1 DEVELOPMENTS OF MICROFINANCE IN WEST AFRICA AND TRENDS FOR THE DECADE I Brief introduction to the microfinance sector in West Africa When speaking of West Africa, we are referring here to the 7 countries included in the West African Monetary Union, UMOA : Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal and Togo. If we include structures such as osusus and door to door bankers in the family of microfinance, this sector has a very long history in West Africa. Even in a more modern group lending form, experiences can be tracked as far back as in the 50s. The Credit Union movement have been launched in the early 70s. In the 80s, approaches such as the caisses villageoises d épargne et de crédit autogérées (CVECA) and the solidarity group lending inspired by Grameen Bank were introduced. Therefore, microfinance in a broad acceptation of the term, has at least some decades of history in West Africa. Nevertheless, there has been a clear acceleration of the outreach, both in number of clients served and in the volume of transactions, since the recent 5-7 years. In December 1997, Central Bank (BCEAO) has recorded 188 MFIs, serving 1 440 000 clients, representing 2% of total population and 5% of active population. The savings mobilised in 1997 was 103 Million USD, and the loans outstanding were at 110 Million USD. During the period of 1993 to 1997, the number of MFIs has increased from 107 to 188 (average increase of 15% per year), while the clients served grew from 466 000 to 1 440 000, i.e. 3 times (32% per year), the deposit raised from 12.7 B FCFA to 62 B FCFA (*4.8, 48% per year) and loans outstanding from 18 B CFA to 65.6B FCA (*3.6, i.e. 38% per year). The growth rate has been quite substantial and steady. Looking at the Donor microfinance portfolio report made by CGAP in 1999, the commitments for the period of 1995-1998 stood at 300 million USD, representing 21.5% of the grand total, and ranking the first among all regions in the world. West Africa represented 35.6% (108 million $), the highest among African subregion. Is Africa, still the forgotten continent, in microfinance? It does not look like it!
2 II Main characteristics and prominent features in the recent developments 2.1. Typology of microfinance organisations The BCEAO use a pragmatic typology to classify the microfinance organisations : - the savings and credit institutions, including the classical credit unions (inspired by Raffeisen and Desjardins) and the more recent experiences of caisses villageoises autogérées (CIDR type) - the microcredit organisations,with lending as a unique or major activity, inspired by the Grameen Bank experience - organisations or projects with a credit component, where credit is a marginal activity It is now well admitted in West Africa, among practitioners and microfinance experts, that the different methodologies and technologies tend to merge, giving place to institutions that are all, more or less borrowing the best and the most efficient practises from each other. It is now very frequent to find large credit unions, developing group lending methodologies to attract women members. These experiences have often proven to be very beneficial to the credit union, not only in terms of outreach, but also in terms of profitability, since the groups have been able to absorb a significant amount of idle liquidity as resource for microcredit, with high repayment rate and higher interest rate than as investment in commercial banks. The microcredit organisations are also considering more seriously to mobilise voluntary savings, both to diversify the sources of funding and to raise the sense of responsibility among their clients to repay loans. After some initial years of ideological struggle, the microfinance community in West Africa is now, in a large majority, focused on issues such as outreach and sustainability Another characteristic for the West African MFIs is the rural focus. There may be many small initiatives in the bigger cities, but all the major MFIs are rural based and serve in a large proportion, rural microenterpreneurs. Due to this specificity, the most important challenges that they are facing constraints such as low density of the rural african context, poor infrastructures, illiteracy and the small size of the markets. These features are more dramatically affecting the MFIs operating in the sahelian food crop areas, suffering from periodic droughts.
3 2.2. The phenomenon of rapid growth The outreach, the savings mobilised and the loans outstanding have been multiplied by 3, by 4 or by 5, within a period of five years. The average growth rate is ranging from 32 to 48% per year. In the meanwhile, the number of MFI only grew at a rate of 15% per year. These figures show that together with a rising number of actors, some MFI are also changing significantly in size. There are 10 MFIs with more than 20 000 clients/members, among which the biggest, FECECAM in Benin has more than 215 000 members. These leading MFIs totalise 782 785 clients, that is 69% of the whole sector, 50 B CFA of savings, i.e. 84 % of the total deposit collected, 36 B CFA loans, i.e. 55% of the total outstanding loans. The phenomenon of rapid growth in West Africa is due to two opposite situations : - a dominant situation on the microfinance market, like FECECAM in Benin, which holds 56% of the clientele and where the banking sector is totally absent. In this case, the rapid growth is fully demand driven. - A highly competitive situation, where usually two MFIs of equal (or comparable) strength exist, and growth is the result of a strategy to «occupy the territory» and become the first or the institution. These cases are obviously more supply driven, with a strong impulse from donors who always give precedence to the more visible institution in a country. The recent severe crisis and bankruptcies observed in the microfinance sector in West Africa are all related to incapacity to control growth. Behind the issue of growth, there is also the organisational strategy chosen by the MFIs that can influence the outcome. The vast majority of the leading MFIs have opted for a rather centralised form of organisation, considering that it will provide economy of scale and assure better control. This hypothesis is currently being questioned, as experiences have shown that in countries so widely spread, with large distances and poor infrastructures of communication, centralisation have brought in more problems and constraints than it has solved. Along the same line, the leadership and management culture in West Africa, appear to be more adapted for small and medium size institutions, than large nation-wide entities. 2.3. New promoters and new generation of MFIs The dynamics and the potential profitability of the microfinance market have attracted new promoters, coming from the private sector : - there are commercial banks, creating microfinance windows, such as the experience of CCEI in Cameroon, with the MC2, or professionals coming from commercial banking background who get together and promote a credit union using bank management skills, as Taïmako in Niger.
4 - there promoters coming from the business circle, creating business type of credit unions, as it can be seen in Cameroon, - there are young unemployed graduates in urban areas, who consider that creating a microfinance business is rapidly profitable, without necessitating initial capital investment. What they share in common is a total independence from donor influence and funding at initial stage. Those who have been more visible or successful are now, exposed to the aid mode of thinking and operating, as many donors have contacted them to subcontract credit operations through them. Nowadays, many of the new promoters are now turning to donors for start up grants. A new generation of MFIs, tallying with the new promoters or not, is emerging and challenging the leading MFIs, with their commercially more aggressive behaviours. As far as one can observe up to now, they seem to have developed a more efficient management style, with a smaller staff and limited equipment. 2.4. Integration in the financial sector Microfinance in West Africa is in the process of leaving the sphere of development projects and increasingly establishing itself within the financial sector. More and more MFIs are establishing financial relations with banks, especially lending from banks to open up their loan portfolios, enabling them to have more appropriate answers to the pressing demands from their clients. The traditional vision of credit unions that are overliquid due to prudent credit policy have been swept by the facts of the recent developments in the microfinance sector. In the BCEAO 1997 report, it is shown that the ratio of savings mobilised, employed for lending in the MFIs in West Africa, has progressed from 56% in 1993 to 84% in 1997. This phenomenon can be considered as a revolution within the sector. It illustrates the level of demand for credits and gives an indication of the role played by the business relations developed with commercial banks. Therefore, in a country like Mali, where microfinance is very dynamic, support programmes for microfinance have been included in the project for financial sector reform, alongside the commercial banks and other financial institutions, by the World Bank and the Malian Government. 2.5. Sustainability and regulatory frame During the recent years, there has been an awareness among all the leading MFIs that efforts should be made to reach financial sustainability within a reasonable period of time, and therefore, necessity to improve performances.
5 Nevertheless, if many have reached operational sustainability, only a few are financially fully self sufficient. Among the key factors affecting the profitability of the MFIs in West Africa, are the very high costs of the central units, based in capital cities, and designed to serve as technical support entities (training, audit, MIS, Research-Development ) and as financial management centres. These central units are expensive because they hire highly qualified professionals, requiring salaries that are comparable with those of commercial banks, the rents and all operating costs are very high in capital cities, and due to the distances and the poor communication infrastructures, transportation costs to and from the rural branches sum up rapidly, while terribly time consuming. More decentralised solutions may have to be initiated to improve efficiency. In the same time, smaller and more responsabilised units may also solve some of the management problems that the larger MFIs are facing. The other factor affecting sustainability in West Africa can be found in the usury law of the BCEAO, fixing presently the usury rate for MFIs at 27%. An average financial margin of 20 to 22% remain insufficient to cover the operational expenses of the majority of these institutions. III Trends for the next decade If, in other continents, trends are to assist to mergers and formation of «microfinance giants», in West Africa, there are hints that the reverse movement will take place. The largest federations might split off and form more autonomous regional institutions, while ad hoc or contractual alliances are negotiated on specific areas of mutual interest. There will be very few MFIs going through a process of transformation into banks perhaps a few credit unions might want to deepen this solution in order to solve some of the traditional governance problems but the financial co-operation with the banking sector will be widely expanded, with more commercial banks entering this market as players. While in Latin America, MFIs are considering expansion into rural areas, the promoters in West Africa are more and more planning to establish units in urban areas, addressing SMEs. The major incentive here, can be found in the supposed rapid profitability in such environment. Will the rural areas and the poorer sahelian zones be neglected in the future as a consequence of this trend? New products and technologies will be developed, such as equipment leasing for SMEs in urban areas and for agriculture and food processing in rural areas, and as insurance, especially health insurance for the microenterpreneurs and their families, as the expenses for health care are increasing in every country of the sub-region and governments are less and less able to offer free health care to the population, as they were supposed to some years back.
6 1993 1997 Average growth/year Number MFI 107 188 + 75 % 15 % Number clients 466 000 1 440 000 x 3 32 % Deposit (in million cfa f) Loans (in million cfa f) Average rate of savings used for loans 12 765 62 004 x 4,8 48 % 17 940 65 600 x 3,6 38 % 56 % 85 % + 50 % 11 % Source : PASMEC / BCEAO
7 UMOA : WEST AFRICAN MONETARY UNION INCLUDING 7 COUNTRIES : BENIN, BURKINA FASO, IVORY COAST, MALI, NIGER, SENEGAL, TOGO DECEMBER 1997 189 MFI 1.440.000 clients 2 % of total population 5 % of active population 62 billion Fcfa savings mobilised (103 million USD) 66 billion Fcfa outstanding loans (110 million USD) Source : PASMEC / BCEAO