PROMOTION OF MICRO-FINANCE TO FOSTER INVESTMENT AND REDUCE UNEMPLOYMENT POLICY IMPLEMENTED IN CAMEROON ( ) AS PRESENTED BY

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1 PROMOTION OF MICRO-FINANCE TO FOSTER INVESTMENT AND REDUCE UNEMPLOYMENT POLICY IMPLEMENTED IN CAMEROON ( ) AS PRESENTED BY PEPENANCHO GODLOVE GRIPS, JULY 2012

2 OUTLINE Overview of the policy and Stakeholders Ex-Ante Evaluation of the Policy Elaboration and Implementation of the policy Ex- Post Evaluation Post Evaluation Measures and Future perspectives Appreciation and Conclusion

3 (I) OVERVIEW OF THE POLICY Origin: Policy recommendation by the Economic and Monetary Commission for Central African States (CEMAC) to all the 6 member states (Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea and Gabon) Experience from other Developing Countries such as South Africa, Nigeria and Gabon Objectives Encouraging the growth of Microfinances as an instrument of Investment financing, especially of Small Scale Businesses, considering the reluctance of Commercial banks to grant loans to the latter

4 OVERVIEW CONT. Increase employment opportunities, and especially self employment Promoting the Banking Culture in to the citizens and Fighting against the informal sector Enlarge the Tax Base and increasing Government Revenue Period of implementation :

5 Institution STAKEHOLDERS Role CEMAC Prime Ministry Issued the main guide lines -Initiating and coordinating institution of the policy. Ministry of Finance Ministry of Small and Medium Size Enterprises Central Bank Commercial Bank Other institutions and services The Citizens Custodian of all financial Institutions and Principal ministry concerned Procedures of Business Creation and the encouragement of SMSe Banker s Bank Banks of Microfinance Institutions Beneficiary

6 EX -ANTE EVALUATION OF THE POLICY Just like in any other policy or project, it constituted of a prior assessment of the policy; that is: An assessment of the Cameroon banking situation (Commercial Banks and Micro-finance institutions before the year 2000) An evaluation or estimation of the cost of the policy. That is: financial cost Social cost Possible risk associated with such a policy And other local realities. What was the outcome of the ex-ante evaluation?

7 BANKING INSTITUTIONS BEFORE THE POLICY Central Bank: BEAC Commercial Banks 10 in 2000, 7 of which are foreign owned and are only located in few main cities. Minimum deposit for a deposited account : 1000 USD Principal clients: the government, large business, wealthy individuals. Loans are only given to businesses and individuals with enough collaterals and credibility. Micro-finance Number of MF Number of branches Rate of creation since /year 232 Total Number of employees Minimum deposit for a deposit account: 20 USD

8 CONTENT OF THE POLICY It consist of a number of stipulated measures aim at fostering the growth of micro-finance institutions. The most outstanding of these measures included: Tax exemptions on Micro-finance Institutions License tax (5% of annual turnover ),with a minimum turnover of USD Corporate tax ( 38.5% annual profit and 1.1% of annual turnover in case of a deficit) Value Added tax (19.25% of the added value) Landed property tax ( 0.1% yearly of the property value), if the land is the MF s assets Income tax on interest generated from deposit of less than USD (10% of the interest) Other Measures Softening the accounting obligations of Micro-finance Institutions

9 Business or enterprise creation: simplification of procedures (creation of a one-stop shop for business creation). With this, a company is created in 72 hours Assistance and auditing by the administration (Ministry of Finance) Technical and managerial assistance Periodic auditing by the administration (MOF) Security assistance Elaboration of a text regulating the creation, the functioning and dissolution of Microfinances in Cameroon This was a decision of the PM that stipulated a number of prerequisites for the creation of MFI and some outstanding obligations with regards to their functioning.

10 COST OF THE POLICY Financial cost: It was difficult to have and exact financial cost of the policy, considering the existence of many indirect charges. But, the direct cost was evaluated at budgetary lost worth about 10 billion franc CFA, that is 2 million USD/year, thus about 20 millions USD in 10 years Social cost: no direct social cost was pointed out. Possible risk related to this policy Negative competition of those micro finances against commercial banks Risk of poor management leading to insolvency Insecurity of such micro finances institutions, especially in rural areas

11 REMARK A prior examination of any policy is not only necessary but must be thoroughly carried out because it enable to have a mastery of all the realities surrounding the the problem at stakes In addition it is the result of the ex-ante evaluation that determines whether the policy worth implementation or not, since some how it includes a cost-benefit analysis. In the case of the policy examined now, the result of the prior evaluation gat a go ahead to the policy.

12 ELABORATION OF THE POLICY Following a few inter-ministerial meetings held at the Prime Ministry and their resolutions; The Ministry of finance, more precisely the department of Tax Policies elaborated a proposed Bill of law, containing all the above mentioned tax facilities to micro-finance; After validation of the document by the Minister, the Prime minister and finally by the President of the republic, the bill was deposited at the national Assembly on November 7 th 2000; voted as the Finance law for the Republic of Cameroon for the year 2001 three weeks latter, it was enacted by the President of the republic on December 31 st 2001.

13 IMPLEMENTATION Elaboration of an explanatory circular of the finance law by the ministry of finance. From the 1 st of January 2001, the tax administration abstained from collecting tax from micro-finance institutions, except income tax of its workers. Simplification of procedure for license attribution to MFs The Ministry of Small and Medium Size Enterprises in collaboration with the ministry of finance put in place a one stop shop for the creation of enterprises. For any micro-finance created, one policeman is being attributed to assure security Periodic auditing of the micro-finance by the ministry of finance.

14 EX-POST EVALUATION (AUGUST 2010) Following the implementation of the policy and the expiration of the 10 years period for which the policy was designed, A committee, highly dominated by the ministry of finance and the ministry of SMSE, carried out an evaluation, Which aims at getting the extent to which the intended objectives have been achieved, so as to determine a way forward.

15 OUTCOME. SITUATION OF BANKING INSTITUTIONS BY DECEMBER 31 ST 2010 Commercial Banks: From 10 to 13, 6 of which are locally owned. This increase was as a result of the fact that some microfinances saw their capital and turnover increased, and consequently, moved from the statute of a microfinance to a bank. Micro-Finance institutions The number moved from 26 in 2000 to 497 in 2010, With and Average number of branches of 8 per microfinance, thus a total number of 3976 branches.

16 OUTCOME CONT.. Financing of SMSe: Following the statistics of the various one stop shop for business creation, 7000 new small scale business were established (though other factors might have contributed to these improvement, it was held that the policy was very determinant) Employment. The MFI employed an average of 10 person per branch and 13 at the headquarters. Thus, a total number of 46,017 persons With and average monthly salary of 450 USD Many other thousands of people employed in the newly created enterprises

17 OUTCOME CONT. Considerable reduction of the informal sector Many financial transactions are carried out through banks or micro finances e.g. settlement of bills, payment of salaries etc, since MFs have become unavoidable business partner for SMSe Other outcomes Drastic increase in government revenue (income tax), since the newly employed workers both in the microfinances and the newly established businesses were subject to income tax Reduction in house rubbing since almost all the citizens, no matter the level of income have access in micro-finance where he/she can keep his money

18 OUTCOME CONT. Considerable decrease in poverty Since citizen of any income level can at any given moment g easily a loan from the MF either for the sake of his children education, health and even business. In addition, workers enrolled in these MF have the possibility to get a salary advance within the month, pending the end of the month Influence on university studies in Cameroon. With regards to all the above outcome, the evaluation report pointed out a success of the policy.

19 POST EVALUATION MEASURES AND THE WAY FORWARD Post evaluation measures (contained in the 2011 finance law) Subjection of all micro finance institution to license and corporate tax (Section 3 of the 2011 financial law); Obligation for all financial transactions worth Francs (2000 USD) to be carried out through the bank or micro finance Obligation for all salary payments worth more than (124 USD) to be paid trough a bank or financial institution Instruction of a number micro-finances institutions to be transformed into a full bank.

20 POST EVALUATION MEASURE CONT. Future perspective Complete subjection of all micro finance to the payment of all taxes and other dues (VAT, LPT, etc.) Oblige the computerization of all financial institutions.

21 SOME REASONS FOR SUCCESS National consensus on the importance of the policy (absence of a controversy of any sort) The outcome of the policy is that which affects all the citizens in the same way, thus no conflict of interest Few innerving actors. In general, well elaborated macroeconomic policies are likely to success than Physical or project policies, since the former do not involve any direct expenditure, neither does it necessitates the passing of public contract, which often takes much time and corruption.

22 PROBLEMS FACED BY THE POLICY Absence of electricity in some areas of the country, especially rural areas makes it difficult for this policy to affect all the parts of the country. Within the 10 years period, 4 MFs went bankrupted and closed, as a result of poor management. Insecurity: e.g., a few of the macro finance have been attacked by thieves, going away with a lot of money.

23 REFERENCES Terms of reference of the micro-finance promotion initiative (October 2000) Cameroon General Tax Code ( 2001 and 2011) Report on the situation and the economic, social and financial perspectives of Cameroon (2011) Strategic paper for growth and development. Finances Laws of the Republic of Cameroon ( )

24 END THANKS FOR YOUR ATTENTION

THE CAMEROONIAN BANKING AND FINANCIAL SECTOR PRESENTED BY BESONG BEN AYUK MINISTRY OF FINANCE CAMEROON

THE CAMEROONIAN BANKING AND FINANCIAL SECTOR PRESENTED BY BESONG BEN AYUK MINISTRY OF FINANCE CAMEROON 21/04/2011 12:43:16 1 PLAN OF WORK INTRODUCTION INSTITUTIONAL, REGULATORY AND LEGAL SET UP PROBLEMES