussey R (1997), Business Research, Macmillan
Press Ltd, Basingstoke
- Oxford Concise Dictionary (2009), compact Oxford English
dictionary, Oxford University press, Oxford
- Richard P and Bill N (2006), Corporate Finance and Investment
Decision and Strategies, Fifth Edition
- Robson C (2002), Real world Research, second Edition, Oxford
- Rosemary Atieno (2001), Formal and Informal Institutions'
lending Policies and Acess to Credit by Small-scale Enterprises
in Kenya: An empirical assessment
- Saunders M, Lewis P and Thornhill A (2007), Research Methods
for Business students, Fourth edition, Harlow, Pearson
Education
- Smith H (1975), Strategies of Social Research: the
Methodological Imagination, Englewood Cliffs, NJ, Prentice Hall