Informal banking aids tourism development
Dr Albert Kimbu, of the University’s School of Hospitality and Tourism Management, and Dr Michael Ngoasong, of the Open University Business School, explore how Informal Microfinance Institutions benefit tourism and entrepreneurship, and create opportunities for community outreach in Cameroon.
Imagine you’re in need of a loan to set up your own small tourism business. Imagine your bank is a village hall, or someone’s living room. Instead of a suited bank manager handing you stacks of contracts to fill out, probing every aspect of your financial history, you’re surrounded by friends and peers who put money into a pot and distribute it in turn to those that need it to set up their own small hotel, restaurant or even a mini festival. And once business is dealt with – it’s time for tea and cake and maybe a song and dance.
Sound too good to be true? In Cameroon, this informal way of banking is a reality, and has been for over a century. These programmes are called Informal Microfinance Institutions (IMFIs), of which 80 per cent of Cameroon’s population is a member, allowing them to access funds and business start-up opportunities they wouldn’t normally be able to access through formal financial means.
But how effective are IMFIs on development-led tourism and entrepreneurship in Cameroon, and how sustainable are they? These are questions Dr Kimbu and Dr Ngoasong explore in their recent paper ‘Informal microfinance institutions and development-led tourism entrepreneurship’.
For the purposes of their study, the pair conducted a series of workshops, discussions and interviews with 12 Cameroon-based IMFIs and their members who own small tourism firms (STFs). The workshops explored the member’ motivations for joining the IMFI, their decision-making and conflict resolutions, the dynamics of trust within the IMFI and relationships with outside organisations. In-depth interviews explored the ways in which IMFIs created opportunities for potential entrepreneurs to start their own tourism companies.
The study’s findings showed that membership of IMFIs created ‘windows of opportunity’ to access interest-free or low interest loans, and there was an environment of trust and flexibility whereby if a member urgently needed money, they would get it whether it was their turn or not. As well as access to finance, members reaped the benefits of increasing their market size and marketing channels through informal networking with fellow members during meetings and events. They also learned basic business skills, such as book-keeping and administration.
Dr Kimbu and Dr Ngoasong learned that cultural festivals organised by IMFIs increased visitor numbers and improved local trade. Community village halls were built and rented out for weddings and parties – the profits ploughed back into the upkeep of the hall and other IMFI activities.
The researchers were also struck by the mixing of business and leisure at the IMFI meetings, where financial arrangements would be conducted, followed by refreshments and song and dance. This informality, based on mutual trust and reciprocity implies there is little emphasis on bureaucracy in IMFIs, but rather an implied code of conduct and flexible rules that guides members’ behaviour. This helps forge a close-knit community – resilient to the threats and risks that often perpetuate the informal sector – which can initiate community outreach projects as well as empower individual members.
In conclusion, the pair argue that IMFIs’ characteristic of collective action based on incentives, trust among members and shared rules helps restore conflicts and challenges among members and builds resilience in the risky environment of the informal sector. IMFIs can and should be seen as key stake-holders, capable of self-organisation and contributing to local tourism development; therefore they should exist alongside formal programmes and create synergies between the community and the state.