Microfinance Regulation in Benin: Law for Development and Performance of the Industry

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Microfinance Regulation in Benin: Implications of the PARMEC Law for Development and Performance of the Industry Africa Region Working Paper Series No. 50 June 2003

egislation to implement the law governing
the microfinance industry in Benin and
other members of the West Africa Monetary
Union (UMOA), known as the PARMEC Law, has
been in effect since August 1997. Several
shortcomings have become evident during nearly
five years of implementation, including issues with
interest rate ceiling and a lack of adequate
monitoring and supervision by the authorities. The
advent of the PARMEC Law has not been able to
rid the microfinance industry of weak institutional
capacities of microfinance institutions (MFIs) as
was envisaged by the authorities.
Although the PARMEC law is generally
considered adequate for credit unions, for which it
was intended, quite a few modifications are needed
to bring the prudential regulations in line with
international best practice. Also, a void still exists
with regards to the regulation of non-credit union MFIs, which are subject to idiosyncratic rules and
some degree of uncertainty.
The biggest issue with the PARMEC Law remains
the inability of the supervisory authorities to
handle the large number of MFIs that have been
granted a license to operate, irrespective of their
size and whether they engage in deposit
mobilization or not. As it stands now, the Ministry
of Finance is responsible for the supervision of the
microfinance industry. However, it has little
capacity to adequately monitor the industry, and it
is doubtful that on-going efforts to improve the
situation will yield any position results given the
lack of appropriate incentives. As UMOA
Governments consider granting the direct
supervision of the 40 largest MFIs to the Central
Bank, it is hoped that this new arrangement, along
with greater selectivity in licensing, will contribute
to a better development of the microfinance
industry in Benin and the UMOA region.

Authors’Affiliation and Sponsorship
Korotoumou Ouattara, Financial Economist
Financial Sector Division, Africa Region
Email address: Kouattara@worldbank.org

The Africa Region Working Paper Series expedites dissemination of applied research and policy studies with
potential for improving economic performance and social conditions in Sub-Saharan Africa. The Series publishes
papers at preliminary stages to stimulate timely discussion within the Region and among client countries, donors,
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The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s), they do not necessarily represent the views of the World Bank Group, its Executive Directors, or the countries they represent and should not be attributed to them. L

Microfinance Regulation in Benin:
Implications of the PARMEC Law
for Development and Performance
of the Industry

Korotoumou Ouattara

June 2003

ii Foreword

his country study is one of three being
published as part of research on the
implications of legal and regulatory
structures for the development of microfinance
institutions in African countries. This research
is a collaborative effort between the World
Bank’s Financial Sector Operations and Policy
Department and the Financial and Private Sector
Units of the Africa Region, with funding from
the Financial Sector Board and Africa Regional
Programs. The published country studies on
Benin, Ghana, and Tanzania, together with work
on Ethiopia, South Africa, Uganda, and Zambia
in Africa, as well as experiences drawn from
other regions, will form the basis for a
comparative review intended to provide practical
lessons and guidance to policymakers and donor
agencies on how the structure of legal and
regulatory systems may affect (and in turn be
influenced by) the evolution of microfinance
institutions in different country contexts.
Increasing the access of the poor to sustainable
financial services is an important part of the
World Bank Africa Region’s strategy for
supporting the Millenium Development Goals
for poverty reduction. Convenient and
affordable instruments for savings, credit,
insurance, and payment transfers are essential
both to cope with the economic fluctuations and
risks that make the poor especially vulnerable
and to take advantage of opportunities to acquire
productive assets and skills that can generate
increased income. Microfinance is the
application of innovative methodologies that
make such financial services available to relatively poor households and microenterprises
in small transactions suited to their conditions.
Innovative microfinance institutions have had
substantial success in making financial services
accessible to the poor in many parts of the
world, and microfinance is increasingly
provided through licensed, commercial financial
institutions capable of mobilizing the funds
necessary to significantly increase the scale of
The microfinance sector has evolved and
developed according to different patterns and
growth paths in various countries and regions.
The literature on microfinance identifies the
legal and regulatory framework as one factor
that influences the emergence of different kinds
of institutional providers of microfinance and,
especially, their development into self-
sustaining, commercial microfinance institutions
capable of reaching growing numbers of poor
clients, especially in rural areas. These country
studies provide an assessment of how the legal
and regulatory framework influences the
microfinance sector and the benefits and risks of
different approaches, providing important
lessons for other countries that may be going
through a similar process of establishing or
modifying the legal and regulatory framework
for microfinance.

Gerard Byam
Sector Manager
Financial Sector, Africa Region T


The author is grateful to Carlos Cuevas, Jennifer Isern, Richard Rosenberg, and William Steel for their valuable comments. Special thanks are extended to the managements of PADME, and PAPME, the Cellule Microfinance at the Ministry of Finance in Cotonou, Benin, and the Department of Microfinance at the Central Bank of West African States in Dakar, Senegal for their collaboration. Any errors or omissions remain the author’s sole responsibility.

iv Abbreviations and Acronyms

ALAFIA Professional Association of Microfinance Practitioners in Benin BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest (Central Bank
of West African States) BOAD Banque Ouest Africaine de Développement (West African
Develop ment Bank) CBDIBA Centre Béninois pour le Développement des Initiatives de Base CLCAM Caisse Locale de Crédit Agricole Mutuel CNCA Caisse Nationale de Crédit Agricole CRCAM Caisse Ré gionale de Crédit Agricole Mutuel CVEC Caisse Villageoise d’Epargne et de Crédit ECOWAS Economic Community of West African States FECECAM Fédération des Caisses d’Épargne et de Crédit Mutuel FENACREP Fédération des Caisses Rurales d’Épargne et de Crédit GDP Gross Domestic Product GNI Gross National Income IDA International Development Association IMF International Monetary Fund MFI Microfinance Institution MIS Management and Information System MRDM Mission pour la Réglementation et le Développement de la
M icrofinance (Mission for the regulation and development of
microfinance) NGO Non Governmental Organization OHADA Organisation pour l’Harmonisation du Droit des Affaires en Afrique (Organization to Harmonize Business Law in Africa) PADME Programme d’Appui au Développement des Micro Entreprises PAPME Programme d’Appui aux Petites et Moyennes Entreprises PARMEC Projet d’Appui à la Réglementation sur les Mutuelles d’Épargne et de Crédit (Proje ct for the regulation of credit unions) PASSEF Projet d’Association et d’ Entraide des Femmes TPCF Tout Petit Crédit aux Femmes UMOA Union Monétaire Ouest Africaine (West Africa Monetary Union) URCLCAM Union Régionale des Caisses Locales de Crédit Agricole Mutuel USAID United States Agency for International Development

Table of Contents
Abbreviations and Acronyms……………………………………………………………………………………………iv
I. Objectives and Background…………………………………………………………………………………….1
A. Introduction…………………………………………………………………………………………………….1
B. Macroeconomic and Policy Context………………………………………………………………………2
II. The Microfinance Industry in Benin…………………………………………………………………………6
A. Structure and Growth of Institutions Engaged in Microfinance……………………………………6
B. Profile of Key Microfinance Institutions………………………………………………………………..7
III. Licensing and Regulatory Framework for Microfinance…………………………………………..15
A. Rationale for and Evolution of Regulation…………………………………………………………….15
B. Structure of Legal and Regulatory Framework………………………………………………………16
C. Supervision and Monitoring Mechanisms……………………………………………………………..20
IV. Assessment of Impact of Regulation on the Evolution of Microfinance……………………..21
A. Business and Contract Enforcement Environment…………………………………………………..21
B. Impact of Regulation on the Structure and Growth of Microfinance……………………………22
C. Regulation and the Usury Law…………………………………………………………………………..22
D. Commercialization of Microfinance…………………………………………………………………….23
E. Supervision: Strengths and Weaknesses………………………………………………………………24
V. Conclusions and Recommendations:………………………………………………………………………24
Selected Bibliography……………………………………………………………………………………………..31

List of Boxes

Box 1: West African Banking Commission……………………………………………………………………………..5

List of Tables

Table 1: Portfolio Data on the Most Important MFIs in Benin in 2000……………………………………………8
Table 2: Loan Loss Provisioning Guidelines – PARMEC vs. CAMEL………………………………………….18

List of Annex Tables

Annex 1: Schedule 1: Legal and Regulatory Requirements for Different Types of MFIs ………………….. 28
Annex 2 Table 1: PADME – Selected Performance Indicators…………………………………………………….29
Annex 2 Table 2: PAPME – Selected Performance Indicators…………………………………………………….30

Implications of the PARMEC Law for Development
and Performance of the Industry

This country study of Benin is one of three case studies that have been undertaken as part
of research on the implications of legal and regulatory structures for the development of
microfinance in African countries. Together with the other case studies of Ghana and Tanzania,
the Benin study will form the basis for a comparative review of microfinance regulation in
Africa and is intended to do the following:
· first, set forth (a) how financial laws and regulations affect the ability of microfinance
institutions (MFIs) to become more commercial and integrated with the formal financial
system, and (b) the incentives (or disincentives) for licensed financial intermediaries to
move “downmarket” into microfinance. This analysis should provide information on
how practices have been adapted to the local context and innovations that could be
incorporated in operational support to improve the licensing, regulation and supervision
of MFIs.
· second, assess how business and commercial laws and institutions may affect contract
enforcement and collateral, asset transfer, and the operation of micro and small
enterprises (MSEs) that are clients of MFIs.
A. Introduction
Benin is member of the Franc Zone and West Africa Monetary Union or the Union
Monétaire Ouest Africaine (UMOA) established in 1973 and made up of eight francophone
countries in West Africa (Benin, Burkina Faso, Côte d’Ivoire, Guinea Bissau, Mali, Niger,
Senegal, and Togo). A common Central Bank, Banque Centrale des Etats de l’Afrique de l’Ouest
(BCEAO), located in Dakar, Senegal, with national branches in member states was created
earlier in 1962. All members of UMOA use the CFA Franc (CFAF) as their currency. The
CFAF has been pegged to the French Franc at FF 1 = 100 CFAF after the devaluation of the
currency in January of 1994 and is now pegged to the Euro (655.5 to 1) with convertibility
guaranteed by the French Treasury. Exchange controls apply to all currencies other than the CFA
Franc and the Euro. Monetary policy, currency, and trading regulations in member countries are
controlled and determined by the country’s membership in the Franc Zone. BCEAO and the
regional Banking Commission oversee all financial intermediaries in the UMOA zone.

2 In 1993, a common approach to the regulatory framework for microfinance institutions
was developed by BCEAO and adopted by all UMOA member countries, except Guinea
, between 1993 and 1998. The initiative that was funded with Canadian support under
the Projet d’Appui à la Réglementation sur les Mutuelles d’Epargne et de Crédit (PARMEC) has
given rise to the law regulating all licensed MFIs in the UMOA zone, and referred thereafter in
the paper as the PARMEC Law.
The purpose of this paper is to analyze the evolution and impact of the policy, legal, and
regulatory environment since the enactment of the PARMEC in the UMOA countries, with
Benin as a case study. The paper will review the basic approach that Benin has taken towards
legislation and regulation regarding MFIs, and briefly analyze whether the policy/legal/
regulatory environment has been conducive to commercialization of microfinance, either by
licensing of MFIs or by commercial institutions moving downmarket.
This introductory section will be followed by an overview of the macroeconomic and
policy context in Benin. Chapter 2 and 3 will review the microfinance industry and the licensing
and regulatory framework for microfinance in Benin, successively. Chapter 4 will assess the
impact of regulation on the evolution of microfinance and review the business and contract
enforcement environment in Benin. Finally, conclusions and recommendations will be provided
in Chapter 5.
B. Macroeconomic and Policy Context
Economic and Poverty Characteristics
The country of Benin is located in West Africa, and it covers a land area of 112,622 sq.
km. The Capital City of Benin is Porto-Novo, with 450,000 inhabitants, located in the Ouémé
The population of Benin was estimated at 6.3 million inhabitants in 2001, of which 51
percent were women and 60 percent of the population lived in rural areas (World Bank data).
Average population growth is 2.8 percent and population density is relatively low at 56 people
per square kilometer. However, one fourth of the population lives along the coast in the southern
half of the country where the density reaches 340 per square kilometer, one of the highest
densities in Africa. Nearly 60 percent of the population live in rural areas and derive their
subsistence from agriculture and the cultivation of cotton.
The official language in Benin is French, although there are approximately 20 ethnic
groups that speak several different African languages. The illiteracy3
rate in Benin is 60 percent
which is 15 percentage points above that of peer countries members of the Economic
Community of West African States (ECOWAS). Less than half the male population and less
than a quarter of the female population can read and write. Life expectancy in Benin is only 53

For the purpose of this study, any organization that engage in small financial transactions with relatively low-income
clients who typically lack access to normal commercial bank products would be considered as MFIs, regardless of their
legal status.
Due to the absence of a sizable microfinance industry.
Population age 15 and older.

3 years. A poorly educated population, undoubtedly, reduces the economic opportunities available
to the poor, and it shrinks the pool of available human resources for all sectors of the economy.
With a Gross National Income (GNI) per capita of US$380 in 2001, Benin remains one
of the poorest countries in the world. Over one third of the population lives in poverty with
inadequate food supply and little access to medical care, education, and other social services.
The economy remains in general underdeveloped, and Benin experienced great economic
difficulties in the late 1980s associated with an overvalued currency, weak primary commodity
prices, and mismanagement of public finances. A limited physical and institutional
infrastructure has constrained economic opportunities, while macroeconomic instability has
added risks to the uncertainties of economic life in general in this environment. Economic
performance over the last decade has, however, been commendable.
In many respects, economic performance in Benin is strongly linked to that of its
powerful neighbor, i.e., to Nigeria’s oil booms and slumps. Trade and migration across the
border are important sources of income in Benin due to its role as a trade corridor for landlocked
UMOA countries and as a link to Nigeria. Under a structural adjustment program started in
1991, growth in real Gross Domestic Product (GDP) which averaged 2.4 percent a year in the
1980-92 period, picked up above 4 percent in the early 1990s, increased to 5 percent after the
CFA Franc devaluation in 1994, even reached 6 percent in 1995 and averaged 5.3 percent in the
1995-2002 period. However, GDP increases were partially offset by a high annual rate of
population growth of 3 percent.
Inflation remained low at an average of 1.9 percent during the period 1990-93, rose to
38.5 percent in 1994 following the devaluation of the currency that year, but subsided gradually
in 1995 and has remained below 5 percent since 1996 (IMF statistics).
The economy of Benin was once highly dependent on subsistence agriculture and on
cotton production. In recent years, however, the share of the agricultural sector in Benin’s
economy has been falling. Value added in agriculture accounts for 37 percent of GDP, while
agriculture employs about 40 percent of the active labor force. The industrial sector contributes
about 8 percent of GDP, and it employs 14 percent of the active labor force. Services, including
financial services, contribute the most to GDP (54 percent) while employing 38 percent of the
active labor force (IMF statistics).
The Financial Sector in Benin
Monetary policy, currency, and trading regulations in Benin are controlled and
determined by the country’s membership in the Franc Zone.
At the end of 2001, the financial sector is Benin was made up of five commercial banks4
four non-bank financial institutions and numerous (over 600) microfinance and savings and loans

The five commercial banks are Bank of Africa (BOA), Ecobank, Financial Bank, Continental Bank, and Banque
Internationale du Bénin (BIBE). Of all the banks, only Continental Bank had majority shareholding by Government of 46

4 The restructuring of the state-owned banking sector in 1990 gave rise to a fully private
commercial banking sector. All three government-owned commercial banks that were operating
before this period were liquidated following the collapse of the banking system as a result of the
banking crisis that occurred in late 1980s. The private commercial banks were set up with
assistance from the international donor community including the World Bank. Commercial
banks operate in major urban areas and have limited or no branches in rural areas.
Today, the financial sector in Benin remains shallow with a ratio of M2 to GDP of 26
percent, indicating that the size of formal financial intermediation is small compared to the size
of the economy. However, financial deepening in Benin remains slightly higher than the average
Sub-Saharan African ratio of 25 percent. Credit to the private sector represented 11 percent of
GDP in 1999. Demand for financial services by poor households is not satisfied by the banking
sector as access to bank loans is restricted to a small number of large, established firms, mostly
in commerce.
Only the microfinance industry, with more than 600 organizations in both urban and rural
areas, is able to achieve broader and deeper outreach and to provide financial services to clients
who lack access to the formal banking sector. However, by the end of 2000, credit by
microfinance institutions represented only 8 percent of total financial sector credit and 6.1
percent of all financial sector deposits were held by microfinance institutions.
Regulatory Framework for the Banking Industry
Commercial banks and non-bank financial institutions (établissements financiers) are
governed by the banking law of BCEAO (law 90-018 of 27 July 1990) and supervised by the
banking commission (commission bancaire) which are both established as regional institutions
(see Box 1).
Prudential regulation designed by BCEAO for the banking sector include minimum
liquidity ratio of 60 percent. The capital adequacy ratio was raised in June 1999 from 4 percent
to the international standard of 8 percent5
and the risk concentration ratio was reduced from 100
percent to 75 percent (see Schedule 1 in Annex 1).
One of the main issues confronting the financial system in Benin today is the growth in
non-performing loans in the banks due to inadequate supervision, the inability of the judicial
system to enforce contract and collect credit, insufficient coordination in decision making, and
weak administrative capacity of the Ministry of Finance. Although three of the five banks
observed capital adequacy ratios, the financial situation of the two remaining banks (accounting
for 20 percent of deposits), continued to deteriorate in 2001, and their risk-adjusted equity levels
were below the prudential norms. Following vigorous loan recovery efforts, the non-performing
loans of commercial banks fell from 5.4 percent of total credit at end-December 2000 to 4.7
percent at end-June 2001.6

Commercial banks were granted a two-year adjustment period to meet this new ratio, i.e., by the end of 2001. Only three
banks met the new capital adequacy ratio of 8 percent on January 1, 2002.
IMF Benin Country Report No. 01/208.

5 BCEAO strengthened prudential regulations in June 1999 in all its member countries,
including Benin, to bring the capital adequacy ratio in line with international norms, although
allowable risk concentrations will remain at triple internationally agreed levels. Three new
regulations on internal control, external auditors, and corporate governance were also adopted by
BCEAO for better management of bank operation including more transparency and
accountability. BCEAO chose, however, to not raise the minimum capital for banks which has
been unchanged since the devaluation of the CFA Franc in 1994 and is still CFAF 1 billion,
approximately US$1.33 million, amount considered by some, including the IMF, to be rather

While banking supervision by the sub-regional Banking Commission is generally
professional, enforcement in member countries is sometimes weak, in part because it is a
responsibility shared with national Ministries of Finance. That may translate in a situation where
many banks operate for years without complying with regulations or following directives of the
Banking Commission.
Box 1: West African Banking Commission
The West African Banking Commission was created on April 24, 1990 by a convention signed by the ministers of
finance of the then seven member countries. It began operations on November 22, 1990; its primary goal is to ensure
a uniform and efficient supervision of all banks and financial institutions in the eight member countries of the West
Africa Economic and Monetary Union (WAEMU), and to promote financial integration. At end 2000, there were 59
banks and 25 non-bank financial institutions subject to the banking law and to banking supersivion. A single union-
wide llicensing agreement for banks was adopted in Janurary 1999.
The West African Banking Commission is composed of 17 members: the governor of the BCEAO, who serves as
the president, eight members, one per member state, and eight other members selected by the Council of Ministers
on the basis of their qualifications and expertise in banking matters. The Executive Secretariat of the West African
Banking Commission is headquartered in Abidjan, Côte d’Ivoire. Its human, material, and financial resources are
provided by the BCEAO. It has a total of 80 staff members and has the prerogative to carry out all the
responsibilities entrusted by the Commission, which meets at least twice yearly, and as often as necessary. Decisions
are taken with a simple majority vote. In case of deadlock, the governor’s vote determines the final outcome.
The primary responsibility of the West African Banking Commission is to ensure that financial institutions maintain
sound financial structures, including having adequate liquidity and solvency ratios. To carry out this function, the
Executive Secretariat issues general instructions to banks and other financial institutions in the union, defines
accounting procedures and prudential standards, and conducts on-site and off-site supervision of the financial
institutions operating in the region.
The licensing of any financial institution in the region is subject to the prior agreement of the Executive Secretariat
of the West African Banking Commission, following a technical review of the application. The commission is a
jurisdictional body with authority to take disciplinary action without prejudice to any sanctions taken by national
authorities. It can take the following sanctions: admonish, reprimand, prohibit certain operations or impose any
restrictions on banking activities, suspend auditors, suspend or remove directors from office, and repeal operating
licenses. However, both licensing and delicensing require formal signature of the Minister of Finance of the member
state. The Executive Secretariat can also take the precautionary measure of placing a financial institution in distress
under its direct control by appointing a temporary administrator.
Source: IMF Country Report, October 2001.
Minimum capital requirement of US$10 million is generally deemed adequate.

A. Structure and Growth of Institutions Engaged in Microfinance
Despite its relatively small size, Benin remains the country with the largest number of
MFIs in the UMOA region and with a comparable diverse array of institutions. The Ministry of
Finance estimated that, as of December 31, 2001, the MFI industry in Benin had more than 600
, around 700 000 clients, CFAF 30 billion (US$40 million) in savings deposits,
and CFAF 25 billion (US$33.3 million) in loans outstanding. Organizations engaged in
microfinance in Benin and the rest of UMOA are formally classified into three main categories:
(i) credit unions, (ii) credit-only MFIs, and (iii) donor projects with a microfinance component.
Credit unions dominate the microfinance industry in Benin and that is closely related to
the evolution of the formal financial sector in the country. The large number of credit unions in
Benin today are the result of a rehabilitation program started in 1990, after the collapse of the
banking sector and of the Caisse nationale de crédit agricole (CNCA), a parastatal engaged in
agricultural credit. To restore the savings and loans system to its original mutualist principles,
the government withdrew from the management of the cooperatives and replaced them with
credit unions or caisses locales de crédit agricole mutuel (CLCAM). The largest credit union
network in Benin, the Fédération des Caisses d’Epargne et de Crédit Mutuel (FECECAM) was,
thus, born. By December 2000, FECECAM had 298,000 shareholders, 96 CLCAMs, CFAF 20
billion (US$26.7 million)9
in deposits, and CFAF 12 billion (US$16 million) in loans
outstanding. By the end of 2001, FECECAM dominated completely the microfinance industry in
Benin with 94.2 percent of savings deposits of the industry and 61 percent of total loans
Credit-only institutions are the second biggest players in the microfinance industry in
Benin with each more than CFAF 1 billion (US$1.3 million) in total loans outstanding in 2001.
They are: (i) FINADEV, a microfinance outlet of a commercial bank with CFAF 1.1 billion
(US$1.5 million) loans outstanding; (ii) PADME (Programme d’Appui au Développement des
Micro Entreprises) with loans outstanding of CFAF 6.8 billion (US$9.1 million); and (iii)
PAPME (Programme d’appui aux Petites et Moyennes Entreprises), aimed at providing financial
services to micro entrepreneurs as well as small and medium scale enterprises, and outstanding
loan portfolio of CFAF 7.1 billion (US$9.5 million). Both PADME and PAPME are World
Bank supported projects. By the end of 2001, credit-only institutions provided 34 percent of all
loans in the microfinance industry.
Donor projects with a microfinance component are numerous and primarily small non
governmental organizations (NGO) supported by donor agencies, some of them organized as
credit unions, including FENACREP10
, and Convergence 2000. These

The number of MFIs include all independent organizations member of networks such as FECECAM.
US$ 1 = CFAF 750.
FENACREP = Fédération Nationale des Caisses Rurales d’Épargne et de Crédit (National federation of rural savings
and credit cooperatives) created in 1992 by the NGO Sassakawa Global 2000.
PASSEF = Projet d’Association et d’Entraide des Femmes is a Swiss Government supported project started in 1992 for
women organized within small credit unions.

7 projects have loans outstanding representing less than 5 percent of the microfinance market. In
addition to the formal microfinance market, there are a large number of informal microfinance
organizations in Benin including moneykeepers, moneylenders, rotating savings and credit
associations (ROSCAs) or tontines (especially in urban markets but also in many rural areas),
and “yes-yes” system13
. “Convergence 2000”, a local licensed NGO, has helped start a “yes-yes”
system with the ultimate goal of transforming it into a formal microfinance organization.
Microfinance institutions in Benin are organized around a professional association known
as Consortium ALAFIA which has a membership of 50 MFIs. ALAFIA’s main objective is to
play an active advocacy role for its members in discussions with the Government and the donor
community. ALAFIA is currently receiving considerable support from several international
donors including the World Bank IDA project No. 3296-BEN, for capacity building and to carry
out its annual work plan. ALAFIA’s on-going activities include the provision of training
opportunities for its members, and the creation of a credit bureau, and possibly the development
of internal benchmarking and management ratios at a national level.
The World Bank’s support to the microfinance industry in Benin has been on-going for
several years with capacity building support to FECECAM under several rural credit projects
until 2000. The current private sector project (IDA credit No. 3296-BEN) includes support to
microfinance via PADME and also to small and medium scale enterprises via PAPME. Under
the project, both organizations have made remarkable progress, and are now the third and four
largest MFIs in the country by asset size. Both PADME and PAPME have established
themselves as models in the microfinance industry; their next challenge is to become financially
sustainable by the time the project and donor subsidies end in December 31, 2004. World Bank
support also extends to the Cellule Microfinance at the Ministry of Finance for strengthening its
capacity to carry out more effectively its role of supervision and monitoring of the microfinance
B. Profile of Key Microfinance Institutions
Although the formal microfinance industry in Benin is made up of diverse institutions
including credit unions, credit-only MFIs, and donor projects with a microfinance component,
the market is dominated by credit unions and FECECAM as the main player. The other
important players are those organizations with more than CFAF 1 billion (US$1.3 million)14
total loans outstanding, i.e., FINADEV, PADME and PAPME (see table 1). The analysis below
will, therefore, focus on the profile and performance of the four most important institutions in the
microfinance industry in Benin, today. Due to the size of their operations, these institutions do in
fact represent a good case of licensable MFIs to be regulated and supervised by financial

CBDIBA = Centre Béninois pour le développement des initiatives de Base (Center for the development of local
initiatives) was created by a French NGO to help set up a number of MFIs including the Caisses Villageoises d’Epargne et
de Crédit (CAVECA), a network of non credit union MFIs.
A “yes-yes” system is an informal microfinance organization which allows a client to save regularly, on a daily basis,
with an individual money collector who in turn is able to extend a loan to its clients.
Amount of minimum capital required to be licensed as a commercial bank under the UMOA banking law in effect in

8 Table 1: Portfolio Data on the Most Important MFIs in Benin in 2000
ORGANIZATION NAME Outstanding loan
In CFAF million $ Outstanding loan portfolio in US$ million* Number of
loans Avg. loan size
in CFAF Avg. loan
size in US$ FECECAM 8,767.00 $12.4 45,141.00 194,234.00 $275 PADME 4,818.00 $6.8 14,330.00 336,191.00 $477
PAPME 2,681.00 $3.8 1,416.00 1,893,698.00 $2,686
FINADEV** 1,066.00 $1.4 3,373.00 316,046.00 $421 Source: Data gathered by author
Notes * US$ 1 = CFAF 704.95 in 2000 and CFAF 750 in 2001.
** December 2001 data
FECECAM is the largest network of credit unions in Benin and in the UMOA region15
The creation of FECECAM in July 1993 was the result of a rehabilitation program started by the
government of Benin in 1990, after the collapse of the banking sector in Benin. When the
government nationalized the banks in the 1970s, the Caisse Nationale de Crédit Agricole
(CNCA), was one of the public development bank set up in 1975 to disburse long-term and
agricultural loans to the population. By 1977, several local and regional credit unions, i.e.,
Caisses Locales de Crédit Agricole Mutuel (CLCAMs), and Caisses Régionales de Crédit
Agricole Mutuel (CRCAMs) were created and placed under the supervision of CNCA. To
restore the savings and loans system to its original mutualist principles and end several years of
mismanagement, the government withdrew from the management of the credit unions and
decided to rehabilitate the network and transform it into a private, autonomous, and financially
viable institution. FECECAM was, thus, created in 1993 with 42 CLCAMs, CFAF 17 million
(US$ 22,667) in deposits, and CFAF 12 million (US$ 16,000) in loans outstanding. Originally,
the network had a three-tier structure of operation and management with the CLCAMs at the
local town level, URCLCAMs at the regional level, and the FECECAM, the apex organization at
the national level. A fourth level was added to the structure in 1996 with the creation of the
Caisses Villageoises d’Epargne et de Crédit (CVECs)16
located at the village level.
FECECAM, the apex organization has its headquarters in Cotonou and its members are
made up of URCLCAMs17
(7) whose members are individual CLCAMs. Only URCLCAMs can
be shareholders and benefit from the followings:
· Placement of their excess liquidity with the federation;
· Benefit from all the services (training, continuing education, and audit) performed by the
· Participate in the general assembly and vote on major decisions;

FECECAM is the largest credit union network in UMOA region in terms of total outstanding loan portfolio and second
only to FENACOOPEC in Côte d’Ivoire by total savings deposit size.
CVECs are run as an integral part of the CLCAM to which they depend. In fact, the same elected officials at the
CLCAMs serve as management committee members at the CVECs and are responsible for loan granting.
URCLCAMs are at the second-tier level of the network and are located in the capital of each of the seven regions of

9 · Get a copy of all financial statements and reports from the board of directors and
supervisory board of the federation.
The principal mission of FECECAM is to coordinate the activities of its members, i.e.,
the CLCAMs and URCLCAMs, define the general policies of the network, provide technical
assistance to network members, and manage excess liquidity generated by the network. One of
FECECAM’s ultimate objective is to become a more effective Central Finance Facility (CFF) by
engaging more directly in financial intermediation between surplus and deficit units and
becoming an effective lender of last resort.18
The apex organization derives its resources from
share capital, members’ current accounts and term deposit accounts19
, reserves, lines of credit,
and grant subsidies. FECECAM deposits its excess liquidity with commercial banks and in the
year 2001, it earned 5.25 percent annual interest on its term deposit accounts and 4 percent on its
current accounts.
Membership: Originally created to provide agricultural loans to farmers only, today
CLCAMs, the pillar of the FECECAM network, have outgrown their original mission, and
membership is a diverse mix that includes individuals especially micro entrepreneurs as well as
groups who reside or work in a particular community. CLCAMs are located primarily in rural
towns, communes, and sub-prefectures. They collect savings and grant loans to their members
only. At end-December 2001, there were 96 CLCAMs in Benin, down from more than a 100
two years earlier. Each CLCAM covers 20 to 30 villages. CLCAMs are organized around a
general assembly of shareholders held once a year, where members are elected to serve on the
board of directors and a supervisory board.
To become a member/shareholder, an individual is required to pay CFAF 200 (less than
US$0.30) in membership fee, and to buy at least one share at CFAF 1,000 (less than US$1.50).
A minimum of CFAF 5,000 (less than US$7) to buy five shares is required for a group. Opening
an account requires a deposit of CFAF 5,000 (less than US$7). The main sources of funds at the
CLCAMs are from members/shareholders deposits and, more recently, grants and lines of credit,
especially for CLCAMs located in the poorest areas of the country such as Ouémé region.
Financial Services: Both deposits and loan services are available to members. The three
types of deposit accounts all require a minimum of CFAF 5,000 (less than US$7) deposit:
· Current accounts earn no interest and are reserved for NGOs and other enterprises
· Passbook accounts earn 3 percent annual interest rate
· Term deposit accounts earn 4 percent annual interest rate, and 4.5 percent for longer
term, i.e. greater than two years.
By comparison, commercial banks pay 3.5 to 5 percent annual interest rates on deposit
Several loan products are also available to eligible members. They are:

FECECAM is already engaged in liquidity management for its members, though informally and could do so formally by
creating an “organe financier”, i.e., a credit union bank .
FECECAM members are URCLCAMs whose members are individual CLCAMs.

10 · Tout Petit Crédit aux Femmes (TPCF) or very small loans to women. It is the latest loan
product offered to groups of women members. The loan amount varies between CFAF
10,000 to CFAF 30,000 per woman for three to six months. Borrowers are not required
to hold a deposit account with the CLCAM.20

· Short term loans of CFAF 10, 000 to CFAF 1 million are granted for a maximum of 12
months. These loans are not targeted to any specific use and include emergency loans
that are CFAF 50,000 on average.
· Medium term loans are granted for 24 months and range between CFAF 300,000 to
CFAF 1 million.
· Longer term loans are granted for 13 to 36 months for a maximum of CFAF 1 million.
These loans are used to finance agricultural production and were made possible through
lines of credit from international donors such as IFAD21
and the African Development
Bank (ADB). Repayment is expected in installments.
It is worth noting that newer loans products such as TPCF and longer-term loans granted
from lines of credit have not been very successful, and constitute the bulk of non-performing
loans at CLCAMs.
CLCAMs currently transform up to 70 percent of savings deposits into loans to members.
Nominal interest rates on loans are 2 percent per month on a declining basis, yielding an
effective annual percentage rate of more than 27 percent including all the fees associated with a
A new CLCAM usually requires three months of deposit mobilization before starting any
loan activity and can use up to 50 percent of deposits as loan funds. Loan granting decisions are
made by the board of directors of 9-15 people. The board of supervisors made up of five people
is responsible for monitoring loan granting, and repayment. To be eligible for a loan, members
must be with their institution for at least six months, have a minimum of CFAF 3,000 in their
savings accounts except for TPCF, i.e., loans to women groups. Also 20 percent of the loan
amount is required as guarantee in addition to other forms of physical collateral. Loans are
granted to individuals as well as groups such as women and producer groups. Repayments can
be made monthly, quarterly, annually or as a balloon payment for short-term loans.
Outreach: CLCAMs are primarily located in rural areas, and membership is mostly made
of low income farmers and microentrepreneurs. CLCAMs were second only to the largest
commercial bank in Benin in terms of deposit mobilization. The average deposit size was CFAF
58,705 (US$90)23
for CFAF 18.9 billion (US$28.9 million) in outstanding deposits amount in
December 1999. Loans were granted to 69,531 members, i.e., 33 percent of the membership with
an average outstanding loan balance in the network of CFAF 178,661 (US$274) representing 75
percent of the GDP per capita of $365. Thus, although CLCAMs cater to a poor segment of the
population, its clientele is not among the poorest in Benin. The strategy to reach more of the
poor has pushed FECECAM to create CVECs, which are located at the village level and thus
closest to the rural poor. Also group loans to women via TPCF are intended for a much poorer

Experience of TPCF has not proven very successful.
IFAD = International Fund for Agriculture Development.
The usury rate for microfinance institutions is set at 27 percent under the PARMEC law.
US$1 = CFAF 652.95 in December 1999.

11 segment of the population with an average loan size of CFAF 20,000 (US$31), i.e., one third the
network average loan size.
Operational and Financial Performance: Despite continuous support provided by the
donor’s community, including the World Bank, since its inception, the performance of the
FECECAM network has somewhat been disappointing.
The network has experienced yearly increase of more than 15 percent of not only its
membership since 1993, but of loans outstanding as well as deposits. Unfortunately, the network
has been unable to manage its growth carefully and failed to put in place a management and
internal control system capable of managing loan growth.
Thus, the growth of the FECECAM network also translated in an increase in delinquent
loans of 200 percent in one year, from 1998 to 1999, to reach CFAF 1.3 billion (US$1.7 million)
at the end of 1999. By March 2000, the portfolio at risk ratio24
at FECECAM was 34 percent and
32 CLCAMs were insolvent, putting the whole network at risk of collapse. FECECAM is
currently being restructured with technical assistance from Canada and closely monitored by the
Ministry of Finance, the supervisory body of microfinance institutions.
The crisis at FECECAM has raised questions about the sustainability of the network,
whose failure will have wide repercussions in the whole financial sector. Several factors
including an inadequate management and information (MIS) system, unscrupulous management,
and poor governance were identified as responsible for FECECAM problems. In addition, the
availability of lines of credit from the donor community granted at subsidized rates of interest to
certain members proved devastating to an already weak network. The first line of credit in 1996
was meant for loans to women groups under very relaxed terms using a technology that
FECECAM did not master and translated in loan outstanding portfolio increase 55.4 percent and
unfortunately resulted also in an increase of 162 percent in the number of delinquent loans. The
latest line of credit from the African Development Bank offered also to members at subsidized
rates of interest compounded the problem further, resulting in non-performing loans of 43
percent of outstanding loan portfolio and several insolvent CLCAMs. FECECAM was
subsequently put under receivership by the regulatory authorities who also ordered the closure of
several CLCAMs.
Challenges and Potential for FECECAM: Poor governance of the FECECAM network
has long been acknowledged but not dealt with satisfactorily until it got out of hand when lines
of credit and unsustainable growth met poor management. The network has finally taken some
drastic steps to reorganize itself, institute new internal control to reduce fraud and after an
aggressive loan recovery effort, FECECAM was able to bring its non performing loans to 5
percent of its total loan portfolio by December 2001. An important lesson from the FECECAM
crisis was the realization by the network that rapid growth under the impulse of lines of credit at

Greater than 90 days.

12 the expense of good financial management can jeopardize an institution’s sustainability.25
This is
a lesson, it is hoped, the donor community would have learned as well.
Several challenges still remain for FECECAM, the apex organization, as the network has
yet to achieve financial sustainability, provide much needed technical assistance to its members,
and carry its supervisory role better. FECECAM is also confronted with the choice of creating an
“organe financier”, i.e., a formal financial intermediary to become a more effective CFF and
lender of last resort for its members. Although, transforming into a formal financial intermediary
as is required by the CFF status may help FECECAM become financially sustainable, the
decision is not an easy one to make as the new CFF will be subject to the banking law, a
different set of prudential regulation, and lose its tax-free statute.
The Projet d’Appui au Développement des Micro Entreprises (PADME) is a project
originally funded by The World Bank to help the Government of Benin with a structural
adjustment program that resulted in numerous government employees being laid off. The project
was aimed at mitigating the social costs of structural adjustment and at helping those who were
laid off by providing financial support to former government employees who wanted to start
microenterprise activities. The project was launched on September 1st, 1993, and it quickly
expanded to include all types of microentrepreneurs, not just former Government employees.
The PADME project has gone through three phases:
(i) The pilot phase lasted for two years, from September 1993 to August 31, 1995. During this
phase, PADME was managed with technical assistance from VITA, an American NGO.
(ii) The consolidation phase covered the period from September 1995 to June 1996. During
this phase the project was strengthened and expanded.
(iii) The institutionalization phase started on July 1st, 1996 and was completed on December
31, 1997. This phase was expected to allow the program to firmly position itself in the
microfinance world and to transform itself into a private not-for profit organization.
Up to December 1997, PADME was a public entity under the direct supervision of the
Ministry of Planning of Benin. PADME was then a component of a larger government program
called the Projet d’Assistance aux Entreprises (PAE), set up under the Ministry of Planning,
Economic Restructuring, and Employment to provide support to all enterprises in Benin. A
coordinator from the PAE and the Ministry of Planning oversaw PADME’s activities. The
project remained otherwise free of any government interference in hiring its personnel and
carrying out its stated mission. PADME acquired its new status of private voluntary organization
and became an association on December 23, 1997.
Organizational Structure: As an association, PADME is run by a General Assembly that
includes microentrepreneurs, staff members, financial and other partner organizations, and the
Government of Benin. The General Assembly is the supreme governing structure of the

FECECAM, in the end, returned the unused portion of the line of credit to the African Development Bank, refusing to
continue the subsidized rate of interest policy that helped divert loans to unscrupulous people including managers of credit

13 association, and it appoints the members of the Executive Committee. The General Manager is
responsible for the day-to-day management of the association, and the supervision of the staff
from four departments: credit, administration and finance, computing, and internal auditing
PADME started with five employees in December of 1993. For the first two years, it
benefited from the technical assistance of VITA, an American NGO, until August 1995, when
the program was handed over to a Beninese staff. As of December 2001, there were 75
employees at PADME, including a Managing Director, an Assistant Manager in charge of the
credit division, a Financial Manager in charge of the financial and administrative unit, a
computer specialist in charge of the computing department, and an internal auditor responsible
for the audit unit.26

Financial Services: PADME’s mission was initially limited to providing credit in
Cotonou, where its potential clientele (i.e., laid off public employees) resided. That mission was
later extended to include all established micro entrepreneurs in other areas and towns including
Porto-Novo, Abomey, and Parakou. Today, PADME provides: (i) loans to existing and eligible
microenterprises; (ii) loans to local NGOs to be disbursed to their own clientele in rural areas;
and (iii) training and technical assistance to microentrepreneurs and local NGO staff members.
By 1999, PADME was the third largest microfinance institution in Benin with total loans
outstanding of CFAF 3.1 billion (US$4.8 million). In the year 2000, PADME continued its
tremendous growth with total assets reaching CFAF 5.6 billion (US$7.5 million), and CFAF 4.8
billion (US$6.4 million) in total loans outstanding (see table 1 in Annex 2).
PADME is a credit-only organization which offers loans to its clients for a maximum
term of one year (12 months), and monthly repayments, with a grace period of at most two
months. The maximum loan amount is CFAF 2 million (US$2,667), while the minimum is
CFAF 20,000 (US$27). The quoted interest rate is 2 percent per month on a declining balance.
Loan applications require a fee of 1 percent of the loan amount. In addition, a mandatory 1
percent of the value of the loan is charged on all loans. Taking those fees in consideration yields
an effective annual interest rate between 25.8 and 27.6 percent. Collateral is always required and
it varies from physical assets (land, equipment), habitat permit, cosigner, to a group liability.
PADME does not offer any deposit services except for the 10 percent forced savings
required of every borrower and used as a guarantee. Those who cannot provide appropriate
collateral, such as registered land title, are required to deposit an additional 10 percent of the
loan. Delinquent loans carry a penalty of 2 percent of the late amount in addition to a CFAF
3,000 (US$4) fee for each late payment. Loan disbursements take place twice a week and all
loan operations (disbursement and repayments) are handled by Financial Bank, PADME’s long-
time commercial bank partner, through special windows at the bank. The operations of PADME
customers at Financial Bank represent one-third of all the Bank’s cash transactions. However,
after PADME’s refusal to merge with Financial Bank and become its microfinance unit, the bank
created it own microfinance institution called FINADEV.

PADME has a low operational cost by international standards. Its staff number would in fact need to be raised
substantially as the organization expands further.

14 As a non credit-union MFI, PADME was licensed under the PARMEC law via a
convention-cadre which stipulates the specific rules and prudential regulations that the
organization has to abide to.
PADME’s current sources of portfolio funding are lines of credit from the World Bank,
and Banque Ouest Africaine de Développement (BOAD). For the year 2001, PADME expected
25 percent of its loan portfolio to be financed by the donor community. PADME financed the
rest of its loan portfolio with retained earnings. PADME had also access to a short-term facility
from Financial Bank of CFAF 800 million (US$1.1 million) between July 2000 and February
Outreach and Sustainability: As of December 31, 2000, PADME had 14,440 active
clients of whom 82 percent were women (see table 1 in Annex 2). Total loan outstanding
portfolio was CFAF 4.8 billion (US$6.4 million), indicating an average loan size of CFAF
332,410 (US$443), i.e., 1.2 times the country’s GDP per capita. Thus, PADME is catering to
microentrepreneurs in major cities in Benin and its clientele is not among the poorest in the
country, though they lack access to commercial bank finance.
PADME has been operationally self-sufficient since 1994, reached a ratio of 243 percent
in 2000, and maintained a low portfolio at risk of less than 1 percent. PADME has only recently
become financially self-sufficient with a ratio of 143.87 percent in December 2000.27

Challenges and Potential for PADME: Since its creation, PADME has experienced
tremendous growth and the organization has built a solid reputation as a viable microfinance
organization. PADME’s future as a microfinance retail organization seems bright, so long as it
is able to secure future sources of income for its operations beyond donor’s funding. PADME
does not mobilize deposits from the public although it is permitted to do so under the law.
PADME’s ability to leverage funds from private investors remains a main preoccupation and
challenge as management contemplates the change of status from project to a formal financial
institution under the BCEAO banking law.
Started also as a component of the World Bank private sector project in 1993, PAPME’s
objective is to provide financial services to small and medium scale enterprises (as opposed to
PADME which caters to microentrepreneurs). Located primarily in Cotonou and four other
major towns, PAPME had a total outstanding loan portfolio of CFAF 1.4 billion (US$2.2
million) in 1999 and an average loan size of CFAF 3.0 million (US$4,563), reflecting its niche
market. Total loans outstanding increased 93 percent to CFAF 2.7 billion (US$3.6 million) in
2000 with a total asset size of CFAF 2.9 billion (US$3.9 million). With total loans outstanding of
CFAF 7.1 billion (US$10 million) in 2001, PAPME stood as the third largest microfinance
organization in Benin. Loans to individuals, mainly small entrepreneurs and farmers
organizations have a maximum ceiling of CFAF 80 million, for a maximum period of 3 years
and at 2 percent nominal interest rate per month on a declining balance (see table 2 in Annex 2).

Source: Planet Finance, Planet Rating evaluation of PADME.

15 PAPME is primarily a credit-only organization and relies primarily on donor funds for
loan capital as well as operational expenses. The main contributors of funds include the World
Bank, the Canadian Agency for International Development, and BOAD. PAPME has also been
able to secure loans from commercial banks such as Bank of Africa. Support from the World
Bank is to last until 2004 and will total CFAF 5 billion (US$6.7 million). Until very recently,
PAPME did not mobilize savings from its clients but collected a forced deposit of 10 percent of
the loan amount from each borrower to use as security against the loan in addition to physical
collateral. PAPME has had a good performance over the years, with portfolio at risk averaging
less than 4 percent. In the year 2000, PAPME reached financial self-sufficiency with a ratio of
111.31 percent.28

As the organization faces the prospect of the end of World Bank financial support, it has
started looking for ways to ensure its sustainability by engaging in deposit mobilization and other
funding alternatives. Securing future sources of income will in fact be a major consideration in
PAPME’s decision to transform itself into a full-fledged financial institution under the BCEAO
banking law by December 2004.
FINADEV was the fourth largest microfinance organization in Benin by 2001 with CFAF
1.1 billion (US$1.5 million) in total loans outstanding. FINADEV was created in July 2000 as a
subsidiary and microfinance outlet of Financial Bank, a private commercial in Benin. FINADEV
has branches in the four major towns in Benin including Cotonou, Parakou, Porto-Novo, and
FINADEV’s main clientele is made up of microentrepreneurs, with average loan size of
CFAF 230,491 (US$307) for 3,373 loans in December 2001. FINADEV does not mobilize
deposits. It was created with CFAF 1 billion (US$1.3 million) in capital and its shareholders
include the IFC (25 percent of capital). Financial Bank Benin and Financial Bank Holding
remain its largest shareholders by holding 35 percent of its capital.
FINADEV obtained a license to operate as a limited liability microfinance company29
signing a convention-cadre in July 2000, with the Ministry of Finance, under the PARMEC law.
This is the first time a commercial bank has taken advantage of the PARMEC law to go
downmarket into microfinance.
A. Rationale for and Evolution of Regulation
Before the advent of the PARMEC law in 1993, all microfinance institutions operating in
Benin and any UMOA country were subject to several laws, including the cooperative law, the
usury law and the banking law. The need for a common law to regulate the microfinance

PAPME Annual Report, 2000.
As a limited liability company, FINADEV is not tax-exempt.

16 industry was motivated by the authorities’ desire to closely monitor a fast-growing industry and
to protect its clients and especially depositors.
The process towards regulation of the microfinance industry was started with financial
support from the Canadian Government in a project with the Central Bank, the Projet d’Appui à
la Réglementation sur les Mutuelles d’Epargne et de Crédit (PARMEC), which ultimately
resulted in a law passed in 1993 and enacted in all UMOA countries, except Guinea Bissau,30

between 1994 and 1998. The World Bank was not actively involved in the process of passing
the PARMEC law but expressed concerns that the law only took credit unions into consideration,
despite the multitude of other microfinance organization forms that operated in UMOA
countries. Nowadays, the World Bank remains an active member of a consultative group of
donor countries working with BCEAO to monitor the impact of the PARMEC law on the
microfinance industry and make any adjustment that may be warranted and agreed upon.
B. Structure of Legal and Regulatory Framework
Legislation to implement the PARMEC law has been enacted in Benin in August 1997
(loi no. 97-027) and emulates very closely the regional model law. Under the PARMEC law,
only credit unions and their network federation can be granted a full-fledge license. Other MFIs
are permitted to operate within the realms of rules defined by a convention-cadre signed with the
Ministry of Finance for five years and renewable by mutual consent. The PARMEC law
excludes groupements, i.e., small and informal microfinance organizations, from the application
of the law, and provides for their voluntary formalization and registration called reconnaissance.
Even this provision applies only to groups organized as credit and savings cooperatives (article
4). It reinforces the credit union focus of the law and could prevent financial innovation at the
base. In addition, the law does not, unfortunately, define when small groups with just an
authorization to operate need to be registered and regulated and too many small credit unions do
successfully seek and obtain a license31
Official estimates by the microfinance unit (Cellule Microfinance) at the Ministry of
Finance put the number of MFIs in Benin at more than 600, of which 85 are licensed or
authorized to operate under the PARMEC law. Twelve of the licensed MFIs are credit unions,
and have been granted a full license, including one single license for the FECECAM network.
Four MFIs have signed a “convention-cadre”32
with the Government, 69 MFIs have been given a
simple authorization to operate, due to their small size (56 credit unions members of
FENACREP, and 13 APHEDD NGO village-based credit union initiatives).
A tiered structure in licensing and regulating financial institutions in Benin and the
UMOA region is, in effect, achieved through different minimum capital requirements under the
Banking law for commercial banks and other NBFIs. However, the PARMEC law ties licensing
benefits to the organizational form of the microfinance institution instead of allowing the diverse

Due to the absence of a notable microfinance industry.
All credit unions are subject to the supervision and prior approval of the Ministry of Finance. If written approval is not
received by the applicant within three months of filing an application form with the Ministry, then the license is
automatically deemed given at that point.
The four MFIs are PADME, PAPME, FINADEV, and CAVECA. Convention–cadre under the PARMEC is only
granted to MFIs that are not credit unions.

17 range of organizations that provide microfinance to be recognized and regulated by the same
authority. This puts different organizational types in different regulatory regimes, under different
jurisdictions, with a high potential for regulatory arbitrage, i.e., inviting some institutions to
exploit loopholes in the law by picking and choosing a less severe regulatory regime.
Regulation of Credit Unions
Although the PARMEC law has a major shortcoming in that it favors the cooperative
form of microfinance institutions above all others, it has, nonetheless, been recognized by
various reviewers33
that the drafters have done a decent job in elaborating the law.
Thus, a
number of positive governance features are embedded in the PARMEC law including:
(i) Liability to third parties by credit union members is as great as their share capital
contributions, and the rules of liquidation are essentially based on commercial insolvency
rules (articles 22, 36-7). Any excess after liquidation is used as determined by the credit
(ii) Credit unions are tax-exempt (articles 30-1), but the relevant provision does not make it
clear whether this exemption extends only to revenues or also applies to employee income
and social insurance taxes.
(iii) Credit unions cannot engage in checking, but can handle fund transfers (article 24), which
is a very important service for microfinance clients.
(iv) “Professional secrecy” applies to credit and deposit information (article 52). This is a
necessary requirement, and one that is subjected to regulatory exceptions. The big question
mark here is whether this, in practice, will be allowed to obstruct the development of credit
information and reporting services. That question is currently at the center of discussions
to establish a credit bureau for MFIs in Benin.
Prudential Regulation
Prudential regulation of financial institutions involves definition of detailed standard for
financial structure, accounting policies, and other important dimensions of an institution’s
business. Enforcement is carried through off-site supervision and on-site inspections as financial
authorities vouch for or assume responsibility for the soundness of the regulated institution.34
the case of Benin and UMOA, key prudential standards have been defined for licensed MFIs35

under separate BCEAO instructions36
related to the PARMEC law. Prudential guidelines and
ratios were, thus, defined (Instruction No. 6) with respect to loan classification and provisioning,
reserve requirement, liquidity adequacy, single borrower limit, ceiling on loans to management
and conflict of interest rules (see Schedule 1 in Annex 1).
Provisioning guidelines: No provision is required until the loan has been delinquent for
more than 90 days. Thus, the PARMEC law provisioning guidelines appear significantly less

E.g. Patrick Meagher, “Comments on the PARMEC Law”, Draft paper, IRIS, University of Maryland, 1999.
Rosenberg & Christen, “The Rush to Regulate”, CGAP occasional paper No. 4.
Prudential standards are for Credit unions and non-credit union MFIs alike, supposedly. BCEAO has been in discussions
with CGAP and leading MFIs to revise the ratios that are due for publication before the end of the year 2002.
BCEAO: “Instructions Relatives à l’Application de la Réglementation Régissant les Structures de Financement
Décentralisées », Dakar, Sénégal, March 1998.

18 stringent than those recommended by CAMEL and microfinance best practices (see table 2).
Given the nature of microfinance loans (short term and unsecured collateral), provisioning only
40 percent for a six-month loans that is 3 months late may not be sufficient to support the risk
inherent in the loan portfolio. It is worth noting that the World Council of Credit Union
(WOCCU) recommends under the PEARLS37
monitoring system that all delinquent loans for
one to 12 months have to be provisioned 35 percent and 100 percent for all delinquent loans for
more than 12 months.
Liquidity adequacy ratio: Minimum liquidity ratio is set at 80 percent, implying that
current assets of the MFI have to cover 80 percent of current liabilities.
Conflict of interest rule: An organization’s loans to connected parties are limited to 20
percent of organization total deposits. This rule, although useful, appears to be more generous
than that prescribed under microfinance best practice and could be made stricter.
Maximum exposure of an MFI to a single borrower: A single customer cannot borrow
more than 10 percent of organization’s total deposits.
Reserve requirement: General reserve requirement is set at 15 percent of an
organization’s annual net income.
Risk exposure: MFIs are allowed to lend up to twice the institution’s total deposit
Coverage of medium and long-term assets by resources of similar maturity: the ratio is 1,
indicating that medium and long term loans should be covered 100 percent by medium and long
term resources. The ratio is 75 percent for commercial banks, and at end-2000, 17 banks out of
59 in the UMOA region38
, representing 75 percent of total deposits were not in compliance,
reflecting the shortage of long-term resources in the banking system and prompting bankers to
complain that the ratio is too stringent. It is to be feared that MFIs will be even less able to
comply with a stricter ratio of 100 percent coverage.
Table 2: Loan Loss Provisioning Guidelines – PARMEC vs. CAMEL
Accion CAMEL recommended levels Days delinquent PARMEC Law
Normal Portfolio Rescheduled Portfolio 1-30 days 0% 10% 50% 31-90 days 0% 30% 75% 91-180 days 40% 60% 100% 181-360 days 80% 100% 100% > 360 days 100% 100% 100% Source: Accion Camel – Technical Note by Sonia B. Saltzman and Darcy Salinger, Accion
International, September 1998.

Although the prudential ratios were meant, supposedly, to include all MFIs (credit unions
and non-credit unions alike), they seem to have a credit union bias, using deposits as a reference

The PEARLS monitoring system was developed by WOCCU and tailored to the specific needs of credit unions.
IMF Benin country report No. 01/193, October 2001.

19 instead of total assets. Recognizing that fact and to correct other shortcomings, BCEAO has been
in discussion with CGAP and professional associations of MFIs to revise the ratios so that they
are in line with international microfinance standards.
Regulation of Credit-only MFIs
The text for the regulation of credit-only MFIs in UMOA and in Benin was approved on
June 7, 1999 as an addendum to the PARMEC law. It stipulates that all non-credit union
organizations including credit-only MFIs, irrespective of their size, have to be licensed via a
convention-cadre, i.e., special agreement with the Ministry of Finance. The convention-cadre
describes all rules and prudential regulations applicable to the institution.
Unlike the PARMEC law, the convention-cadre is not a well defined framework that is
uniformly and homogenously applied to all licensed non-credit union MFIs. In its attempt to
accommodate other forms of MFIs beside credit unions, the regulator has created a different
regulatory regime that is far from solving the initial problem of regulatory void felt by non-credit
union MFIs. The advent of convention cadre has brought to the forefront several issues
(i) The uncertainty in the length of convention cadre: Although originally conceived to last
only five years, convention-cadre with non-credit union MFIs will presumably be allowed
to be renewed indefinitely if no problem arises. That still leaves the MFI in a regulatory
limbo that may make it difficult to attract potential private investors.
(ii) The heterogeneity of the convention cadre: With each agreement tailor-made to a specific
institution makes it more difficult and more involved for the supervisory authorities to
effectively monitor MFIs to which different standards apply.
(iii) Credit-only MFIs licensed under a convention cadre can be allowed to mobilize deposits
and are tax-exempt if they chose the association status, i.e., a non-profit organization legal
(iv) There are no predefined prudential ratios for credit-only MFIs. They are to be negotiated
with the Ministry of Finance by each organization.
(v) Unless an MFI holding a convention-cadre wants to become a credit union, its only other
alternative is to transform itself into a formal entity under the banking law either as a
commercial bank or a non bank financial institution (NBFI), i.e., établissement financier.
(vi) The transformation of a licensed credit-only MFI into a formal entity under the banking law
will subject the new organization to a minimum capital of CFAF 1 billion (US$1.3 million)
for a bank and CFAF 300 million39
(US$400,000) for an NBFI, but more importantly, to
prudential rules that may not fit well a microfinance portfolio such as limiting unsecured
lending to 40 percent of equity capital while nearly 100 percent of MFIs’portofolio could
be unsecured lending.

Minimum capital requirements for NBFIs vary by UMOA country and is FCFA 500 million (US$666,667) in Côte
d’Ivoire, for example.

20 C. Supervision and Monitoring Mechanisms
A special microfinance unit (Cellule Microfinance) established in 1998 at the Ministry of
Finance is responsible for the supervision of the microfinance industry carried out through off-
site supervision and on-site inspections. Under the PARMEC law provisions, all licensed MFIs
must submit their year-end financial statements (article 63), according to a specific format, to the
Cellule for an offsite supervision which is to be followed by an on-site inspection of each MFI.
The PARMEC law provides for a tiered approach to supervision according to the
following five-level hierarchy: network-confederation-federation-union-credit union. Each
higher level has internal supervision and control requirements over the lower level, conducts
audits, and represents the lower-order entities at the next higher level. Each lower-level entity
can belong to only one higher-level entity (articles 38-42). It appears, thus, that some private
entities are granted delegated power and given official status and even monopoly power to
perform certain functions. The PARMEC law does, however, allow freedom of association and
choice among credit unions as to which aggregation to join, hence there may be some “exit”
option and competitive discipline. At the same time, that can create undue tension for
institutions which want to exit the network but may not be viable on their own.
This well-defined supervisory arrangement is, however, for credit unions only and,
unfortunately, the PARMEC law does not provide such a well-defined structure of supervision
for non-credit union MFIs. Thus, heterogeneous licensed non-credit union MFIs, each with its
own convention-cadre and specific prudential ratios, are placed directly under the supervision
and control of the Ministry of Finance. A large number of such MFIs could add significant
burden on the Ministry of Finance and the Cellule Microfinance given their heterogeneity. In an
effort to harmonize the rules in the industry which would ultimately help with regulation,
ALAFIA, the professional association of MFIs in Benin is joining forces with APIM, the
association of MFIs in Mali to design common prudential ratios for the entire industry and
submit them to BCEAO for approval. It is worth noting that the PARMEC law does not, nor
should it, confer any supervision power to ALAFIA, or any other microfinance professional
association in the UMOA region.
Although the administrative governance aspects of the Ministry of Finance supervision
and approval appear well defined in the law, there have been numerous shortcomings in practice.
The Ministry of Finance in Benin, and indeed in most UMOA countries, has been unable to
supervise all licensed and registered MFIs in the country effectively due to a lack of capacity,
both human and technical. Since the creation of the microfinance unit at the Ministry of Finance
in Benin, only a total of 14 MFIs have been subjected to an on-site inspection. Under the law, all
licensed MFIs are required to submit to the Ministry of finance their yearly financial statements.
However, the law does not require MFIs to have their operations audited each year. Fines can be
imposed on MFIs that are late in complying with the submission of financial statements but none
has been levied thus far, implying lack of enforcement of the rules. In the year 2000, only 35
financial statements were received, representing a compliance rate of 41 percent, with no
sanction taken against non-compliant licensed MFIs.
In Benin, non-performing loans in the microfinance industry have recently become a
major problem, increasing 9 percent, for FECECAM alone, between 1999 and 2000, representing

21 close to 43 percent of the outstanding loan portfolio. Cellule Microfinance was forced to
concentrate all its attention and resources for more than a year to the crisis at FECECAM. With
support from both BCEAO and the donor community, including the World Bank, several
inspections of FECECAM were undertaken that resulted in a few CLCAMs being closed and 18
CLCAMs placed under close monitoring and supervision. Fortunately, however, aggressive loan
recovery efforts have brought the bad debt situation down to 5 percent of the outstanding loan
portfolio by June 2001.
It is doubtful that, given its current limited human and technical resources, coupled with
the lack of appropriate incentives, the Cellule Microfinance in Benin will handle well the
supervision of all licensed MFIs. To put things in perspective, the regional Banking Commission
is in charge of a total of 59 commercial banks in the UMOA region while the Cellule
Microfinance in Benin already has 85 licensed MFIs to monitor.
A. Business and Contract Enforcement Environment
In 1997, all UMOA countries including Benin signed the OHADA Treaty, which
harmonizes business law in 14 countries. The OHADA business law and Uniform Acts are based
on the civil law system and now govern essential features of financial and commercial
transactions including security law and bankruptcy law in Benin.
Financial contracts in both the banking and microfinance industries are subject to the
OHADA law, which in effect is a complement of the Banking law as well as the PARMEC law.
At all levels of business activities, some uncertainties still exist regarding the judicial
interpretation of important provisions of the OHADA Acts such as the ‘Seizure-Awards” of
debts (saisie-attribution), which could lead to substantial losses for financial institutions.40
OHADA law does not recognize habitat permit, widely used as collateral by commercial banks
in the region. Only mortgage titles are allowed under OHADA.
In the specific case of microfinance, following the OHADA law would make it difficult
and costly for MFIs to ask their clients for tangible collateral, as the collateral would have to be
formally registered and could only be foreclosed upon by hiring a law clerk and going to court.
The good news is that discussions are currently being held among OHADA officials and
microfinance practitioners to correct these shortcomings.
A number of improvements in the legislative framework could also provide less
uncertainty in the legal environment for financial institutions. These include: (i) the streamlining
of business regulations to reduce red tape and transaction costs; (ii) the overhauling of the
judiciary system to reduce the costs of dispute resolution and contract enforcement; (iii) the

The problem arises from the legal handling of the third-party attachment procedure set forth in Title VI of the OHADA
Uniform Act Establishing Simplified Recovery and Enforcement Procedures. Third-party attachment is defined in Article
153 as a procedure whereby “any creditor in possession of a writ of execution showing a debt due for immediate payment
may, in order to secure payment of the debt, attach money in the hands of a third party to cover the debts owed by his
debtor, subject to the special provisions relating to the attachment of earnings.”

22 introduction of a land registration system to facilitate mortgage lending by banks and other
financial institutions; and (iv) a computerized registration system for liens on moveable assets, as
recommended by OHADA.
B. Impact of Regulation on the Structure and Growth of Microfinance
Based on information collected since the passage of the PARMEC law in 1993, there has
been considerable growth in the microfinance industry41
in the UMOA region with total savings
deposits increasing from CFAF 12.7 billion (US$43.3 million)42
in 1993 to CFAF 140 billion
(US$186.6 million) in September 2001. Total loans outstanding also increased from CFAF 17.9
billion (US$61.1 million) to CFAF 115 billion (US$153.3 million) over the same period. Thus,
the microfinance industry saw a 331 percent growth in deposits43
and 151 percent growth in
loans outstanding over a period of less than 8 years. Today, MFIs in UMOA cater to 2.9 million
clients and groups for a total of 4.4 million individuals. In Benin alone, the number of
microfinance members and clients saw more than a 1,000 percent increase from 62,698 in 1993
to 740,797 by December 31, 2000, i.e., a 12 percent penetration rate, vis-à-vis the total
The microfinance industry in Benin and in the rest of UMOA is dominated by credit
unions, representing 85 percent of all existing MFIs in the industry. While that dominance may
not be directly attributed to the PARMEC law, it is fair to say that new entrants to the industry
will be tempted to register as credit unions to be in conformity with the only microfinance law in
the books. In fact, the number of credit unions in UMOA has increased more than 244 percent,
while credit-only MFIs increased 13 percent, and donor projects with microfinance component
saw a 56 percent decline between December 1997 and 2000.
C. Regulation and the Usury Law
All financial institutions including MFIs are subject to the usury law, and a ceiling on
interest rate determined yearly by the regulatory authorities. When the PARMEC law was
enacted in 1993, MFIs were also subject to an interest rate ceiling that was set at twice the
Central Bank rediscount rate. That maximum interest rate on loans of 18 percent was set based
on elements not relevant to microfinance such as the rediscount rate and was much lower than
the average rate of more than 40 percent prevalent in the industry at the time. In addition, setting
such a low rate would have been impossible for the regulatory authorities to enforce.
In September 1997, BCEAO increased the usury rate limit from 9 to 18 percent for
commercial banks, and to 27 percent for microfinance, thus, responding positively to complaints
by microfinance practitioners. This was, however, only a slight improvement of a law that
remains a major deterrent to financial sector development. In fact, recent case studies of several
institutions in different UMOA countries revealed that most MFIs charge effective real interest
rates on loans well in excess of 27 percent, to be able to cover their costs. That is a clear
indication that the interest rate limit is highly inappropriate. If interest rate controls were to be

Both licensed and non-licensed MFIs
US$ 1 = CFAF 293 in 1993; US$1 = CFAF 750 in 2001.
Growth in US$ terms.

23 enforced, that could make sustainable microcredit impossible, or at least discourage outreach to
poorer customers (Christen and Rosenberg, 2000)44
D. Commercialization of Microfinance
Commercial banks in Benin play very little or no direct role in providing microfinance
services to the population. The only linkages that exist between commercial banks and
microfinance institutions are in the form of deposit accounts from the largest MFIs and also
loans to select MFIs by a few commercial banks. In the year 2000, loans by commercial banks to
a few microfinance organizations represented up to 43 percent of their total loan portfolio. Also,
commercial banks collected CFAF 14.8 billion (US$19.7 million) in savings deposits from the
major MFIs of which 95 percent came from FECECAM alone. In fact, deposits from FECECAM
represented 6 percent of total deposits at Bank of Africa, the largest commercial bank in Benin.
The PARMEC law does not directly address the issue of commercialization of
microfinance with specific provisions that would entice banks to downscale into microfinance.
The only linkage made by the PARMEC law to the banking law is in the context of creating an
organe financier, i.e., a credit union apex bank. Thus, under the PARMEC, a credit union apex
organization can transform itself to an organe financier to formally undertake its Central
Financing Facility and liquidity management functions for its members, and intermediate
effectively between the surplus and deficit units, receive deposits, grant loans and even issue
negotiable instruments (titres).
According to the PARMEC law, an organe financier must be incorporated as a société à
capital variable, i.e., a limited liability company, and is directly placed under the supervision of
the Central Bank and the Banking commission. Although this feature of the law recognizes the
need for financial deepening and the integration of the base credit unions into the mainstream
financial sector, the law is not meant for an existing bank or non bank financial institution to
become a network’s organe financier. The creation of an organe financier is in fact an upscaling
exercise, reserved only for credit unions, whereby a credit union apex becomes a formal financial
institution under the banking law.
There has been only one instance in Benin, and in the whole of UMOA, of a commercial
bank moving down market into microfinance products and micro clients. This was the case of
Financial Bank, which started out by providing window services for PADME’s clients and
finally created FINADEV, a microfinance organization, licensed under the PARMEC law via a
convention-cadre with the Ministry of Finance. Contrary to what some have argued, FINADEV
is not a case of regulatory arbitrage but rather a successful downscaling exercise by a
commercial bank into microfinance. The challenge now is whether the Ministry of Finance is up
to the task of assuming the supervision of FINADEV and vouching for its soundness and that of
all the institutions to whom it grants a license.

Christen, Robert, and Richard Rosenberg; “The Rush to Regulate: Legal Frameworks for Microfinance”, CGAP
Occasional Paper No.4, March 2000.

24 E. Supervision: Strengths and Weaknesses.
The tremendous growth of microfinance in UMOA countries has also been accompanied
by a deterioration of the loan portfolio especially among the biggest institutions in the industry
such as FECECAM in Benin and FENACOOPEC45
in Côte d’Ivoire. Under the PARMEC law,
supervision of MFIs has been granted to the Ministry of finance in each country. On-site
inspections and off-site supervision of MFIs are to be conducted every year with the help of the
BCEAO microfinance department (MRDM)46
if requested.
Ministries of Finance are poorly equipped and staffed and receive no additional salary
motivation compared to Central Bank or Banking Commission supervisors. The capacity to
adequately supervise existing MFIs in Benin and perform due diligence in the licensing of new
entities is currently extremely limited, not only in Benin but also in most UMOA countries. The
Ministry of Finance Benin is not able to adequately monitor all the licensed MFIs, and had its
hand full for the past two years dealing with difficulties at FECECAM which controls more than
90 percent of the market. There is a real risk that an excessive proliferation of weak institutions
could create massive failures and a loss of savings for low-income households not only in Benin
but in all of the UMOA region.
BCEAO has been able to avoid the cost of supervision of MFIs by leaving it to
Ministries of Finance, and no systematic effort was made to fund the costs of supervision, let
alone build capacity. Some Ministries of Finance have received donor support for capacity
building in supervision of microfinance but it remains to be seen whether these efforts are
sustainable given the lack of appropriate incentives. It should be noted that BCEAO is
considering taking direct responsibility for the supervision of the 40 most important MFIs47
the UMOA region. If member-countries agree, this would represent a major improvement over
the current supervision arrangement and would relieve Ministries of Finance of the bulk of a task
which they are not well equipped to undertake.
The most important issues facing the microfinance industry in Benin are similar to those
confronting all UMOA countries; growth in bad loans; weak institutional capacities of MFIs; a
lack of adequate monitoring mechanisms, and weak supervision. The decision by microfinance
practitioners to create a credit bureau in Benin should go a long way in helping reduce the level
of bad debt in the industry. BCEAO also recognizes that a lot still needs to be done to strengthen
the capacity of MFIs and supervisors in the region and donors such as the World Bank could
play an important role there.
The recommendations for a better supervisory environment in Benin do in fact apply to
all UMOA countries where the PARMEC law is in effect. Although the PARMEC law seems

FENACOOPEC is the largest network of credit unions in the Côte d’Ivoire and in UMOA by total savings deposit size
with CFAF 27 billion (US$36 million) in 2000.
MRDM stands for Mission pour la Réglementation et le Développement de la Microfinance. On February 7, 2003,
MRDM became Direction des Systèmes Financiers Décentralisés to signal the permanent nature of the structure within
The 40 most important MFIs represent 90 percent of the UMOA microfinance market.

25 generally adequate for credit unions, for which it was intended, a void still exists with regards to
the regulation of non-credit union MFIs which needs to be addressed by the UMOA regulatory
authorities and the current law could benefit from a few modifications such as:
· The elimination of the usury ceiling: that would help promote transparency in loan
contracts and remove incentives for MFIs to place funds away from the target
microfinance clientele to other financial institutions to reduce high transaction costs.
· The strengthening of the current provisioning guidelines to bring them in line with
international standards.
· The supervisory role of MFIs should rest primarily with BCEAO and its microfinance
department. At it stands now, Ministries of Finance have no capacity to adequately
monitor the industry, and it is doubtful that on-going efforts to improve their supervisory
capabilities will yield any positive results under the current circumstances. It is
encouraging to know that BCEAO has expressed the desire to assume direct control of
the supervision of the most important MFIs (40) in the region. The final decision is,
however, dependent on UMOA Governments.
· Monitoring of the microfinance industry could also be enhanced by requiring that all
licensed MFIs be subject to an annual external audit.
· Only credit unions with a certain total asset size and potential long term viability should
be granted a license under the PARMEC law. Supervision of financial institutions is
costly and supervisory authorities should also realize that granting a license to an
institution is paramount to vouching for its safety to depositors.
· Professional associations of MFIs such as ALAFIA should be encouraged and supported
in their quest to become the main advocate for the microfinance industry as well as to
develop standards and monitoring mechanisms. MFI associations should be used
effectively to promote capacity building among their members and an healthier industry.
While MFIs associations could serve as a clearing house for donor support to the industry
and to individual MFIs, conferring supervisory powers to MFI associations may not be a
good idea as it may be subject to a high degree of conflict of interest.
Regulation of Credit-only MFIs: It has been argued that credit-only MFIs should not be
subject to prudential regulation.48
While that recommendation could have been valid before the
advent of the PARMEC law in the UMOA region, it may be difficult now to go backward as
credit-only MFIs in UMOA are in fact subject to prudential regulation within the realms of a
Convention-cadre with the Ministry of Finance. In addition, several credit-only MFIs are among
the largest organizations in the microfinance industry and are allowed to mobilize deposits once
granted a license to operate. The main difficulty with convention-cadre is that it is so institution-
specific that it will quickly become unmanageable to monitor for any supervisor. It is in fact in
the best interest of the regulator to see that convention-cadre are made more homogenous and
formalized under the PARMEC law.
It should be noted that credit-only MFIs could also easily be accommodated in the current
banking law and rules regulating non-bank financial institutions or établissements financiers

Christen and Rosenberg, 2000. “CGAP Occasional Paper, No.4”.

26 (article 4-6). A few adjustments would have to be made to the law or by decree, however, to take
into account some specificities of microfinance such as:
· The ability to mobilize deposits from the general public
· The ability to set freely interest rate that cover costs
· Greater flexibility on unsecured lending: the Banking law limits unsecured lending to 40
percent of equity capital while nearly 100 percent of MFIs’ portofolio could be unsecured
· Registration of collateral: applying current rules will prove too expensive for MFIs.
Regulation of Projects with a Microfinance Component: It seems pointless to license
donor projects with a microfinance component. Such projects do not have a primary focus on
microfinance and should not be regulated as MFIs. In addition, reporting requirements and
monitoring by the sponsoring donor should be an adequate supervision tool.
In conclusion, supervision of MFIs in UMOA and Benin should be practical for both
institutions and the regulatory authorities. The Central Bank (BCEAO) and it microfinance
department should be granted the overall primary responsibility of supervising MFIs as they are
better equipped than Ministries of Finance to undertake such a task.

27 Annexes

Annex 1: Schedule 1: Legal and Regulatory Requirements for Different Types of MFIs
Annex 2: Table 1: PADME – Selected Performance Indicators
Annex 2 Table 2: PAPME – Selected Performance Indicators

Annex 1: Schedule 1 – Legal and Regulatory Reguirements for Commercial Banks and Different Types of MFIs in Benin

for Entry Name of Institution
in Benin Type of
Institution Permitted
Organizational Format Required
Capital Capital
Adequacy Portfolio
Quality & Risk
concentration Liquidity
Reserves Area
Restriction External
Regulation Licensing/
Supervision BOA
Financial Bk
Continental Bk Commercial
bank (5) Banking
loans Limited liability co.; Unit bank US$ 1.3
Equivalent 8% of risk-
Assets Maximum exposure of 75% of own funds to single borrower 15% reserve
Provisioning None BCEAO BCEAO/
commission Equibail Benin
Cr. du Benin
Cr. Promotion
Caisse N’le NBFIs (4) Limited
loans Limited liability
company US$ 400,000 Equivalent 8% of risk-
Assets Maximum exposure of 75% of own funds to single borrower 15% reserve
Provisioning None BCEAO BCEAO/
commission FECECAM Apex fin Inst. Wholesale
loans/deposits Central
facility; Limited liability
2nd tier
organization US$400,000
equivalent 8% of risk-
Assets Maximum exposure of 75% of own funds to single borrower 15% reserve
Provisioning None BCEAO BCEAO/
commission MEC Credit union Savings,
deposits, &
loans to
members Cooperative None Not applicable Maximum exposure of 10% of deposits to single
borrower 15% reserve
Provisioning None Min of fin Min of Fin PADME
FINADEV Credit-only
MFI Savings &
loans Association None Not applicable Maximum exposure of 10% of deposits to single
borrower 15% reserve
Provisioning None Min of fin Min of Fin ASF (PROMIC &
PAGER) Project with a
component Savings &
loans Association None Not applicable Maximum exposure of 10% of deposits to single
borrower 15% reserve
Provisioning None Min of fin Min of Fin Groupement (GEC)
Cooperative Savings &
loans to
members Cooperative None Not applicable Maximum exposure of 10% of deposits to single
borrower 15% reserve
Provisioning None Min of fin Min of Fin

29 Annex 2: Selected Performance Indicators: PADME and PAPME
Annex 2 Table 1: PADME – Selected Performance Indicators
2001 2000 Main branches 3 (Cotonou, P-Novo, Parakou,) 2 (Cotonou, P-Novo) Female clients 82% 81% Loans outstanding amount
(million CFAF) 6 763 416 4 817 616 No of loans outstanding 20 955 14 330 Portfolio at risk (>90 days)1
0.24% 0.15% Operational self-sufficiency2
— 207.44% Financial self-sufficiency3
— 143.87% Notes: 1: Portfolio at risk > 90 days = Outstanding balance of loans overdue > 90 days/Total gross
outstanding loan portfolio
2: Operational self-sufficiency = Operating income/Operating expense
3: Financial self-sufficiency = Adjusted operating income/Adjusted Operating expense
Source: PADME’s Annual and Quarterly Reports and Planet Finance Rating Report

Annex 2 Table 2: PAPME – Selected Performance Indicators
Indicators 2001 2000 Major Branches 4 (Cotonou, Porto-Novo, Bohicon,
Parakou 4 (Cotonou, Porto-Novo, Bohicon,
Parakou Total outstanding loan
portfolio (million CFAF) 7 083 865 2 681 476 No of loans outstanding 2982 1416 Portfolio at risk (>90 days)1
1.88% 3.94% Operational self-sufficiency2
154% 137.4% Financial self-sufficiency3
— 111.31% Notes: 1: Portfolio at risk > 90 days = Outstanding balance of loans overdue > 90 days/Total gross
outstanding loan portfolio
2: Operational self-sufficiency = Operating income/Operating expense
3: Financial self-sufficiency = Adjusted operating income/Adjusted Operating expense
Source: PAPME’s Annual and Quarterly Reports.

31 Selected Bibliography
Agnikpé, Alain T. 1998. La microfinance au Bénin : Etude sectorielle approfondie. Report submitted
to United Nations Development Program.
Bank of Africa. 2001. Annual Report 2000.
BCEAO (Banque Centrale des Etats de l’Afrique de l’ouest) 1993. PARMEC/UMOA –
Réglementation des institutions mutualistes ou coopératives d’épargne et de crédit – Recueil
de textes.
BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) 1998. Instructions relatives à
l’application de la réglementation régissant les structures de financement décentralisées.
BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest) 199x. Loi portant réglementation
BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest ) 2002. Guide du Banquier de l’UMOA.
Christen Bob, and Richard Rosenberg. 2000. The Rush to Regulate: Legal Frameworks for
Microfinance. CGAP Occasional Paper, No. 4.
FECECAM – Bénin (Fédération des Caisses d’Epargne et de Crédit Agricole Mutuel du Bénin).
2001. Annual Report 2000.
IMF (International Monetary Fund). 2001. Benin: Second Review of the First-Year Program and the
Second-Year Program Under the Poverty Reduction and Growth Facility – Staff Report. IMF
Country Report No. 01/208.
IMF (International Monetary Fund). 2001. West African Economic and Monetary union: Recent
Economic and Regional Policy Issues in 2000. IMF Country Report No. 01/193.
OHADA (Organization pour l’Harmonization du Droit des Affaires en Afrique). 2001. OHADA en
bref. Plaquette élaborée par l’Association pour l’Unification du Droit en Afrique (UNIDA).
PADME (Association pour la promotion et l’appui au développement des micro-entreprises). 2001.
Annual Report 2000.
PAPME (Association pour la promotion de la Petite et moyenne entreprise). 2001. Annual Report
République du Bénin- Ministère des Finances et de l’Economie. 1998. Textes réglementant les
activités des institutions de microfinance au Bénin.
Saltzman Sonia B., and Darcy Salinger. 1998. The Accion Camel – Technical Note. Accion
Sinzogan, Claude. 2000. Efficacité des institutions de la microfinance: Cas du Bénin. Report No.
001/2000 to Cellule d’analyse de politique économique, Republic of Benin.

32 Africa Region Working Paper Series Series # Title Date Author
ARWPS 1 Progress in Public Expenditure Management in Africa:
Evidence from World Bank Surveys
January 1999 C. Kostopoulos
ARWPS 2 Toward Inclusive and Sustainable Development in the
Democratic Republic of the Congo
March 1999 Markus Kostner
ARWPS 3 Business Taxation in a Low-Revenue Economy: A
Study on Uganda in Comparison with Neighboring
June 1999 Ritva Reinikka
Duanjie Chen
ARWPS 4 Pensions and Social Security in Sub-Saharan Africa:
Issues and Options
October 1999 Luca Barbone
Luis-A. Sanchez B.
ARWPS 5 Forest Taxes, Government Revenues and the
Sustainable Exploitation of Tropical Forests
January 2000 Luca Barbone
Juan Zalduendo
ARWPS 6 The Cost of Doing Business: Firms’ Experience with
Corruption in Uganda
June 2000 Jacob Svensson
ARWPS 7 On the Recent Trade Performance of Sub-Saharan
African Countries: Cause for Hope or More of the Same August 2000 Francis Ng and
Alexander J. Yeats
ARWPS 8 Foreign Direct Investment in Africa: Old Tales and New
November 2000 Miria Pigato
ARWPS 9 The Macro Implications of HIV/AIDS in South Africa:
A Preliminary Assessment
November 2000 Channing Arndt
Jeffrey D. Lewis
ARWPS 10 Revisiting Growth and Convergence: Is Africa Catching
December 2000 C. G. Tsangarides
ARWPS 11 Spending on Safety Nets for the Poor: How Much, for
How Many? The Case of Malawi
January 2001 William James
ARWPS 12 Tourism in Africa February 2001 Iain T. Christie
D. E. Crompton

ARWPS 13 Conflict Diamonds
February 2001 Louis Goreux
ARWPS 14 Reform and Opportunity: The Changing Role and
Patterns of Trade in South Africa and SADC
March 2001 Jeffrey D. Lewis
ARWPS 15 The Foreign Direct Investment Environment in Africa
March 2001 Miria Pigato
ARWPS 16 Choice of Exchange Rate Regimes for Developing
April 2001 Fahrettin Yagci
ARWPS 17 Export Processing Zones: Has Africa Missed the Boat?
Not yet! May 2001 Peter L. Watson

33 Africa Region Working Paper Series Series # Title Date Author
ARWPS 18 Rural Infrastructure in Africa: Policy Directions
June 2001 Robert Fishbein ARWPS 19 Changes in Poverty in Madagascar: 1993-1999 July 2001 Stefano Paternostro
J. Razafindravonona
David Stifel

ARWPS 20 Information and Communication Technology, Poverty,
and Development in sub-Saharan Africa and South Asia August 2001 Miria Pigato
ARWPS 21 Handling Hierarchy in Decentralized Settings:
Governance Underpinnings of School Performance in
Tikur Inchini, West Shewa Zone, Oromia Region
September 2001 Navin Girishankar
A. Alemayehu
Yusuf Ahmad
ARWPS 22 Child Malnutrition in Ethiopia: Can Maternal
Knowledge Augment The Role of Income?
October 2001 Luc Christiaensen
Harold Alderman
ARWPS 23 Child Soldiers: Preventing,Demobilizing and
November 2001 Beth Verhey
ARWPS 24 The Budget and Medium-Term Expenditure Framework
in Uganda
December 2001 David L. Bevan
ARWPS 25 Design and Implementation of Financial Management
Systems: An African Perspective January 2002 Guenter Heidenhof
H. Grandvoinnet
Daryoush Kianpour
Bobak Rezaian

ARWPS 26 What Can Africa Expect From Its Traditional Exports?
February 2002 Francis Ng
Alexander Yeats

ARWPS 27 Free Trade Agreements and the SADC Economies February 2002 Jeffrey D. Lewis
Sherman Robinson
Karen Thierfelder

ARWPS 28 Medium Term Expenditure Frameworks: From Concept
to Practice. Preliminary Lessons from Africa
February 2002 P. Le Houerou
Robert Taliercio
ARWPS 29 The Changing Distribution of Public Education
Expenditure in Malawi
February 2002 Samer Al-Samarrai
Hassan Zaman
ARWPS 30 Post-Conflict Recovery in Africa: An Agenda for the
Africa Region
April 2002 Serge Michailof
Markus Kostner
Xavier Devictor

ARWPS 31 Efficiency of Public Expenditure Distribution and
Beyond: A report on Ghana’s 2000 Public Expenditure
Tracking Survey in the Sectors of Primary Health and
May 2002 Xiao Ye
S. Canagaraja

34 Africa Region Working Paper Series Series # Title Date Author
ARWPS 32 Promoting Growth and Employment in South Africa June 2002 Jeffrey D.Lewis
ARWPS 33 Addressing Gender Issues in Demobilization and
Reintegration Programs
August 2002 N. de Watteville
ARWPS 34 Putting Welfare on the Map in Madagascar August 2002 Johan A. Mistiaen
Berk Özler
T. Razafimanantena
J. Razafindravonona

ARWPS 35 A Review of the Rural Firewood Market Strategy in
West Africa August 2002 Gerald Foley
Paul Kerkhof
Djibrilla Madougou

ARWPS 36 Patterns of Governance in Africa September 2002 Brian D. Levy

ARWPS 37 Obstacles and Opportunities for Senegal’s International
Competitiveness: Case Studies of the Peanut Oil,
Fishing and Textile Industries
September 2002 Stephen Golub
Ahmadou A. Mbaye ARWPS 38 A Macroeconomic Framework for Poverty Reduction
Strategy Papers : With an Application to Zambia October 2002 S. Devarajan
Delfin S. Go

ARWPS 39 The Impact of Cash Budgets on Poverty Reduction in
Zambia: A Case Study of the Conflict between Well
Intentioned Macroeconomic Policy and Service
Delivery to the Poor
November 2002 Hinh T. Dinh
Abebe Adugna
Bernard Myers
ARWPS 40 Decentralization in Africa: A Stocktaking Survey November 2002 Stephen N. Ndegwa

ARWPS 41 An Industry Level Analysis of Manufacturing
Productivity in Senegal
December 2002 Prof. Aly Mbaye
ARWPS 42 Tanzania’s Cotton Sector: Constraints and Challenges
in a Global Environment
December 2002 John Baffes
ARWPS 43 Analyzing Financial and Private Sector Linkages in
Africa January 2003 Abayomi Alawode

ARWPS 44 Modernizing Africa’s Agro-Food System: Analytical
Framework and Implications for Operations February 2003 Steven Jaffee
Ron Kopicki
Patrick Labaste
Iain Christie

ARWPS 45 Public Expenditure Performance in Rwanda March 2003 Hippolyte Fofack
C. Obidegwu
Robert Ngong

35 Africa Region Working Paper Series Series # Title Date Author
ARWPS 46 Senegal Tourism Sector Study March 2003 Elizabeth
Iain T. Christie ARWPS 47 Reforming the Cotton Sector in SSA March 2003 Louis Goreux
John Macrae
ARWPS 48 HIV/AIDS, Human Capital, and Economic Growth
Prospects for Mozambique April 2003 Channing Arndt
ARWPS 49 Review of Rural and Micro Finance Regulation in
Ghana: Implications for Development and Performance
of the Industry April 2003 William F. Steel
David O. Andah
ARWPS 50 Microfinance Regulation in Benin: Implications of the
PARMEC Law for Development and Performance of
the Industry. June 2003 K. Ouattara
ARWPS 51 Microfinance Regulation in Tanzania: Implications for
Development and Performance of the Industry
June 2003 Bikki Randhawa
Joselito Gallardo