THE MICROFINANCE SECTOR IN CENTRAL AFRICAN REPUBLIC. February 2005

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1 THE MICROFINANCE SECTOR IN CENTRAL AFRICAN REPUBLIC February 2005

2 Central African Republic

3 Country overview Surface: 622,984 sq km Population: 3,500,000 inhabitants Capital: Bangui (600,000 inhabitants) Economic Profile: Natural resources: diamonds, uranium, timber, gold, oil, hydropower; Agriculture products: cotton, coffee, tobacco, manioc (tapioca), yams, millet, corn, bananas; Industries: diamond mining, logging, brewing, textiles, footwear; Exports/commodities: diamonds, timber, cotton, coffee, tobacco Imports/commodities: food, textiles, petroleum products, machinery, electrical equipment, motor vehicles, chemicals, pharmaceuticals

4 Constraints to economic growth Key constraints on sustained economic growth include: Political instability; Weak governance; High level of corruption; Low level of human capital; Inadequate infrastructure; Conflicts in neighbouring countries;

5 Financial Sector in LDC: a overview Economic Unit with financial surplus (Savers) Economic Unit with financial needs (Borrowers) Financial 25% intermediation 25% (Ex : Banks) 75% 75% Microfinancial intermediation (Ex: Credit Union, Microfinance Banks, Village Banking,RoSCAs ) Adaptation from: Informal Financial Markets in Developing Countries by Peter J. Montiel, Pierre-Richard Agénor and Nadeem Ul Haque

6 Financial Sector: an overwiew A national financial sector includes: Formal Sector (eg. Banks and other financial intermediaries); Semi-Formal Sector (Credit Union, Development Project, NGOs); Informal Sector (RoSCAs, Money lenders, Pawnbroken); ALL THIS KIND OF ACTORS CAN PROVIDE MICROFINANCE SERVICES: Banks: Bank Rakyat (Indonesia); Bancosol (Bolivia); K-Rep (Kenya) Credit Union; Village Banking: Kafo Jiginew (Mali); CamCul (Cameroon) RoSCAs, around the world

7 Formal Sector in CAR Central Bank : Bank of Central African Countries (BEAC) Commercial bank: only 3 banks active at 30 September 2004: Banque Internationale pour le Centrafrique (BICA), Banque Populaire Maroco- Centrafricaine (BPMC) et Commercial Bank Centrafrique (CBCA); 5 branches in the whole country: 3 in the capital, 1 in Berberati and 1 in Bouar (most important towns in the country) N. of clients: about ; Savings Collected : 35 billions FCFA (70 mln $) Loans Disbursed: 57 billions FCFA (11,4 mln $)

8 Constraints to access to the banking sector Cultural factor: low trust and confidence unfriendly environment cultural barriers ; Little banking coverage: 1 branch for ~ people (Cameroon, Congo and Equatorial Guinea: 1 branch for ~ ); Prohibitive conditions to open a bank account: (Saving account: minimum initial deposit from ~ 50 $ to 240 $; Current account: minimum monthly salary: ~ 200 $ US); Poor supply of financial products; Lack of management tools to deal with small and frequently repeated amounts (microfinance).

9 Semi-Formal Financial Sector in CAR Credit Union: 2 active institutions at 31/12/2005: - Credit Mutuel du Centrafrique (CMCA); - Caisses d Epargne et de Credit de Lutte contre la Pauvreté (UNDP) NGOs: 4 Projects: 2 N. of clients: about (90% from CMCA); Savings Collected : 2,3 bln FCFA (4,6 mln $)

10 Informal Financial Sector in CAR Not regulated by Monetary Autority BUT Regulated by internal rules Individual actors: money lenders, deposit collectors, pawnbrokers, Collective actors: Rotating Saving and Credit Associations (RoSCAs) and Accumulated Saving and credit Association (ASCRAs)

11 Demand and supply for microfinance services in CAR Demand side (saving/credit) in CAR Actors of MF sector (supply) Institutional and legal framework Weaknesses of MF sector in CAR The intervention of UNDP in MF sector

12 Analysis of demand: Where do CAR people deposit savings? 60,0% 50,0% 40,0% 35,3% 57,0% 47,8% 35,5% 30,0% 20,0% 10,0% 7,4% 1,0% 1,5% 0,8% 14,7% 11,6% 2,0% 2,9% 0,0% Banks Credit Unions RoSCAs At Home Relatives & Friends Do not save Sources: ECVU/ECVR 2003, UNDP Urban Areas Rural Areas

13 SOME CONSIDERATIONS About saving mobilization: Very low capacity to save (low income) > IMPROVE ENVIRONMENTAL CONDITION FOR ECONOMIC ACTIVITIES/IMPROVE INFRASTRUCTURES AND BASIC SERVICES Prevalence of hoarding (to save at home) > IMPROVE ACCESS TO FINANCIAL SERVICES Low participation in informal financial market > IMPROVE THE ATTITUDE TOWARDS SAVINGS and PROMOTE LINKAGES BETWEEN FORMAL AND INFORMAL ACTORS; Low access to banks in urban areas and quite inexistence in rural areas > SENSIBILISATION OF BANKS AND SUT UP OF TOOLS TO MANAGE CREDIT RISK

14 Analysis of demand: existing credit facilities 70,0% 60,0% 50,0% 40,0% 30,0% 50,6% 61,1% 20,0% 10,0% 0,0% Sources: ECVU/ECVR 2003, UNDP 7,9% 7,3% 3,5% 3,8% banks credit unions Relatives & Friends urban areas 2,2% 2,2% RoSCAs NGOs/Associations rural areas 3,9% 5,8% 15,3% traders 9,0% 10,6% 6,1% 5,4% church others 5,4%

15 SOME CONSIDERATIONS Relatives and friends are the most common source for credit; Incapacity of the informal finalcial market to provide credit (especially in rural areas); Lack of NGOs and projects

16 The actors of MF sector in CAR A) Mutual system/cooperatives The Crédit Mutuel du Centrafrique (CMCA) : 13 Saving and credit cooperatives: (11 in Bangui); 2 bln FCFA of mobilized saving (30/6/2004) 600 mln FCFA of loans disbursed (30/6/2004) members The Caisses d Epargne et de Crédit de lutte contre la pauvreté P.A.P. 14 credit unions 5 in Bangui and 9 in other small town). 40 mln FCFA of mobilized saving 18 mln FCFA of loans disbursed members;

17 B) NGOs and associations Only 4 NGOs/Associations work in the microfinance sector : Central African Republic Supporting Association (CARSA): $ disbursed loans to 627 beneficiaries and 1000 $ of mobilized savings among 72 savers. The repayment rate is about 97% The Centre de Documentation et d Information pour le Développement (CEDIFOD): established 10 Village banks but only 1 is still operational; Caritas / I.P.H.D. : It works in each dioceses, lent $ to 1.515beneficiaries. Ambassade Chrétienne : set up a line of credit for women: $ lent to 32 women groups.

18 C) The projects The Comité National de Lutte Contre le Sida (CNLS) (The National Committee for fighting AIDS): to set up a revolving fund to provide microcredits (maximum 100 $ - interest free) for people affected by AIDS. Disbursed loans amounts for about $ at 31/12/2004 to 700 beneficiaries. Project Forêt de Bangassou : in the framework of an environmental project, a revolving fund of $ was set up and lend loans to 461 microprojects in a remote area of country. The promoters of this project foreseen the possibility to create 6 new credit unions in order to mobilize saving among rural people.

19 A Diagnostic of MFIs in CAR There is a monopoly position of CMCA; Lack of human and financial resources for the potential concurrent MFIs; Lack of relationship between MFIs and the institutional framework (ministry of Finance and Central Bank); MFIs ignore new regulations; Lack of planning activities of MFIs; Microfinance services provided by NGOs are accessories to other activities such as capacity building, AIDS sensibilization, agricultural development ); Lack of partnership with banking sector (e.g.: Cameroon); Lack of national training/education facilities

20 MF sector volume Saving Loans 6% 1% 94% 99% Microfinance Sector Banking Sector Microfinance Sector Banking Sector

21 Institutional and legal framework Microfinance Ministry of Finances Unit BEAC:Bangui Ministry of Finances COBAC/Yaoundé Promoters: * Private individuals *NGOs *Public Institutions *Private Sector National Committee on Microfinance

22 Diagnostic of the institutional and legal framework There is no national strategy for microfinance in order to develop in a sustainable way the MF sector; About the Microfinance Unit: Has not a clear institutional position within the Ministry of Finance; Lack of budget for functioning; Has not a clear planning for activities; Lack of human capacity; Lack of relationships with MFIs and COBAC/Yaoundé

23 Weakness/constraints of MF sector (1) More then 10 years of political instability and social insecurity ; Low access to market opportunities for economic actors; Lack of infrastructures (transport and telecommunication); Low density of population; Common people do not trust government and the formal financial institutions; Low interest of donors (international community);

24 Weakness/constraints of MF sector (2) Lack of a performing institutional framework for the follow up, monitoring and control of microfinance activities; Lack of a National Strategy for microfinance ; Ignorance of a regulatory framework for microfinance among MFIs ; Few active MFIs at 31/12/2004 ; Staff of MFIs is poorly trained ; Low performance of MFIs are driven also by a donor dependency and charitable attitude of borrowers ; Low saving habits and lack of repayment discipline.

25 Previous UNDP interventions in MF sector (up to 2002) Between UNDP implemented a Poverty Alleviation Programme; 19 credit unions (CUs) were established around the country; The programme end coincided with a military patch => impossibility to provide the CUs with the necessary tools and support to run the programme independently

26 The Activities in MF sector Co-joined mission UNDP/UNCDF to assess the microfinance sector in RCA and to elaborate the propositions for future UNDP interventions; Audit mission on 19 CUs (P.A.P.) and organization of a training course for the staff of these cooperatives; Training about basic concepts and principles of microfinance offered to public administration staff managing the microfinance activities within their departments; One week of sensibilization about microfinance in occasion of the launch of the 2005, International Year of Microcredit", with the involvement of all actors (Government, UN Agencies, Banking Sector, Private Sector, University, MFIs, population).

27 Current situation of CUs P.A.P. The audit mission identified these problems: Poor governance (ownership) of members towards the CUs; CUs are not legally recognized from Authority; Low staff ability in accounting and financial controlling ; Products and services are not conform to member s needs; Low capitalization; Low repayments rate (about 40%)

28 Current situation of CUs P.A.P. Recommendations from the audit mission: Organize the CUs within a network; To support CUs in order to finalize the procedures so to obtain the license to operate in MF from Central Bank; Mergers and acquisitions between CUs facing financial difficulties; To reinforce the capacity of local staff; To increase the capital value (shares and admission fees); To develop new products and a marketing strategy

29 UNDP program for microfinance sector in CAR 2005: Logical framework This program has the objective of implementing some priority actions in order to set up the basis for further interventions in the sector. Result 1.: Governmental bodies in charge of coordination, follow-up and control of microfinance activities are reinforced (up stream level) Activity 1.1 : to Reinforce the Microfinance Unit in Ministry of Finances (Capacity building). Activity 1.2: to support the establishment of a National Committee for Microfinance (representative of MF stakeholders).

30 Result 2.: MFIs are strengthened in order to offer financial services adapted to the needs of populations excluded from the banking system, on a sustainable and permanent basis (field level) Activity 2.1: to create a network including the CUs of the former P.R.P. and to reinforce staff capacity. Activity 2.2: to identify additional MFIs with high potential of growth and to reinforce their staff capacity; Activity 2.3: to organize a Consultation body (Cadre de concertation) for MFIs. Activity 2.4: to promote saving practices and inform the population on microfinance.

31 Result 3.: A wider National Support Program for Microfinance is elaborated (strategic level) Activity 3.1: to develop a National Strategy for Microfinance; Activity 3.2.: to include the micofinance strategy in the Poverty Reduction Strategy Paper (PRSP). Activity 3.3 : to elaborate a National Support Program for the improvement of the microfinance sector in CAR.