Despite sustained growth, the microfinance sector in Benin and Umoa faces significant challenges to guarantee long-term stability. Better supervision, strengthened risk management and increased inclusion of vulnerable actors will be decisive.
What is MIDA
In the second quarter of 2024, the microfinance sector of the West African Monetary Union (Umoa) showed growth dynamics, with significant growth in savings and credit, despite ongoing challenges related to the quality of credit portfolios. The outstanding deposits in Benin increased by 4.3 billion CFA francs (+2.2%) to reach a high overall level during the second quarter of 2024, according to the State of microfinance in Umoa on June 30, 2024 (Bceao, November 2024).
This increase reflects the increased confidence of customers in microfinance institutions (MFIs). The average amount of deposits per customer was 127,710 CFA francs at the end of June 2024, which shows an increase compared to 2023, indicating that more savers were using. The total amount of outstanding loans granted also increased by 910.9 million CFA francs (+0.4%) in the second quarter.
Across Umoa, DFS’s dynamic growth enables it to serve approximately 18.9 million customers through a network of 4,921 service points. Total outstanding deposits increased by 65.7 billion CFA francs (+2.8%), reaching 2,416.7 billion CFA francs. A similar trend can be observed with regard to loans, which increased by 43.8 billion Cfa (+1.7%) in total outstanding, amounting to 2,561.2 billion Cfa. Senegal and Togo recorded the largest increases, while reductions in credit granting were seen in some countries such as Mali and Burkina.
Risk management
The quality of credit portfolios deteriorated, and the bad debt rate reached 7.9%, well above the recommended standard of 3%. This situation highlights the need to strengthen risk management through increased supervision of microfinance institutions and by improving the ability of these institutions to manage non-performing loans.
The Parmec law (Project to support the regulation of savings and mutual credit societies of the Bceao), which regulates microfinance in the Union, imposes a framework
A strict regulatory framework, but in practice, the limited capacity of the regulator hinders the effective implementation of controls. The high number of institutions, some of which are unauthorized, complicates regular control.
To improve the resilience and sustainability of the sector, it is essential to adopt a risk-based approach to detect problems early, recommends the International Monetary Fund (IMF). Likewise, integrating viable informal structures into the formal regulatory framework could strengthen public confidence and improve the efficiency of the sector.
Specific policies, such as easier access to credit and training programs, are also needed to increase the economic inclusion of these groups.
Cooperation with international partners also emphasizes the importance of tailored financing solutions, especially to bridge the “intermediary gap” between traditional microfinance loans and bank loans.
With 539 Sfd in Umoa at the end of June 2024, the microfinance sector plays a major role, especially for populations excluded from the traditional banking system.
What are the key challenges facing microfinance institutions in Benin and the UMOA region?
Interview: The Challenges and Opportunities of Microfinance in Benin and UMOA
Editor (Time.news): Welcome to Time.news. Today, we’re diving into the dynamic world of microfinance in the West African Monetary Union, particularly focusing on Benin. I’m joined by Dr. Amina Koné, an expert in microfinance and economic development. Thank you for being here, Dr. Koné.
Dr. Amina Koné: Thank you for having me. I’m excited to discuss this vital topic.
Editor: The microfinance sector in UMOA has shown remarkable growth despite certain challenges. Can you elaborate on these growth dynamics?
Dr. Koné: Absolutely. The second quarter of 2024 highlighted a significant leap in both savings and loans, with deposits in Benin alone increasing by 4.3 billion CFA francs, reflecting greater customer confidence in microfinance institutions (MFIs). However, we must balance this growth with the reality that the quality of credit portfolios is deteriorating.
Editor: That’s a crucial point. You mentioned the decline in the quality of credit portfolios. What are the implications of a bad debt rate of 7.9%?
Dr. Koné: A bad debt rate of 7.9% indicates that many borrowers are struggling to repay their loans, which can jeopardize the sustainability of microfinance institutions. It underscores the need for improved risk management strategies to mitigate potential losses and ensure that MFIs remain stable over the long term.
Editor: Given the challenges you’ve mentioned, what strategies can be implemented to enhance risk management in this sector?
Dr. Koné: Strengthening supervision and implementing robust risk management frameworks are essential. This could involve training staff in credit assessment techniques, investing in technology for better data analysis, and ensuring that there’s a diversified loan portfolio. Additionally, incorporating more vulnerable groups into the financial ecosystem will also be key to enhancing stability and inclusiveness.
Editor: You touched on inclusivity. How vital is it to include vulnerable actors in the microfinance landscape?
Dr. Koné: It is critically important. Many of the vulnerable populations lack access to traditional banking services. By including them in the microfinance sector, we not only empower them economically but also help broaden the base on which MFIs can rely for growth. Inclusivity can also lead to a more resilient economic environment, as diverse customers bring varied borrowing and saving habits.
Editor: Interesting! Looking at the overall UMOA region, we see significant growth in the number of service points and total outstanding deposits. What does this say about the future of microfinance in this area?
Dr. Koné: The growth of service points, now numbering over 4,900 and serving nearly 19 million customers, signifies a strong foundation for future growth. The increased deposits, totaling 2,416.7 billion CFA francs, indicate that microfinance is becoming a trusted option for savings and loans among the population. If we can address the quality of the lending portfolios and ensure sustainable practices, I’m optimistic about the future.
Editor: Speaking of sustainability, as these institutions grow, what role do you think technology will play in shaping the future of microfinance in the region?
Dr. Koné: Technology is a game changer. Digital Financial Services (DFS) have already started transforming how MFIs operate, making them more efficient while also expanding their reach. Leveraging technology can help in risk assessment, streamline operations, and enhance customer service. For example, mobile banking can facilitate easier loan applications and disbursements.
Editor: It sounds like technology could be a substantial ally for MFIs. Before we wrap up, what message would you like to convey to stakeholders involved in the microfinance ecosystem?
Dr. Koné: I would urge all stakeholders—governments, funders, and microfinance institutions—to prioritize comprehensive strategies that emphasize supervision, risk management, and inclusivity. By working together, we can harness the growth potential of microfinance to foster true economic empowerment for all.
Editor: Thank you, Dr. Koné, for sharing your insights and expertise on this important subject. It’s been a pleasure having you.
Dr. Koné: Thank you for having me. I look forward to seeing the evolution of microfinance in Benin and the larger UMOA community.