CEMAC REGION

FINANCIAL SECTOR ASSESSMENT PROGRAM

TECHNICAL NOTE

ACCESS TO FINANCE

MARCH 2006

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ABBREVIATIONS ACEP/C Agence de Crédit pour l’Entreprise Privée (Cameroon) ACODE Action et coopération pour le développement (Chad) ADAF Appropriate Development for Africa Foundation (Cameroon) AFD Agence Française de Développement (French Development Agency) AfDB African Development Bank AFMIN Africa Microfinance Network AFRACA African Rural and Agricultural Credit Association ANEMCam Association Nationale des Etablissements de Microfinance de Cameroun (National

Association of Microfinance Establishments of Cameroon) APEMF Association Professionnelle des Etablissements de Microfinance du Congo

(Professional Association of Microfinance Establishments of Congo) APEMFG Association Professionnelle des Etablissements de Microfinance du Gabon APTEMF Association Professionnelle Tchadienne des Etablissement de Microfinance (Chad) ASDEC Association pour le Développement de l’épargne et du crédit (Chad) ASSOSEC Association des Caisses d’Epargne et de Crédit (Chad) BDEAC Banque de Développement des Etats de l’Afrique Centrale (Development Bank of

Central African States) BEAC Banque des Etats de l’Afrique Centrale (Bank of Central African States) BGD Banque Gabonaise de Développement (Gabon) BICEC Banque Internationale du Cameroun pour l'Epargne et le Crédit (Cameroon) BMBC Banque Méridien BIAO au Cameroun CAACFET Coopérative d’Appui aux Alternatives Commerciales des Femmes du Tchad (Chad) CABA Caisse de Base (Cameroon) CamCCUL Cameroon Cooperative Credit Union League CAMPOST Cameroon Postal Services CAPAF Programme de renforcement de Capacité des institutions de microfinance en Afrique

francophone (Capacity-building Program for MFIs in Francophone Africa) of CGAP CAPPED Caisse de Participation à la Promotion des Entreprises et leur Développement (Congo) CAR Central African Republic Caritas/IPHD Microfinance program in CAR supported by Caritas Foundation CARSA Central African Republic Supporting Association CCA Crédit Communautaire d’Afrique CCD Caisse pour le Commerce et le Développement (Congo) CCP Comptes-Chèques-Postaux (Gabon) CDCR Caisse de Développement de Crédit Rural (Chad) CEC Caisse d’Epargne et de Crédit CECAG Caisse épargne crédits Agass ( CEDIFOD Centre for Documentation and Information for Development CEFEC Caisse FMEO d'épargne et de crédits (Gabon) CEMAC Communauté Economique et Monétaire de l’Afrique Centrale (Economic and

Monetary Community of Central Africa) CEP Caisse d’Epargne Postale CGAP Consultative Group to Assist the Poor CICM Centre International du Crédit Mutuel CIDR Centre International de Développement et de Recherche (International Development

and Research Center) CMCA Crédit Mutuel de Centrafrique (CAR) CMEC Caisses mutuelles d’épargne et de crédit (Cameroon) CNLS Comité National pour la Lutte contra le Sida CNPMF Comité National de Pilotage de la Micro Finance (Gabon) COBAC Commission Bancaire de l’Afrique Central (Banking Commission of Central Africa) COFINEST Compagnie Financière de l’Estuaire (Cameroon)

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COOPEC Coopératives d’épargne et de crédit (Chad) CVECA Caisses Villageoises d’Epargne et de Crédit Autogerées EU European Union FDRP Fonds de Développement Rural de Base (Basic Rural Development Fund) FEGACA Craft Federation of CAR FINAM Financière africaine de microcrédits (Gabon) FODEX Fonds de Développement et d’expansion des PME-PMI (Gabon) FSAP Financial Sector Assessment Program GDP Gross Domestic Product GNI Gross National Income GTZ Gesellschaft für Technische Zusammenarbeit (German Agency for Technical

Cooperation) IFAD International Fund for Agricultural Development ILO International Labour Organization IMF International Monetary Fund INAFI International Network of Alternative Financial Institutions IsDB Islamic Development Bank MC2 Moyens et les Compétences de la Communauté (Cameroon) MFD COBAC’s Microfinance Department MFI Microfinance Institution MIFED Microfinance et Développement (Cameroon) MIX Microfinance Information eXchange (www.mixmarket.org) MUCODEC Mutuelles Congolaises d’Epargne et de Crédit (Congo) MUDACOM Mutuelle d’Assistance aux Commerçants et aux Malades (Congo) MUFFA Mutuelle Financière des Femmes Africaines (Cameroon), part of MC2 network NGO Non Governmental Organization ONDR Office National de Développement Rural (Chad) PAR Portfolio at risk PARCEC-MC Projet d’appui au réseau de coopératives d’épargne et de crédit du Moyen-Chari

(Chad) PCRD Projet de Crédit Rural Décentralisé (Decentralized Rural Credit Project, Cameroon) PPMF Projet d’appui au Progamme National de Micro-Finance (Cameroon) ROA Return on assets RoSCAS Rotating Savings and Credit Associations SECADEV Secours Catholique et Développement (Chad) SME Small and medium enterprise SOFIDE Société Financière de Développement (Congo) SOPECO Société des Postes et de l’Epargne du Congo UBC Union Bank of Cameroon UCACEC Union Centrafricaine des caisse d’Epargne et de Crédit (CAR) UCEC-MK Union des Clubs d’Epargne et de Crédit du Mayo-Kebbi (Chad) UNDP United Nations Development Programme URCOOPEC Union Régionale des Coopératives d’Epargne et de Crédit (Chad) VITA Volunteers in Technical Assistance (Chad) XAF Francs in the CEMAC Region

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TABLE OF CONTENTS 1. INTRODUCTION 1 2. ACCESS TO FINANCE IN THE CEMAC REGION 2 2.1 MICROFINANCE INSTITUTIONS 3 2.2 NATIONAL MFI ASSOCIATIONS 5 2.3 BANKS 6 2.4 POSTAL FINANCE 6

2.5 MICROFINANCE REGULATION 6 2.6 OTHER RELEVANT REGULATION 8 2.7 MFI LICENSING 9 2.8 MFI SUPERVISION 10 2.9 SUPPORT TO COBAC’S MICROFINANCE DEPARTMENT 11 2.10 SME FINANCE 11 2.11 RECOMMENDATIONS 13

ANNEX TO REGIONAL OVERVIEW: FINANCIAL PERFORMANCE OF 18 MFIS IN THE CEMAC REGION 15 COMPARED TO AFRICAN AND GLOBAL BENCHMARKS 3. COUNTRY OVERVIEWS

3.1 CAMEROON MFIS 17 MICROFINANCE PROFESSIONAL ASSOCIATION 22 POSTAL FINANCE 22 RURAL FINANCE 23 BANKS 23 GOVERNMENT INVOLVEMENT 24 DONOR INVOLVEMENT 25

OTHER ISSUES 25 SME FINANCE 26

3.2 CENTRAL AFRICAN REPUBLIC MFIS 28

MICROFINANCE PROFESSIONAL ASSOCIATION 30 NATIONAL SAVINGS BANK 30

BANKS 30 GOVERNMENT INVOLVEMENT 31 DONOR INVOLVEMENT 31 OTHER ISSUES 31

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3.3 CHAD MFIS 32

MICROFINANCE PROFESSIONAL ASSOCIATION 36 BANKS 36 GOVERNMENT AND COBAC INVOLVEMENT 36 DONOR INVOLVEMENT 38 3.4 CONGO

MFIS 39 MICROFINANCE PROFESSIONAL ASSOCIATION 42 POSTAL SAVINGS 42 BANKS 43 GOVERNMENT AND COBAC INVOLVEMENT 43 DONOR INVOLVEMENT 46 3.5 EQUATORIAL GUINEA 47 3.6 GABON

MFIS 48 MICROFINANCE PROFESSIONAL ASSOCIATION 48 POSTAL SAVINGS 49

BANKS 50 GOVERNMENT INVOLVEMENT 50 DONOR INVOLVEMENT 50 OTHER ISSUES 51

SME FINANCE 51

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INTRODUCTION The CEMAC regional FSAP Mission was led by Ann Rennie of the World Bank and Bernard Laurens of the IMF. The access to finance team for the CEMAC regional FSAP consisted of Jennifer Isern of CGAP (team leader) and Jonathan Darboux of the World Bank plus consultants Stephanie Gober of IDC, Sabine Bongi of IDC, and Christohpe Guené, independent consultant. The consultancy was coordinated by Jennifer Isern of CGAP and Kerry Hamilton of FIRST and financed by FIRST. The FSAP team and consultants received significant in-country support from COBAC’s Microfinance Department led by Jean-Marie Ogandaga. Adrian Gonzales of the MIX worked with Jennifer Isern to analyze selected MFI data and compare with global MIX benchmarks. During two FSAP missions in February and March 2006, Jennifer Isern and Jonathan Darboux met with over 125 people through interviews in Cameroon and through video conferences with key representatives in Central African Republic and Gabon. Stephanie Gober visited Cameroon, Chad and Congo in January and February 2006 and met with approximately 100 people. Additional information was gathered by CGAP and IDC staff through phone interviews and desk reviews from November 2005 through March 2006. Through country visits and video conferences, the team interviewed representatives from COBAC, microfinance institutions, agencies specialized in rural, postal, and SME finance, national Ministries of Finance, SME, and Rural Development, bilateral and multilateral funding agencies, national MFI professional associations, trainers and consultants working with MFIs and banks, and other institutions focused on access to finance in the CEMAC region. The team would like to thank the Microfinance Department at COBAC, MFIs and other financial institutions in the region, donors, and other key contacts for their open collaboration and information.

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ACCESS TO FINANCE IN THE CEMAC REGION A range of institutions provide financial services to low- and medium-income people in the CEMAC region, including licensed microfinance service providers, mainstream financial institutions such as commercial banks and money transfer companies, non-bank providers including postal networks, and unlicensed service providers and informal groups such as savings clubs (tontines). Access to finance in the CEMAC region is among the lowest in the world. Banks manage one million accounts (estimated at 3 percent of total population1) and MFIs serve 780,000 clients (estimated at 2.2 percent of total population). Several factors contribute to the low levels of access. Interest rate controls discourage banks from mobilizing greater deposits and taking greater risks in expanding their lending portfolio. Regional monetary policy has led to excess liquidity in banks, further eroding their interest in expanding access and mobilizing more deposits. Low population density (11.5 inhabitants per square kilometer compared to 22 inhabitants per square kilometer for WAEMU region) and low purchasing power lead to higher operational costs for MFIs and other institutions that serve a broader range of clients. Finally, a lack of credit information on potential borrowers and a poor legal environment discourage financial institutions from expanding their client base.

Average Deposits Relative to GDP per capita

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Gabon Congo EquatorialGuinea

Cameroon RCA Chad CEMAC SSA

MFIs Banks

1 With one million accounts, the number of clients is likely smaller since a single client will have several accounts. As a result, the total population covered by banks is likely less than 3 percent.

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MICROFINANCE INSTITUTIONS The microfinance sector in the CEMAC zone has experienced impressive growth in recent years. In 2001, COBAC commissioned the first regional survey and identified 908 MFIs serving 413,500 clients with 53.8 billion XAF in deposits and 29.4 billion XAF in outstanding loans. As of December 2005, the estimated 1,022 MFIs have grown to serve approximately 780,000 clients with 133 billion XAF in deposits and 73.5 billion XAF in outstanding loans. Table 1: Selected Data for the Microfinance Sector in the CEMAC Region, as of December 2004

Eq. Guinea 1 1CARGABON CHAD CONGO CAMEROON

2Number of MFIs 714 4 214 86 22 NA

Total Members/Clients 475,644 4,739 98,378 155,835 45,000 NA

Total Population of Country 3 16,380,000 1,389,000 9,826,000 3,039,000 3,800,000 536,000

Total Clients as Percentage of Total Population 2.9% 0.3% 1.0% 5.1% 1.2% NA

Total Loans Outstanding (XAF million) 61,021 1,228 3,669 6,618 993 NA

Total Loans Outstanding (US$ million) 111 2.2 6 12.0 1.8 NA

Average Loan Size (XAF) 128,291 259,126 37,295 357,212 29,206 NA

Average Loan Size (US$) 233 471 68 649 34 NA

GNI per capita4 800 3,940 260 770 310 NA

Average Loan Size as % of GNI per capita 29.1% 11.9% 24.3% 84.3% 11.0% NA

Total Deposits (XAF million) 95,022 17 4,419 31,417 2,666 NA

Total Deposits (US$ million) 173 0.3 8 57.1 4.8 NA

Average Deposit (XAF) 199,775 3,587 44,919 431,820 78,412 NA

Average Deposit (US$) 363 7 82 785 143 NA Sources: COBAC and Data collected during the FSAP Mission; 1Data for Gabon and CAR is as of 2005. 2COBAC and the Ministry of Finance recently announced the closure of 205 MFIs in Cameroon (December 2005) and other MFIs in Congo and Chad are under review. The figures in this table do not reflect these recent announcements as some MFIs have not yet taken action on the Ministry decision. 3Population figures from the CIA World Factbook, 2005. 4GNI per capita using Atlas method, World Bank, 2004. Notes: - NA= Not Available - 1US$ =XAF 550 Access to finance remains low and is uneven across the CEMAC zone. In terms of number of institutions and volume of deposits and loans, the microfinance sector is most developed in Cameroon followed by Chad and Congo. Microfinance is moderately developed in CAR and was seriously affected by the civil war. MFIs are only emerging in Gabon and Equatorial Guinea. In Cameroon, Chad and Central African Republic, points of service are mixed across urban and rural areas. Several MFIs reported challenges maintaining branches (or member cooperatives) in rural areas, and they plan to close or merge rural points of service. In Congo and Gabon, microfinance institutions are more active in urban areas. Despite the large number of institutions, only 2.2 percent of the regional population has access to financial services through MFIs.2 This penetration rate varies widely across the six 2 Other sources have estimated that 6 percent of the regional population has access to financial services through MFIs. This figure may be based on the economically active population or other calculation assumptions.

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countries from a high of 5.1 percent of the population in Congo to 0.3 percent in Gabon and little or none in Equatorial Guinea. Assuming households of five people, approximately 11.1 percent of households have access to financial services from MFIs.3

Average loan sizes vary greatly, even when normalized by GNI per capita. Average loans range from 11.0 percent in CAR to 84.3 percent of GNI per capita in Congo. In several countries, especially in Congo and Cameroon, salaried employees form the core client base of urban MFIs. The microfinance sector is concentrated in approximately 20 institutions (or federations and networks) serving more than 10,000 clients each, of which more than half are based in Cameroon. In addition to these large institutions, there are hundreds of smaller institutions. Few institutions are profitable, and the information available did not allow for detailed financial analysis. Detailed financial and outreach information across the six countries is not available, although COBAC plans to develop a database to analyze such data. The mission gathered and analyzed financial statements, mostly un-audited, for a sample of 18 large and medium institutions in Cameroon, Congo and Chad. These 18 institutions represent more than 550 smaller, individually licensed MFIs (e.g., cooperatives in a federation) and 56 percent of the total estimated 780,000 clients in the region. Comparisons with the MIX database for the rest of Africa and other global regions are provided in the annex to the regional overview. Financial products are mainly limited to deposits, loans and, increasingly, money transfers and payment of salaries. Most loans and deposits are short term with little flexibility on conditions. According to regional regulation, MFIs can also provide foreign currency or traveler’s checks, rent safe deposits, buy goods on behalf of clients and provide leasing products. Of the institutions interviewed, the 15-20 larger institutions seem to have generally sound management and reasonable financial performance given their level of development, although limited data prevented a thorough analysis. Nonetheless, all MFIs interviewed seem vulnerable to shocks such as changes in management, effective governance, liquidity crises, long-term profitability, and other risks. Very few institutions provided information on portfolio quality, although contacts suggested that loan recovery is becoming more difficult, especially in areas where several MFIs operate (and clients can more easily play one institution off another). MFIs cited the need for training, equipment and information systems, longer-term financing, access to national payment systems, and links to national credit bureaus. Costs per borrower and per saver for the 18 MFIs that provided financial statements is higher than the average in the rest of Africa, as seen in the chart below. Payment technologies are starting to be used by banks, MFIs, and other institutions, and this may be one promising way to reduce operations costs to increase access to finance.

3 The estimate of five people per household is based on the 2000 Interim PRSP for Cameroon (IMF) that cited 7.8 people per low-income household and 3.8 people for other households.

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153,90236,00

58.4015,80

69.6024,90

9,5013,80

300,40130,60

Cost per borrower and cost per saver (in US dollars)CEMAC and by global region

CEMAC104,7034,20

Bold: cost per borroweritalic : cost per saver

100,108,00

Relative to other regions in Africa and the world, many MFIs in the CEMAC region, especially in Cameroon and the Republic of Congo, were launched through private initiative with little donor support. In contrast, many MFIs in Chad have been supported by international donors, and deposits are relatively lower among Chadian MFIs than for other MFIs in the region. A number of donors have funded projects to expand access to finance in the region, and the most significant donors include UNDP, AFD, IFAD, AfDB, EU, and IsDB. NATIONAL MFI ASSOCIATIONS According to the 2002 regulation, all licensed MFIs must belong to the country’s national microfinance professional association. The regulation also required the existence of a single national association. The national association in Congo has most active, and it existed informally before the 2002 regulation. Associations in the other countries have been slow to develop concrete activities (Gabon, Central African Republic, Chad) or are paralyzed by a leadership crisis (Cameroon). MFIs across the region raised the concern that their national association existed only as a legal entity and did not yet fulfill its potentially useful role. Associations have been unclear about which MFIs could join given the backlog in licensing by COBAC and the Ministries of Finance (see below). In some cases, the associations have received limited donor support. However, the long-term viability of the national associations will depend on member ownership of the association as demonstrated by active participation at events, contributing annual dues, and paying fees for services. Potential association services include training, benchmarking performance of the MFI members, policy advocacy, annual conferences, and information centers.

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BANKS Based on FSAP questionnaires completed by 18 banks, the minimum balance to open a savings account ranges widely. The minimum balance is a basic proxy of a bank’s interest in deepening their retail services:

• Cameroon: from 50,000 to 10 million XAF • Central African Republic: 25,000 to 50,000 XAF • Congo: 100,000 to 1 million XAF • Equatorial Guinea: 100,000 XAF • Gabon: 500,000 to 5 million XAF • Chad: 200,000 to 1 million XAF

Several banks, especially in Cameroon, have begun deepening their retail services and/or working with MFIs to expand their outreach indirectly. Links between banks and MFIs are emerging, especially in Cameroon, and this is a positive development. A limited number of banks have helped launch MFIs with funding and technical assistance, offer space in the banking hall for the MFI’s staff, lend to MFIs, and/or have invested in the equity of commercial MFIs. Nonetheless, some MFIs, especially in Cameroon, reported problems opening or maintaining bank accounts, since certain banks perceive MFIs as competition or potentially higher-risk clients. POSTAL FINANCE Post offices and related postal financial services report broad outreach throughout the region. As one example, CAMPOST cites 800,000 savings accounts and a small volume of money transfers. With their large branch network and infrastructure, postal financial services could be a useful way to provide broad financial access to the population. However, all of the national postal financial services are in financial difficulty and, should the governments decide to restructure them, substantial technical and financial support would be required. Moreover, the mandatory interest rate of 4.5% on savings accounts, coupled with the lack of a government securities market, makes their business model inherently unsustainable; and they have neither the skills nor experience required to offer credit. Currently, the postal financial services are not supervised by COBAC. MICROFINANCE REGULATION The CEMAC Regulation Relative to the Conditions of Exercising and the Supervision of the Activity of Microfinance was signed on April 13, 2002. In drafting this regulation, COBAC strategically chose to regulate the financial activity regardless of the institution’s legal form. The regional regulation is widely considered to apply good international practice by establishing a tiered framework with three categories of MFIs with adapted rights and responsibilities for each category:

• Category 1. Institutions that collect deposits from their members to be used for loans only to those members (i.e., cooperatives)

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• Category 2. Institutions that collect public deposits and grant loans • Category 3. Credit-only institutions that collect no deposits

Prudential and non-prudential requirements are more stringent for MFIs that mobilize public savings, and this follows good practice. As part of the 2002 regulation, COBAC also established 21 regulations defining prudential ratios, and MFIs must comply with these ratios by April 2007. MFIs may either be independent institutions or part of a “network” or grouping of institutions, such as a cooperative federation4. Each member MFI in a network or federation must be individually licensed. The network or federation is required to have a licensed apex organization that is responsible for the overall management and consolidation of information from member MFIs. With a few notable exceptions (MUCODEC in Congo, Crédit Mutuel in CAR, UCEC in Chad, CVECAs in Cameroon), most of the networks or cooperative federations are weak and cannot consolidate (or even aggregate) financial statements or adequately supervise their MFI members. Given varied levels of development among MFIs and other financial institutions in the region, it will be challenging to apply a uniform regional regulation. In the relatively well-developed microfinance sector in Cameroon, the regional regulation is well adapted to the national context. While the sectors in Congo, Chad and CAR are modest in comparison, the large MFIs should be able to adapt to the regional regulation. More flexibility and time may be needed in countries where microfinance is only emerging, such as Gabon and Equatorial Guinea. The regulation is currently only available in French, although draft translations have been done for English, Spanish and Arabic and should be finalized. The regulation just became effective in April 2005, and the effects should be monitored closely over the next 1-2 years to determine which adjustments will be needed. One area that merits analysis is the measure that limits MFIs to earn only 20 percent of income from services other than savings and loan activities (e.g., money transfers). In the CEMAC region, MFIs do not face interest rate caps on loans. This is consistent with international good practice. Without interest rate caps, MFIs can price loans according to the market to reflect their higher operating costs of serving their targeted clients. The costs of making a small loan are higher in percentage terms than the costs of making a larger loan. The percentage cost of making microloans is even higher because clients generally have no credit history, no collateral, and may live in rural areas. MFIs must set interest rates that cover all administrative and operating costs, plus the cost of capital (including inflation), loan losses, and a provision for increasing equity. Unless MFIs do so, they may only operate for a limited time; reach a limited number of clients; and will tend to be driven by donor or government goals, not client needs. Only sustainable MFIs can provide permanent access to financial services. 5

Although microcredit interest rates can be legitimately high, inefficient operations can make them higher than necessary. Most MFI in the CEMAC region have relatively small 4 “Network” in this context is different from the professional association required in each country. 5 For more information on interest rates, see CGAP Donor Brief #6 “Making Sense of Interest Rates” http://www.cgap.org/docs/DonorBrief_06.pdf. See also CGAP Donor Brief #18 “The Impact of Interest Rate Ceilings on Microfinance” http://www.cgap.org/docs/DonorBrief_18.pdf

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lending portfolios and earn little in fees from other services (e.g., money transfers). As mentioned above, the cost per borrower and cost per saver for MFIs in the CEMAC region are higher than regional averages for Africa. As the microcredit market matures in the CEMAC region, MFIs should pay attention to reducing operating costs to ensure the most efficient, competitive interest rates possible. National credit commissions review financial institutions and provide an outlet to address consumer protection issues. Given emerging competition for financial services, market forces should lead to lower interest rates and higher service quality, as has happened in many countries globally and is already happening in some regions of Cameroon (especially in Yaoundé and Douala) and in Congo. To promote transparency and competition, it may be prudent to require financial institutions (including banks and MFIs) to notify clients and post information in their banking halls about the effective interest rate on loans and total cost of other services (e.g., money transfers). OTHER RELEVANT REGULATION BEAC and COBAC have been working with the West African Central Bank (BCEAO) and OHADA to write a draft uniform act on legal forms for cooperatives, including measures on financial cooperatives. The BEAC should ensure that this uniform act does not create a dual regulatory regime. Further, as currently worded in the version available to the FSAP mission, the draft OHADA uniform act is complex and would be difficult for most financial cooperatives to implement. MFIs face several constraints related to loan collection and realizing collateral. Few MFIs register collateral officially given lack of knowledge and/or slow and expensive procedures to register. As a result, the MFIs have difficulty realizing collateral through the courts. When clients have loans from banks and MFIs, the banks are generally better positioned to seize collateral. As a positive step, the draft OHADA uniform act on cooperatives provides simplified measures for collateral registration and processing. BCEAO reports that the measures would apply for all MFIs, but it is not clear if these measures would apply only for cooperatives, or preferably, for all MFIs, banks and other financial institutions providing micro- and SME loans to avoid regulatory arbitrage. This issue is more fully discussed in the Legal Environment section of the FSAP aide memoire. MFIs do not have access to regional or national credit bureaus. This will soon lead to problems as banks begin to lend more to SMEs and other retail clients and MFIs lend to more SMEs. MFIs in certain countries are already sharing some client information on an informal basis, and professional associations in Congo and Chad are considering launching credit bureaus. Rather than create a parallel credit bureau for MFIs, it would be best to expand the bank credit bureau to MFIs. As a first step, the best-managed MFIs could be offered access to the credit bureau on condition that they are able to provide regular and credible information. Tax policies are not evenly applied throughout the region. MFIs in Cameroon and Congo especially raised concerns about certain institutions receiving tax exemption while others have been required to pay taxes for years. For example, one MFI had received a tax exemption letter

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from the tax division, but individual tax inspectors still required payments. A uniform approach within the six countries on taxation based on the business activity, not on the type of institution, would complement COBAC’s approach to the regional regulation. Further, ensuring that all MFIs are aware of their national tax policy will help prevent any distortions or abuses. MFI LICENSING Responsibility for licensing MFIs is shared by COBAC and each country’s monetary authority (i.e., the Ministry of Finance). Within COBAC, the Microfinance Department was created in late 2003 and became operational in early 2004. In general, the Ministry of Finance receives applications, conducts an initial review, and submits them to COBAC for evaluation within three months. COBAC issues a positive or negative opinion on the application within three months and the Ministry then formally issues the license or the rejection to the MFI. The Ministry cannot override a negative opinion from COBAC, and must explain any rejection of applications approved by COBAC. As COBAC describes the process, COBAC makes the licensing decisions, while the monetary authority executes them by issuing licenses and closing down unauthorized MFIs. The April 2002 microfinance regulation required all MFIs to be in compliance and licensed by April 2005. COBAC and the Ministries of Finance have made significant efforts to process applications. However, given the large number of institutions to license, often incomplete MFI applications, and very limited resources, COBAC and the national Ministries of Finance have not been able to review all MFIs or enforce the April 2005 deadline for licensing. COBAC reports that 454 opinions have been issued on MFI licenses in the region, as summarized in the table below. Many of these MFIs are small cooperatives or village savings and loan associations that belong to a federation or network.

Cameroon CAR Chad Congo Eq Guinea

Gabon Total

Number of positive opinions from COBAC on MFI licensing requests

365 14 35 37 0 3 454

Source: COBAC, 2005 At the time of the mission in February 2006, many MFIs had not received notification about status of their application from their Ministries of Finance. MFIs in each of the six countries reported substantial delays of one year or more for the official license to be issued from their national Ministry of Finance. In the meantime, banks and donors have been reluctant to fund or support MFIs without a license or without a positive opinion from COBAC. COBAC has an action plan to resolve the backlog of licenses with Ministries of Finance. The regulation calls for all MFIs or those operating savings and credit operations to apply for a license to be able to operate legally. Given the large number of small savings and credit groups in the region, it would be useful to review and set a minimum threshold to apply for a license. Smaller MFIs that fall below the threshold could register with authorities without receiving a license but still submit reports and comply with non-prudential regulations. Typical non-prudential requirements, or ‘conduct of business’ regulatory issues, include the following:

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• business registration or permit for microlending operations • limits on ownership, management and capital structure • consumer protection measures such as truth in lending requirements • fraud, money laundering and terrorist financing prevention • participation in credit bureaus

6• tax and accounting treatment Granting a full license means that COBAC will supervise the institution, and this gives confidence to clients. Given the large number of MFIs with licenses and those pending licensing approval, it will be difficult for COBAC to effectively supervise all of them. Over the past four years, COBAC has worked closely with national Ministries of Finance to close non-compliant institutions. For example, in December 2005, the Ministry of Finance in Cameroon published a list of 205 MFIs to be closed, after coordination with COBAC. A number of these institutions were no longer in operation, planned to merge with larger neighboring MFIs, etc. Care is needed when announcing MFI closings, especially on such a large scale as recently done in Cameroon, to avoid confusing clients or inadvertently destabilizing the sector. Similar efforts underway in each of the six countries will help clean and consolidate the sector. The 2002 regulation included twenty-one regulations defining prudential and non-prudential ratios and operating norms for MFIs. The norms become effective as of April 2007. In interviews with institutions throughout the region, few MFIs are familiar with the ratios and operating norms. Additional information is needed to clarify definitions and provide guidance on calculations and frequency of reporting. MFI SUPERVISION The microfinance department of COBAC is strong technically but lacks human and financial resources. The department currently includes three senior staff, three junior staff, and one administrative assistant. The microfinance department prepared an ambitious 2003-2005 action plan to implement the new microfinance regulations and begin supervision. The team has made considerable progress, especially given the number of MFIs in the region. However, given funding and personnel constraints, the team has only been able to achieve part of their action plan. COBAC has considerable independence and technical credibility in the region. However, this credibility loses meaning if COBAC cannot carry out effective supervision. Supervision includes both on-site visits and regular off-site analysis, and at present, COBAC does not have the means to ensure either type of supervision for MFIs. COBAC plans to supervise all MFIs in the region starting in 2007, and as mentioned above, this will be extremely difficult given the number of licensed MFIs. A strategy will be needed to ensure that COBAC can provide effective supervision, especially for the largest MFIs that mobilize public savings and pose greatest risk. 6 For more detail on non-prudential regulation, please see “Guiding Principles on Regulation and Supervision of Microfinance,” CGAP, 2003.

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In order to license the existing MFIs, COBAC has conducted surveys and evaluation missions in each of the CEMAC countries from 2003 to present. Survey information generally includes the MFI’s location, structure, legal category, and limited summary financial data. These surveys are useful to track growth of the microfinance sector and update the earlier COBAC regional survey conducted in 2000. COBAC finalized the MFI surveys in the Republic of the Congo in 2003 and in the Central African Republic in November 2004. The preliminary report for the surveys in Chad and Cameroon were issued in April 2005 and January 2006 respectively. COBAC plans to conduct similar surveys in Gabon and Equatorial Guinea. COBAC aims to establish a regional database to maintain statistics on MFIs that could eventually be useful for off-site supervision, similar to the database used for banks. As part of the 2002 microfinance regulation, licensed MFIs are required to send financial statements each semester to COBAC, but many do not yet conform. In addition, many institutions do not yet comply with reporting and prudential requirements that will officially take effect in April 2007. Small MFIs with capital of less than 50 million XAF have lighter reporting requirements. COBAC is currently developing a chart of accounts to guide MFI financial reporting. COBAC has productive relations with the Ministries of Finance in each country. Some Ministries of Finance have specialized units focused on microfinance. As the country with the strongest Ministerial focus on microfinance (and the largest number of MFIs), Cameroon has a specialized inspection unit in addition to a microfinance unit. In all cases, Ministry staff recognized that regulation and supervision are the responsibility of COBAC. Ministry staff have been instrumental in the licensing process, aiding COBAC in conducting national microfinance surveys, and ensuring that MFIs are closed when needed. Given their national presence and knowledge of local languages, they could be a good resource in strengthening reporting and supervision of MFIs. SUPPORT TO COBAC’S MICROFINANCE DEPARTMENT COBAC has benefited from external funding in the past. In 1999 the Government of France provided BEAC with 440M XAF to establish a regulatory framework and a database to supervise MFIs in the CEMAC zone. COBAC’s Microfinance Department (MFD) was created under this project, which was originally scheduled for two years but was extended until February 2005. The World Bank considered a project in 2002-03 but was not able to fund at that time. The Government of France is discussing a new project with COBAC. The World Bank is designing a regional financial sector project with BEAC that would include a microfinance component. CGAP is discussing technical assistance and other support to COBAC. SME FINANCE In the CEMAC region, the concept of SME is loosely defined. For some, an SME is any small business while others use quantitative definitions such as annual turnover ranging from XAF 500, 000 (US$ 909) to XAF 3 billion (US$ 5,454,545) and staff of 3 to 200 people. From interviews

10/17/2008 11

with banks and MFIs, SMEs in the CEMAC region are concentrated in Cameroon, and most SMEs are active in agriculture, transport, tourism, and commerce. Few institutions offer financial services tailored to SMEs in the region. The largest (although still quite modest) outreach to SMEs was seen in Cameroon with a specialized SME credit institution (Pro-PME), three leasing companies, three banks with focused SME strategies, and a few large and well-established MFIs starting to serve this sector. In other countries in the region, only a few large MFIs or specialized government agencies provide limited access to SME finance. Banks provided little information on their SME portfolios. Modest support to SMEs has also been offered through capacity building programs and experimental guarantee programs supported by donors (especially AFD, IFC, and AfDB) and/or national governments. More recently, the regional development bank (Banque de Développement des Etats de l’Afrique Centrale, BDEAC) has begun to promote SME finance by refinancing commercial banks that lend to SMEs. As of December 31, 2005, BDEAC provided refinancing to two commercial banks in Cameroon and Chad for a total amount of XAF 3.5 billion (US$ 6.3 million). Cameroon and Gabon launched specialized SME finance agencies in the past, although these agencies have since been closed given weak management and high default rates. For example, in Chad the IFC piloted a project in 2003-2004 to provide training and advice to SMEs and assist in developing business plans and preparing loan applications. MUCODEC, Congo’s largest MFI network, also lends to SMEs. In Central African Republic and Equatorial Guinea, no formal financial institution was identified as providing SME finance. Financial institutions cite weak SME management and governance, unreliable financial information on SME operations, lack of medium- and long-term resources for typical SME lending, and complicated procedures to register and seize collateral as the main constraints to funding SMEs. From interviews, it seems that few financial institutions have the technical knowledge to assess the risk of SMEs and design appropriate loan products and other financial services. Financial institutions suggested guarantee funds, technical assistance to design loan products, expanded coverage of credit bureaus, and access to medium and long-term funding to promote SME finance.

DEVELOPMENT BANK OF CENTRAL AFRICAN STATES (BDEAC) The BDEAC was designated by regional authorities as the main instrument of financing regional integration, as BEAC would like BDEAC to play a major role in recycling liquidity in the region. . The BDEAC was created in 1975 with the core objective of promoting social and economic development of member countries. Like many other development banks, in the 1980s BDEAC experienced severe financial difficulties. These problems originated from weak corporate governance and the widespread financial crisis that hurt member countries. As a result, the bank ceased any new activity during the 1990s. After 2000, a restructuring plan was developed to achieve (i) institutional reform, (ii) an agreement to reduce member state shareholding, (iii) a cautious relaunch of BDEAC lending operations, and (iv) increased transparency through the international audits of BDEAC accounts and the willingness to place the bank under COBAC supervisory authority even if it is not a statutory requirement.

10/17/2008 12

In order to provide the BDEAC with adequate financial resources, the Council of Ministers designated as the bank as the manager of the Community Development Fund (FODEC) which is meant to receive an annual allowance of XAF 20 to 25 billion (US$ 36 million to US$ 45 million) to be taken from tax and customs incomes generated in member countries. In addition, the BDEAC obtained a revolving line of credit of XAF 10 billion (US$ 18 million) from the Central Bank, in addition to approximately XAF 10 billion (US$ 18 million) the bank has mobilized recently from private placements in the region.

It is recommended that the BDEAC pursue agreed reforms and relaunch its activities with caution in order to avoid past mistakes. Despite the reforms it undertook, the bank is still facing institutional and operational constraints. Member states play a prominent role in shareholding (more than 75 percent), which is a deterrent for the entry of new private shareholders. The bank should be protected against political interferences, corporate governance should be strengthened, and a qualified and independent Board should be appointed. The current business strategy is to co-finance operations with well-known donors and refinance national financial institutions (e.g., banks and well-managed MFIs), and this seems prudent. To avoid creating distortions and to assure its long term viability, the BDEAC should mobilize resources in the private market.

RECOMMENDATIONS COBAC has made impressive progress in strengthening regulation and licensing of MFIs in the region despite extremely limited resources. To fulfill their role as regulator and supervisor for MFIs, COBAC needs additional human and financial resources and technical assistance. Priority should be given to finalizing licensing of the backlog of MFI applications, finalizing the accounting framework, clarifying reporting requirements, and developing the MFI database for off-site supervision. Given confusion about the law and reporting requirements, COBAC should work with national monetary authorities and national professional associations of MFIs to clarify the 2002 microfinance regulation and reporting frequency, content, and calculation of ratios and other financial information. Translations of the relevant regulations should be finalized and published in English, Spanish and Arabic. COBAC’s efforts to developing a chart of accounts will improve the quality and reliability of information in the region. Reporting requirements should be strengthened, especially for larger MFIs mobilizing significant public deposits, to include more frequent financial and operational data and quarterly frequency, including more detailed loan portfolio information. Reporting requirements should also be strengthened, especially for larger MFIs mobilizing significant public savings, to include more frequent financial and operational data. For larger MFIs mobilizing significant public savings, quarterly (or eventually monthly) reports should be required. Finally, COBAC should require loan portfolio information such as portfolio aging, portfolio at risk over 30 days, and loan write-offs. Non-compliant institutions should be shut down while, in parallel, publicizing the compliant institutions.

10/17/2008 13

10/17/2008 14

Stronger reporting requirements will be essential for COBAC to develop a regional database and conduct off-site supervision. It would be useful to analyze the 21 required ratios with a representative sample of the large and medium MFIs to test likely compliance and make adjustments to ratios in line with international reporting standards. Faced with such a large number of licensed MFIs, COBAC will need to prioritize supervision on the largest MFIs mobilizing public savings, measured either in terms of volume of savings or number of clients served. As these institutions grow in size, it will be critical for COBAC to be able to monitor and respond to problems before they become institutional crises. COBAC should seek ways to work with local partners—such as microfinance units in each Ministry of Finance, the national microfinance professional associations, accredited auditors and rating agencies—to gather information from MFIs. These local partners could play a useful role, especially to promote standards of compliance for reporting and supervision. Then COBAC could focus on the large and medium MFIs mobilizing public savings for more concentrated supervision. Such an approach could be taken without comprising COBAC’s independence and objectivity. To promote transparency and competition, COBAC should study measures for financial institutions (including banks and MFIs) to notify clients and post information in their banking halls about the effective interest rate on loans and total cost of other services. Given the low level of access to finance for SMEs, it would be useful to improve the transparency of SME financial information and credit history by expanding coverage of client information to include positive and negative credit history and other payment/bill history from banks, MFIs, and specialized agencies. Strengthening the judicial system and registration and processing for collateral will also promote greater access to finance.

15

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MFIs (including networks and cooperative federations) in the CEMAC region that provided financial statements for 2003-04 as part of the FSAP Mission:

Country Organization

Cameroon ACEP/C CAMCCUL CCA GECEFIC MC2 and MUFFA CVECA CREDIT DU SAHEL SOS WOMEN Chad ACODE ASDEC UCEC Congo CAPPED CCD FAM MUCODEC MUDACOM PHARMA-CREDIT SOFIDE

10/17/2008 16

COUNTRY OVERVIEWS

CAMEROON MICROFINANCE INSTITUTIONS The microfinance sector in Cameroon is considered the most active and mature in the CEMAC zone. As of December 31, 2004, the COBAC national survey identified 714 MFIs in Cameroon, although this figure includes individual cooperatives and other MFIs affiliated with “networks” such as cooperative federations. As of the same date, MFIs in Cameroon served approximately 476,000 clients, and this represents almost 3 percent of the total population of the country. MFIs managed a total of 95 billion XAF in deposits and 61 billion XAF in loans. Money transfers are growing in importance. International transfers through Western Union grow from just under 46,000 in 1998 to over 1 million in 2005. As bank agents, MFIs have become involved in international transfers, and the most active are COFINEST and CCA. Many MFIs are increasingly offering domestic money transfers from urban to rural areas of Cameroon. The MC2 network also uses pre-paid cards linked to the “Flash Cash” system promoted by Afriland Bank. The FSAP mission and consultants prioritized meetings with the largest institutions providing microfinance and SME finance in the country. The Cameroon Cooperative Credit Union League (CamCCUL) is the largest MFI network, with over 200 unit cooperatives and over one-third of the nation’s microfinance clients, deposits, and loans. As the table below shows, other significant MFIs include the Crédit du Sahel network, the MC2 network supported by ADAF, the Caisses Villageoises d’Epargne et de Crédit Autogerées (CVECA) network supported by MIFED, and the Caisses Mutuelles d’Epargne et de Crédit (CMEC) supported by SAILD. Of the many independent MFIs, the largest include CCA and ACEP. CamCCUL: Created in 1963, CamCCUL is one of the oldest cooperative networks in Africa and the largest MFI in Cameroon. CamCCUL is a national federation of 191 cooperatives licensed as Category 1 and spread throughout all ten provinces but with a concentration in the northwest of the country. 113 cooperatives are in rural areas, 43 operate in urban areas, and 35 are considered mixed or peri-urban. CamCCUL’s individual cooperatives serve approximately 200,000 people as members/clients, and as of December 2005 the federation reported 36 billion XAF in assets, 22.6 billion XAF in outstanding loans and 3 billion XAF in reserves. Member cooperatives select among CamCCUL’s standardized savings and credit products. Clients generally must save for at least 90 days before taking out a loan which may be up to four to five times the size of their savings account. Some member cooperatives offer home improvement loans with maturities currently ranging from 12 to 24 months. In 2005, CamCCUL experienced management problems and is currently seeking a new Managing Director. The federation provides supervision, training, and liquidity management for member cooperatives. In a positive move, three women’s cooperatives (called CECPROM) joined the CamCCUL federation, and this type of merger of small MFIs into larger federations should be encouraged where feasible. CamCCUL does not consolidate the financial statements of all member cooperatives, but this is planned for the near future. The federation estimates that only 17 percent of member

10/17/2008 17

cooperatives are computerized, and communicating with cooperatives in rural areas is especially challenging. The federation has received technical and financial assistance from the World Council of Credit Unions, Développement International Desjardins, USAID, CIDA, EU, AfDB, SNV, and others. CamCCUL managed salary payments for several public institutions but is owed almost 1 billion XAF for back payments. The MFI also suffered substantial losses when BMBC and Crédit Agricole banks failed. The Government has promised to settle these outstanding claims with HIPC funds, although no funds have yet been provided. Because of the losses CamCCUL incurred when these banks failed, in 1999 it decided to create its own bank, Union Bank of Cameroon (UBC). CamCCUL owns 75 percent of UBC capital with the remainder owned by Rabobank, Citibank Bank, ING Bank, and private shareholders. UBC is the leading bank in the Bamenda market in the Northwest Province of Cameroon with 27 percent of deposits. CVECA: In 1995, the Ministry of Agriculture launched the Decentralized Rural Credit Project managed by CIDR of France. Between 1995 and 1998, 72 village savings and loan associations (Caisses Villageoises d’Epargne et de Crédit Autogerées, or CVECA) were created with support from the African Development Bank. In partnership with CIDR, the independent organization Microfinance et Développement (MIFED) was established to manage the project in 1998. AFD established a 1.5 billion XAF line of credit to the project channeled through BICEC bank, and the EU provided 1.7 billion XAF in grant funds. As of late 2005, MIFED supported 172 CVECA, of which 94 were ordered to close by the Ministry of Economy and Finance in mid-December 2005. MIFED plans to close 31 of these CVECA and merge 63 with other CVECAs. The CVECA network currently serves 44,000 members and manages 400 million XAF in deposits and a loan portfolio that varies seasonally between 200 and 400 million XAF. As of late 2005, MIFED supported 172 CVECA, of which 94 were ordered to close by the Ministry of Economy and Finance in mid-December 2005. MIFED plans to close 31 of these CVECA and restructure 63 others. MIFED plans to reorganize the CVECA into two large networks in the Extreme North and the Central regions of Cameroon. MC2and MUFFA: The village and savings groups called MC2 and MUFFA (women only groups) were first launched in 1992 with the technical and financial support of Afriland First Bank, a private international bank, and ADAF, a Cameroonian NGO. Miserior of Germany and Cordaid of the Netherlands have provided financial support. In 2004, half of the network’s loan volume was for commerce or craft business or crafts, 31 percent was for agriculture, and the remainder was for social and other purposes. The network serves almost 50,000 members/clients and manages a loan portfolio of more than 3.1 billion XAF and deposits of more than 7.4 billion XAF. An apex organization, AMC2, is being created, and COBAC has asked for clarification in the roles of Afriland First Bank and ADAF for the network. Crédit du Sahel (CDS): Created in 1997, CDS is based in Maroua and is the largest MFI in northern regions of Cameroon. CDS is concentrated in rural areas with 11 branches in the Extreme North and North and another three branch offices in Dana, Yaoundé, and Douala. In addition, CDS supports 8 village savings and loan associations. Initially, CDS was licensed as Category 1 as a cooperative, and as of June 2005 they transformed to Category 2 as a private company (S.A.) with 841 private Cameroonian shareholders. As of December 2004, CDS managed 2.6 billion XAF in loan portfolio with 11,100 active loans and 3.1 billion XAF in deposits with 8,900 savers. Given their group lending approach for agricultural loans, CDS

10/17/2008 18

estimates that the 11,100 active loans represent approximately 47,000 individual clients. CDS offers domestic money transfers and makes salary payments for approximately 3,000 government workers. In 2005, CDS processed 830 million XAF in domestic money transfers. CMEC: SAILD is a national NGO that promotes multi-sector rural development in the north and northwestern regions of Cameroon. SAILD has helped create caisses mutuelles d’épargne-crédit (CMEC) and the emerging national network CMEC-Cam. As of late 2005, SAILD supported 43 CMEC, and they hope to grow to 93 CMEC by late 2008. The CMEC serve approximately 10,000 people and manage 123 million XAF in deposits and 185 million XAF in loans as of December 2005. Loans vary from 20.000 to 700.000 XAF. Compagnie Equatoriale pour l’Epargne et le Crédit d’Investissement (COMECI) was launched in 1997 and licensed in 2001 as a category 2 MFI. It offers microfinance and SME finance through 10 branches evenly located in urban and rural areas. As of December 31, 2004, COMECI mobilized deposits of 5 billion XAF from 22,000 savers and granted loans of 2.5 billion XAF to 300 clients. Loans range from 100,000 XAF for microfinance clients to 25 million XAF for SMEs. COMECI’s main services are savings, loans, checking accounts and domestic money transfers. FOCAOB/CABA is a network of small rural MFIs, although many are village groups and closer to client groups than actual institutions that should be licensed. FOCAOB/CABA began activities in 1993 after being recognized by the Ministry of Finance and the Ministry of Agriculture. 42 institutions (out of 48) representing 88 percent of the network were ordered closed on December 31, 2005 by the Minister of Finance.7 The network is seeking PPMF support to build its headquarters and offices for the remaining branches before beginning the licensing process with COBAC. As of December 31, 2003, FOCAOB /CABA managed 40 million XAF in deposits from 3,168 savers and 93 million XAF in loans to 1,267 clients. Crédit Communautaire d’Afrique (CCA) : Launched in 1998 and licensed in 2001, CCA offers microfinance and SME finance. As of 2004, CCA managed 94 million XAF in loans to 6,700 clients and 4.8 billion XAF in deposits from 14,800 savers. Since a 2005 alliance with Travelex and Money Exchange, CCA also offers money transfers, and the institution processed 75,000 national and international transactions worth 32.1 billion XAF in 2005. CCA estimates that approximately 10 percent of the loan portfolio is for SME finance, and the largest loan to date is 600 million XAF. CCA manages 8 rural branches and 5 urban branches with a head office in Yaoundé and four new branches planned in early 2006. Agence de Crédit pour l’Entreprise Privée (ACEP): ACEP was created in 1999 as a project supported by AFD and EU. In September 2005, ACEP transformed into a private company (S.A.) licensed as Category 2 under regional COBAC regulation. The largest shareholder is BICEC bank with 23 percent ownership, and other shareholders include the National Investment Company, Chambers of Commerce, INP of France, ACEP International, personnel, and private investors. ACEP offices are located next to BICEC bank branches, and they currently manage 8 branches in Douala and 6 branches plus the head office in Yaoundé. Lending, repayment, and

7 These FOCAOB/CABA locations were ordered closed as part of the national list of 205 MFIs identified by the Ministry of Finance.

10/17/2008 19

10/17/2008 20

liquidity management are closely linked with BICEC bank, and an ACEP cashier is available five days a week in BICEC banking halls. As of December 2005, ACEP managed an outstanding loan portfolio of 2.9 billion XAF with 3,190 active loans. 86 percent of the loan portfolio is concentrated in commerce and services, with 12 percent in manufacturing and 2 percent in small agriculture. Compagnie Financière de l’Estuaire (COFINEST) : COFINEST was created in 1996 and incorporated as Category 2 in 2002. The MFI manages approximately 13 billion XAF in 65,000 deposit accounts and 8.5 billion in outstanding loan portfolio with 3,000 borrowers. COFINEST also offers money transfers through a partnership with Western Union and completed almost 370,000 transactions worth 62 billion XAF in 2005. COFINEST lends to SMEs at an annual nominal rate of 22 percent while the nominal rate on microloans of 100,000 to 5 million XAF is 3 percent per month. Loan maturities range up to 48 months, or 60 months for housing and real estate loans. Collateral includes mortgages (although these are very difficult to collect), third-party guarantees, and liens on deposit accounts. Overall portfolio at risk over 30 days is 15 percent, but only 2 percent of microloans are more than 30 days past due.

10/1

7/20

08

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Is.

MICROFINANCE PROFESSIONAL ASSOCIATION According to the CEMAC Microfinance Regulation, each country in the zone must have one (and only one) microfinance professional association, and all licensed MFIs must be members of that association. In Cameroon, the Association Nationale des Etablissements de Microfinance du Cameroun (“ANEMCam”) was originally conceived as an association of microfinance professionals, rather than as a professional association of microfinance institutions. ANEMCam’s statutes have recently been revised to include only MFIs as members. CamCCUL was elected president of ANEMCam, but leadership changes at CAMCCUL have led to the Chair of the Board of Directors of CamCCUL serving as acting ANEMCam president. Several MFIs reported that ANEMCam has experienced conflicts among members over leadership and vision of the association. CAPAF, CGAP’s regional program in Francophone Africa, has established partnerships with three training organizations in Cameroon:

• the Microfinance Academy with 9 trainers; • PACEF (Promotion et assistance coopérative et entrepreneuriat de la femme), with six

trainers, oriented towards MFIs serving women, and • Universal Finance Consult, who is the latest among the CAPAF partners with one trainer

so far • IFIDS is fourth training partner that just attended its first training of trainers---and is in

direct contact with the CGAP office in Washington given that they are an Anglophone training center.

Through these partners, a total of 320 people have been trained in Cameroon ranging from small to large MFIs, banks, government staff, consultants, and others.

Trainees by course type (Total as of March 8, 2006)

Course Title

Number of

trainees

Fin. Statement

s Accting

Portfolio Mgmt and

Interest Rates*

Fin. Projections

. With Micro Fin

Product Development

. Fin.

Anal. Op. Risk

Mgt. MIS

Microfinance Academy 197 0 97 52 25 8 0 15 0

123 PACEF 0 47 50 26

TOTAL 320 0 170 118 82 8 0 54 0 Source: CAPAF POSTAL FINANCE Campost, Cameroon’s postal network, offers savings and money transfers through its network of 270 points of service and 7 postal payment centers. The government is working with the World Bank to develop a restructuring plan and has already injected 15 billion XAF to rebalance

10/17/2008 22

Campost accounts. A new Director General has been in place for six months. Campost reported 800,000 savings accounts, 90 billion XAF in deposits. Campost noted 50,000 clients who receive salaries regularly, approximately 8,500 international money transfers for a total value of 2.5 billion XAF and 18,000 domestic money transfers for a total value of 1 billion XAF in 2005. Of the 800,000 savings accounts, Campost is re-establishing records for about 125,000 given past reporting problems, fraud and inaccuracies. For deposits made since January 2005, clients can withdraw funds freely. However Campost has limited withdrawals for any deposits made before January 2005, citing their concern to avoid massive withdrawals. At present, the agency could not provide more detailed financial or client information. An audit is planned, and Campost hopes to install a new information system as part of the planned restructuring. The mandatory interest rate of 4.5% on savings accounts, coupled with the lack of a government securities market, makes their business model inherently unsustainable; and they have neither the skills nor experience required to offer credit. Currently, the postal financial services are not supervised by COBAC. RURAL FINANCE Based on interviews and data collected during the mission, rural finance is more developed in Cameroon than anywhere else in the CEMAC region. The Government of Cameroon developed a national Rural Development Sector Strategy (RSDS) in 2002 and just finalized the update in January 2006. The RSDS core objectives are to: (i) promote quality agricultural and economic growth, (ii) design and implement sound policies to fight poverty, and (iii) promote economic sub-sectors involved in rural development. The RSDS identified the following financial characteristics of the rural sector in Cameroon: (i) self financing for rural activities is limited given low income and savings levels; (ii) loans are scarce for family-enterprises and SMEs involved in producing, transforming and trading agricultural outputs; (iii) public funding is insufficient and difficult to obtain, and (iv) loan terms do not match the needs for agricultural and SME lending (e.g., lack of medium and long-term finance). Facing similar concerns in the 1990s, the government created Crédit Agricole du Cameroon (Cameroon Agricultural Credit - CAC), but CAC went bankrupt and was closed in 1997. Based on CAC’s experience, the Government decided to promote MFIs in rural areas, and in 1992 a new law was enacted to promote rural finance (loi No 92/006 du 14 août 1992) through microfinance cooperatives. Building from this 1992 law, 450 savings and loan institutions were officially registered during 1993-1998 and Cameroon’s national law served as one basis for the regional regulation on microfinance enacted by COBAC in 2002. MFIs provide the vast majority of rural finance in Cameroon, and the Government estimates that MFIs have lent 3.2 billion XAF to agricultural businesses as of December 2004 (RSDS estimate). However, rural finance remains a challenge in Cameroon. BANKS Banks in Cameroon prepared questionnaires for the FSAP mission, and the responses summarized in the table below on minimum account requirements provide one perspective on the bank’s interest in deepening its retail services. Banks with minimum deposits of XAF 50,000 may be attractive for middle-income clients, but it is unlikely that low-income clients would find these services accessible. Several banks indicated during interviews with the FSAP mission that they have raised (or soon will) their minimum account balances and tighten other client

10/17/2008 23

requirements to comply with anti-money laundering requirements set by their head offices in North America and Europe.

Account Requirements for Banks in Cameroon, as of January 2006 survey responses (in XAF)

Bank Checking Accounts Deposit Accounts Min. Dep. at

opening Fees per month

Min. Dep. at opening

Min Acct Balance

Interest rate paid Fees

AFRILAND 1,500,000 5,000 50,000 50,000 5% 0 BICEC 20,000 2,258 50,000 50,000 5% (1) 1192

2% on inter. CBC 1,000,000 500,000 (2) 100000 2,000 5%

CITIBANK 20,000,000 (3) 8500 5,000,000 10,000,000 5% 0 CREDIT LYONNAIS 80,000 2,100 50,000 50,000 5% (1) 500

0 ECOBANK 250,000 3,000 150,000 50,000 5% 0 SCBC 20,000,000 1,500 2,000,000 2,000,000 5% 0 SGBC 10,000 (4) 2100 50,000 50,000 5%

Source: Bank questionnaires (1) Monthly fees if savings account is not linked to checking account

(2) Average annual minimum balance (3) Transaction fee (1/4/1000), Highest overdraft fee (1/48), Fee for failure to maintain minimum balance (XAF 25,000)

(4) In addition to a 10 000 miscellaneous fee Nonetheless, several Cameroonian banks have been pioneers in deepening their retail services—either directly or by linking to MFIs. Afriland Bank supported the creation of the MC2 network with the NGO ADAF and also provides direct retail services to small and medium enterprises. BICEC Bank has recently adopted a new SME strategy, and they have been involved for years with leading MFIs such as ACEP and the CVECA network. The Union Bank of Cameroon was launched by CamCCUL, the largest MFI in Cameroon, and it serves a range of clients. Most MFIs hold bank accounts and many work as agents for banks to process international and/or domestic money transfers. Recently MFIs report that banks have been closing their accounts and becoming more competitive with MFIs. With the right strategy and good models of alliances, the banks could work effectively with MFIs to extend their retail services. GOVERNMENT INVOLVEMENT In 2001, Cameroon established a national microfinance strategy signed by the Prime Minister and a policy to consolidate and promote microfinance. In June 2004, the Ministry of the Economy and Finance and CIDA organized a national workshop to update the microfinance strategy. This 2004 workshop is widely considered a success in identifying priorities and challenges for the sector. The Ministry of Economy and Finance includes a Microfinance Unit within the Treasury and Financial and Monetary Cooperation Division. The Unit manages licensing and closure of Cameroonian MFIs, in close collaboration with COBAC, a database on the sector, and promotion and training for MFIs. The Unit can work through ten local offices of the Ministry located

10/17/2008 24

throughout Cameroon. A second unit focuses on inspection of MFIs (the ‘brigade’). The Microfinance Unit includes 5 staff, and the Inspection Unit has 10 staff focused on MFI inspection. The Ministry of Agriculture’s Project Monitoring Unit has been involved in rural and microfinance projects for many years. The Ministry finalized the new Rural Development Strategy in January 2006, and promoting rural finance is considered a strategic objective. As part of the new Rural Development Strategy, the Government plans to launch an Agricultural Bank. The Ministry of Small and Medium Enterprises, Social Economy, and Artisans was created in late 2004. The Ministry aims to promote SMEs by streamlining business registration and encouraging SME finance and microfinance, and an SME strategy is underway with plans to finalize by December 2006. In July 2005, the Ministry of Finance finalized a study on Financing the Cameroonian Economy, and plans are underway to launch an SME program to include venture capital and loan guarantees by December 2006. DONOR INVOLVEMENT Created in 2002, the National Microfinance Program Support Project (Projet d’appui au Progamme National de Micro-Finance, PPMF) is a governmental project managed by the Ministry of Economy and Finance with financial support from IFAD. PPMF aims to promote MFIs in rural areas by technical assistance and equipment for licensed MFIs, support to ANEM-Cam, the national MFI professional association, and action research. The total project cost is estimated at approximately 8 billion XAF and to date 24 percent of the funds have been used. Project activities have gone more slowly than anticipated given management problems and a temporary suspension of funding by IFAD. PPMF identified a new coordinator and administrative and financial manager, and since they began work in December 2005, the project is expected to be more active. PPMF could play an important role in strengthening the microfinance sector in Cameroon and could be a useful ally for the Ministry of Finance and COBAC. Several other donors have been active in micro and rural finance in Cameroon. AFD, AfDB, and the EU provided financial support for the CVECAs supported by MIFED and CIDR. AfDB and IFAD have provided several credit lines for MFIs working in rural areas. CIDA, the EU, the World Bank, and the Islamic Development Bank provided technical and financial assistance to CamCCUL. AFD funded the creation of ACEP, the EU supported Crédit du Sahel, and SNV has provided technical assistance to several MFIs. The World Bank has provided funding and for the Ministry of Finance microfinance department and COBAC for the national survey of MFIs. Other donors active in Cameroon on microfinance and rural finance include the ILO and the US Food for Peace Program. REGULATORY ISSUES AND OTHER CONCERNS RAISED BY MFIS In December 2005, the Ministry of Economy and Finance published a list developed in close consultation with COBAC of 205 Cameroonian MFIs to be closed. These MFIs failed to meet licensing or other requirements established in the 2002 regional microfinance regulation. The list included:

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• 31 independent MFIs operating without a license, • 23 independent MFIs for which a license was refused, • 15 CamCCUL unit cooperatives to be liquidated, • 94 individual CVECAs not authorized to operate as MFIs, and • 42 individual CABAs not authorized to operate as MFIs.

Given Ministry deadlines to publish the list in December, COBAC could not review the final wording of the press release and would have preferred to clarify that some MFIs on the list were slated for restructuring rather than closure. During the FSAP mission 4-6 weeks later, most MFIs expressed concerns over the abrupt manner in which the announcement was made, stating that it created confusion in the sector and a few days of panic and confusion among some clients who had difficulty identifying which MFIs were to be closed, especially when some were members of a larger MFI network. More broadly, MFIs raised the following questions and concerns about the 2002 regulation and its application:

• licensing requirements for small cooperatives and village-based institutions • prudential ratios that come into effect in April 2007 and whether the MFIs will be able to

comply • requirements for staff education and experience, especially for rural MFIs • changing tax policies and unclear status • lack of English translations for regulations and related documents • delays in licensing • lack of definitions and calculations for reporting financial information • capital requirements for unit MFIs to provide 20 percent of their capital in the overall

federation or network. Tax policy changes have caused some confusion for MFIs. The most recent Finance Law requires cooperative companies, which include Category 1 MFIs, to pay income tax. Category 2 MFIs must charge clients value-added tax on loans. Finally, the Government recently set an 8 percent postal tax for money transfers done by MFIs. Most MFIs are unclear about the effects these changes will have on their operations. In addition, there seems to be some confusion about who is exempt from which taxes. Several MFIs reported problems with banks refusing to open accounts or later closing their accounts with little advance notice. Competition is starting to grow, especially in well-served areas such as Yaoundé and Douala, and several MFIs expressed interest in a credit bureau to share information on client payment history and avoid high-risk clients. SME FINANCE In Cameroon, the Government launched SME finance agencies in the 1970-1980s to promote job creation and economic development. During this time, the Fonds de Garantie des Petites Entreprises (FOGAPE), Crédit Agricole (CA) and the Banque Camerounaise de Développement (BCD) were created. Given weak management and high default rates, the three institutions went bankrupt and were closed in 1990-2000s.

10/17/2008 26

Launched as a project supported by CIDA in 1998, Pro-PME is licensed as a financial company since 2001. With one office based in Douala, Pro-PME works nationally to lend to small and medium enterprises. Loans average 60 million XAF with typically maturities of 3-4 years and a maximum of up to 7 years. Pro-PME currently manages 115 active loans. The Ministry of Finance and the new Ministry of SME plan to finalize a national SME strategy by late 2006. These Ministries recently finalized a study on SME finance that recommended the creation of a specialized SME financing agency. Several banks and MFIs are already providing limited SME finance (see relevant MFI and bank overviews for Cameroon). In addition, funders such as IFC, AFD, EU, and AfDB are already involved or planning to support SME finance in the region.

10/17/2008 27

CENTRAL AFRICAN REPUBLIC (CAR) MICROFINANCE INSTITUTIONS Prior to April 2005, when the new regional regulation became effective, COBAC reported 36 MFIs active in CAR. As of December 2004, COBAC estimated that MFIs in CAR served approximately 45,000 clients and managed a total outstanding loan portfolio of XAF 854 million (US$ 1.6 million) and deposits of XAF 2319 million (US$ 4.2 million). Based on interviews during the FSAP mission, two main microfinance networks have been licensed by COBAC and the national Ministry of Finance in CAR: CMCA network with 17 licensed cooperatives and the UCACEC network with 5 licensed cooperatives. Other MFIs are very small and not yet licensed to operate officially. Overall, both MFIs and banks are highly concentrated in the center of the country or in the capital Bangui. None of the MFIs are profitable. CMCA, the Crédit Mutuel de Centrafrique, is by far the largest MFI in the country. CMCA was created in 1993 with approximately 2.8 billion XAF in funding from AFD and technical support from CICM, the International Centre of the Crédit Mutuel in France. The CMCA network served approximately 30,000 member/clients mobilizing deposits and approximately 2,500 active loan clients. This represented a significant drop compared to 2003 when, according to CICM, the CMCA network served 48,000 members through 18 cooperatives. The reduced operations are likely due to the effects of civil war in the country. Nonetheless, CMCA has captured 98 percent of the microfinance market share for deposits with XAF 2,600 million (US$ 4.7 million) in deposits and XAF 965 million (US$ 1.8 million) in outstanding loan portfolio. Deposits and loans averaged XAF 86,667 (US$ 158) and XAF 32,167 (US$ 58) respectively. The CMCA network as a whole transformed 30 percent of deposits into loans. Further, with CMCA’s outreach to 30,000 clients, they serve the same number of people as all of the banks combined in CAR, and they mobilize 22 percent of total bank deposits in the country. CMCA does not yet fully comply with COBAC microfinance regulations, and at the time of the interview in February 2006 they had not received official news on their license from the Ministry of Finance. CMCA was originally launched as a cooperative partially owned by the State, and COBAC has asked the Government to withdraw its ownership. CMCA is not yet profitable as a federation. To reduce operating costs and try to break even, CMCA’s management plans to close all rural cooperatives and concentrate activities in more profitable urban areas. While this may help CMCA survive financially, it will reduce access to services in the country as few other institutions can serve these rural clients. Launched in 2001 with funding from UNDP, the UCACEC, the Union Centrafricaine des Caisses d’Epargne et de Crédit, is a network of 14 local cooperatives (CEC, Caisses d’Epargne et de Crédit). After civil war, the CEC were re-launched with UNDP support in 2004. Following review by COBAC, 5 cooperatives (4 rural and 1 urban) were licensed, and the remaining cooperatives remain under review and/or will be restructured. As of May 2005 (most available data during the interview), UCACEC estimated that it served 4,000 members/clients and

10/17/2008 28

managed XAF 66 million (US$ 120,000) in deposits. The network has approximately 600 active loan clients and XAF 28 million (US$ 50,000). The average deposit was XAF 16,500 (US$ 30) while the average loan was XAF 6,875 (US$ 12.5). Loan sizes ranged from XAF 5,000 (US$ 10) to XAF 300,000 (US$ 545) for individuals and up to XAF 500,000 (US$ 909) for groups. The lower average loans and savings for UCACEC suggest that the network is targeting more low-income clients. In the past, a third network was active in microfinance. The BOUCA rural development project (BRDP) supported by the Government and IFAD served as many as 1,000 clients in 106 rural organizations. Given weak management and high loan default, the project was frozen by the government in 2002 and the current situation is unclear. In addition to the two remaining large MFI networks, there are several other small projects and institutions in CAR: • CARSA, the Central African Republic Supporting Association, which disbursed XAF 28.7

million to a total of 627 clients and mobilized XAF 0.5 million in deposits from 72 savers. • CEDIFOD, the Centre for the Documentation and Information for Development, had created

10 village banks (caisses villageoises d’épargne et de crédit autogérées, CVECA) of which only one is presently operational.

• Caritas/IPHD offers a credit line in each diocese for individuals and groups. A total of XAF 30.7 million has been lent to 1,515 clients.

• Ambassade Chrétienne manages a credit line for women’s groups in Bangui. To date, XAF 3.2 million has been lent to 32 groups.

• The CNLS, the “National Committee for the Fight against Aids” (Comité National pour la Lutte contre le Sida) set up a revolving fund to provide micro-loans up to XAF 52,000 (interest free) for people affected by AIDS. A total of XAF 15.6 million has been lent to 700 clients as of December 2004.

• The project “Forêt de Bangassou” is an environmental project with a revolving fund of XAF 125 million that has made loans to 461 micro-projects in a remote area of the country. The project plans to create 6 cooperatives.

To fill the substantial gap left by banking and (quasi-)formal micro-finance, there are many informal finance organizations and groups: money lenders, deposit collectors and pawnbrokers, and in particular savings and credit associations, Roscas, locally known as “Kelemba” and particularly used by women. Based on surveys conducted by UNDP in 2003 households in CAR save between 10 to 15 times more (in urban or rural areas respectively) with informal groups than with credit cooperatives, and between 2 to 10 times more (in urban or rural areas respectively) than with banks.

10/17/2008 29

Overview of the Major MFIs in Central African Republic 2004 2005

BRDP CECLCP CMCA TOTAL UCACEC CMCA TOTAL

36 22 Number of retail institutions 1 18 17 5 17

45000 34000 Total members/clients (*) 1000 4000 40000 4000 30000 854 993 Total Loans outstanding (XAF million) 110 22 722 28 965

1540 1850 Total Loans outstanding (US$000) 200 40 1300 50 1800 18778 29206 Average Loan Size (XAF) 110000 5500 18050 6875 32167

34 53 Average Loan Size (US$) 200 10 33 13 58 2319 2666 Total Deposits outstanding (XAF million) 22 46 2251 66 2600 4224 4820 Total Deposits outstanding (US$000) 40 84 4100 120 4700

51533 78412 Average deposit Size (XAF) 22000 11500 56275 16500 86667 94 143 Average deposit Size (US$) 40 21 102 30 158

Sources: COBAC data and information collected during FSAP mission. USD 1 : 550 XAF. (*) Estimates provided by the institutions and other sources. MICROFINANCE PROFESSIONAL ASSOCIATION Recently launched by CMCA and UCACEC, the MF association of CAR (Association Professionnelle des Etablissements de Microfinance en RCA) is not yet functional. UNDP is supporting the emergence of the association. To date, training has been offered by the Microfinance Academy in Cameroon and subsidized by UNDP. Microfinance Academy is certified by CAPAF to offer CGAP courses on operational and financial management of MFIs. NATIONAL SAVINGS BANK The Caisse Nationale d’Epargne suffered during the civil war, and it is now in serious condition. The mission was not able to gather financial or client information. BANKS Two banks in CAR prepared questionnaires for the FSAP mission, and the responses summarized in the table below on minimum account requirements provide one perspective on the bank’s interest in deepening its retail services. The banks offer much lower minimum account balances for savings accounts than in Cameroon.

10/17/2008 30

Account Requirements for Banks in CAR, as of January 2006 survey responses (in XAF)

Bank Checking Accounts Saving Accounts

Min. Dep. Min. Dep. Min Amt on Interest rate Fees

at opening

at opening Acct anytime Served

(1) 0 150,000 25,000 15000 BICA 5% 50,000 0 BMPA 200,000 5% 0

Source: Bank questionnaires (1) No fees on checking accounts other than XAF 15,000 for account closing

There are only seven bank branches in CAR. MFIs reported having only limited bank accounts, with no lines of credit or other alliances with banks. GOVERNMENT INVOLVEMENT The microfinance unit within the Ministry of Finance was created in May 2005 and has a very limited budget. The unit would benefit from training in microfinance operations and other capacity building. In October 2005, the Ministry launched a national microfinance committee to begin discussions on a national microfinance strategy with UNDP support. The Government established a national poverty reduction program (Cadre de lutte contre la pauvreté, CLCP) for 2007-2009, and microfinance is one of four priority sectors in addition to social development, governance, and economic growth. DONOR INVOLVEMENT Most donors left during the civil war of 2001-03, and those that have re-established their activities are focusing on budgetary support programs for the CAR government. UNDP is the only significant donor program supporting access to finance. For 2005-06, UNDP plans to help develop a national microfinance strategy, strengthen the Ministry of Finance microfinance unit, support the consolidation of UCACEC, promote the national microfinance association, and encourage other MFIs to launch activities. AFD supported CMCA in the past, and the EU supports a rural development program. OTHER ISSUES The regional microfinance regulation of 2002 is not widely disseminated in CAR, and licensing procedures are not well understood.

10/17/2008 31

CHAD MICROFINANCE INSTITUTIONS Most MFIs in Chad are small to medium, and the largest institution is UCEC-PK with approximately 36,000 members/clients. The second largest institution, URCOOPEC serves approximately 20,000 members/clients but is in serious difficulty. Most MFIs and federations/networks are regionalized, and each has a somewhat exclusive zone of activity. Most MFIs provide lending and deposits, and a few offer domestic money transfers for clients in the MFI’s branch network. MFIs expressed a strong need for capacity building in the form of training and support for equipment such as computers and transportation equipment. In contrast with the sectors in Congo and Cameroon, only a few MFIs in Chad stated that they need term financing, perhaps indicating the relatively earlier stage of development of the microfinance sector in Chad. Most MFIs receive some form of donor/NGO support. Some of the largest and oldest MFIs in Chad, founded with extensive support from international donors (e.g. the URCOOPEC and VITA-PEP networks), experienced severe loan defaults and subsequently suspended their activities. The mission met with several MFIs, as summarized below. ACODE is an NGO founded in 1993 that began offering microfinance services 1996. ACODE is a Category 2 MFI with six rural and two urban branch offices. In addition to loans and deposits, it also offers funds transfers. It is registered on the MIX Market, and external funding includes a loan for 264 million XAF from the AfDB to the Government of Chad and transferred to ACODE. The Association pour le Développement de l’épargne et du credit (ASDEC) is a Category 1 MFI with 9 urban cooperatives and 37 rural cooperatives. It is based in Mondou and started as a project in 1996 with three-year financing from Oxfam. ASDEC continues to receive 10-20 million XAF each year from Oxfam as well as from Suisse Aide and one other donor. Approximately 90 percent of its loan portfolio is commercial or agricultural credit. The director of ASDEC is also the president of Chad’s microfinance professional association. The Association des Caisses d’Epargne et de Crédit (ASSOSEC) is a Category 1 MFI founded in 2003, with headquarters in Bongor. ASSOSEC manages six rural cooperatives and one in N’Djamena. The MFI served 1,602 clients at the end of 2005. ASSOSEC has received three-year financing from Fondation Suisse Aide of 45 million XAF for salaries and operating expenses. The Coopérative d’Appui aux Alternatives Commerciales des Femmes du Tchad (CAACFT) is the result of the merger of two women’s associations whose primary objectives were not microfinance services. CAACFT was created in October 2005 and has requested licensure as a Category 1 MFI. It has 500 members but is not yet operating officially, pending licensure. The NGO has submitted an action plan to Oxfam, which supports one of the originating associations. CAACFT sees a need for an MFI focusing on women, especially now that URCOOPEC and VITA are no longer functional. They stated that Finadev is currently the most active MFI in the N’Djamena market, and although it targets women, it cannot meet demand.

10/17/2008 32

In the late 1990s, the Office National de Développement Rural (ONDR), managed by the Ministry of Agriculture, managed a loan program in the cotton zone of Chad. The African Development Bank (AfDB) recommended the creation of an independent structure for microfinance, and the Caisse de Développement de Crédit Rural (CDCR) was created in 2002 through a cotton project with funding of approximately 3.65 billion XAF from the AfDB. CDCR has established a network of 55 cooperatives (Coopératives d’épargne et de crédit or COOPEC). Note: No relationship exists between these COOPECs and those of the URCOOPEC network in N’Djamena, and CDCR has been informed that they need to change the name of their COOPECs to avoid confusion. No new loans have been made under this program since about 2001, but the network is still working to recover approximately 265 million XAF in loans. The COOPECs are starting to collect deposits. In 2005, the AfDB provided 2.9 billion XAF in credit funds and approximately 771 million XAF for operating expenses and equipment for CDCR. Given the history of poor loan recovery, COBAC has expressed concern about the management of this network and is seeking clarification about how the MFI will become operationally autonomous from the Ministry of Agriculture. The Ministry of Agriculture stressed the importance of the rural COOPEC network, which is operating in areas where no other MFIs exist. The Ministry has plans to expand the network from 55 to 200 cooperatives. Nominal interest rates are expected to be 6-12 percent per year, and one MFI mentioned that the government is distorting the market with these subsidized rates. Finadev is a corporation created at the beginning of 2003 and operating as a Category 2 MFI. It was the first MFI in Chad to be licensed by the Ministry of Finance. Financial Bank in Togo owns 73.3 percent of its capital, and it receives financial and technical support from IFC, Horus Development Finance, Financial Bank Tchad, and Société Générale Tchadienne de Banque. It has two branches, in N’Djamena and Mondou, and currently offers only loans. In the medium term, if Finadev does not begin offering savings products, it may request a change in status to Category 3. The Projet d’appui au réseau de cooperatives d’épargne et de credit du Moyen-Chari (PARCEC-MC) is a Category 1 MFI created in 2000. It has 32 rural and urban branches and receives 150 million XAF in grant financing from the NGO Caritas for operating costs and for a full-time consultant. Secours Catholique et Développement (SECADEV) began making loans in 1987 and started offering deposit services in 2002. It is a Category 1 MFI with 13 branches in Kanem, Guera, and N’Djamena. IFAD has provided 40 million XAF for training and operating costs for branches in the Kanem region, as well as 100 million XAF to finance the SECADEV head office. The MFI has also been working with CIDR of France since 2004 to establish village cooperatives in the Guera region. SECADEV has received funds from a number of other donors (Secours Catholique, Cordaid, Caritas, Miserior) to finance loans. The network Union des Clubs d’Epargne et de Crédi du Mayo-Kebbi (UCEC-MK) was officially founded in 1993 after transforming from an independent MFI that had been operating since 1985. It is a Category 1 MFI with six urban and 34 rural cooperatives in Mayo-Kebbi Ouest in southwestern Chad. UCEC was just notified that 33 of its 40 branches will be licensed. The MFI receives financing from Caritas (100 million XAF in 2005 and 80 million XAF in

10/17/2008 33

10/17/2008 34

2006), which is also providing a full-time technical adviser. GTZ provided UCEC a 100 million XAF line of credit. UCEC-MK just won a CGAP Pro-Poor Innovation Challenge grant in early 2006. Although the table below shows the UCEC has a portfolio at risk over one day of 15 percent, it is important to note that this figure is inflated by the fact that the MFI does not write off uncollectible loans. However, loans past-due more than 90 days are 100 percent provisioned, and UCEC estimates that removing old loans would give a 1-day PAR of about 5 percent. The Union Régionale des Coopératives d’Epargne et de Crédit (URCOOPEC) is a network of 10 cooperatives (COOPECs) in the N’Djamena area founded in the mid-1990s with the support of UNDP. URCOOPEC began operations by collecting savings, and when they added lending activities, they experienced rapid growth (about 100-fold). They over-extended credit, especially consumer credit, exceeding even their own internal loan limits. UNDP reported that URCOOPEC refused an audit in October 2002 on the grounds that the fiscal year was not yet finished. After a year of negotiations on the audit, UNDP suspended its assistance to URCOOPEC. In November 2004, the MFI had a cash flow crisis, and all lending activities were frozen. URCOOPEC has been focusing on loan recovery and is paying out some deposits as possible. The network has 36,000 members. The problems were reportedly caused primarily by bad governance; the apex organization had no authority over individual agencies which were not respecting internal controls. Now, the COBAC regulation gives the apex organization explicit authority over all the agencies, and URCOOPEC management met with UNDP in March 2005 to request new assistance. An audit took place in August-September 2005, revealing significant problems including ill-adapted internal procedures, poorly trained staff and members, poor lending practices, and some fraud (false loan files). However, fraud was not considered to be the principle problem. URCOOPEC has now put in place a restructuring plan and has the support of UNDP, COBAC, and the Ministry of Finance Microfinance Unit to return to normal operations. They have been holding member meetings, led by URCOOPEC management and representatives from UNDP and the MF Unit, at each agency in order to explain their plans to members and start rebuilding confidence. Some of the agencies are now receiving new deposits. UNDP intends to support URCOOPEC by providing computer equipment, training, and consultants, putting in place a business plan for financial self-sufficiency and revising credit policies and procedures. However, UNDP does not yet have full funding for this project. VITA was a microfinance project created in 1984 with funding from USAID and the World Bank and oversight from the Ministry of Planning. The US NGO Volunteers in Technical Assistance provided management and technical assistance. In 1998, the MFI VITA-Tchad was established. In 1995, the project VITA-PEP stopped receiving subsidies and was not sufficiently profitable to cover its expenses. Between 1998 and 2005, its activities were centered around Mondou. The program began having significant loan recovery problems, leading to capital depletion. The government ended the VITA-PEP project on September 30, 2005. Project employees hope to relaunch the MFI VITA. With the project in liquidation, they are hoping to be able to recover enough micro-loans to repay the social charges owed to employees. The VITA-Tchad team stated that the Mondou agency is still open with very modest activities, but COBAC said that the agency has no office and is not authorized to operate.

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MICROFINANCE PROFESSIONAL ASSOCIATION The Association Professionnelle Tchadienne des Etablissement de Microfinance (APTEMF) was created as a consultative group in 2002, and a general assembly was held in 2004 to include MFIs from the north of Chad. The association is waiting to learn which MFIs will be licensed so that it can finalize its membership roster. APTEMF held a workshop on the COBAC microfinance regulation, and future plans include the creation of a training center and possibly a credit bureau. APTEMF expressed concern about the long delay in licensing MFIs. BANKS Five banks in Chad prepared questionnaires for the FSAP mission, and the responses summarized in the table below on minimum account requirements provide one perspective on the bank’s interest in deepening its retail services. Minimum balances to open savings accounts are relatively high considering the level of economic development and GDP per capita in Chad.

Account Requirements for Banks in Chad, as of January 2006 survey responses (in XAF)

Saving Accounts Bank Checking Accounts

Min Amt on

Interest rate Min. Dep. Fees Min. Dep. Fees

at opening

per month

at opening

Acct anytime served

(1) 15,000 100,000 NA NA NA BAST NA (2)

500000 (3)

14,160 1,000,000 25,000 5% 0 BIAT BSIC 100,000 0 200,000 100,000 5% 0

CBT 500,000 (3)

10,000 500,000 100,000 5% 0 FBT 1,000,000 (4) 2,565 1,000,000 0 5% 0

Source: Bank questionnaires (1) Annual account monitoring fees

(2) Amount required is 5,000,000 for businesses (3) Quarterly account monitoring fees

(4) Quarterly account monitoring fees of 5,131 for enterprises There are only twenty bank branches in five cities and towns in Chad. MFIs reported having only limited bank accounts, with no lines of credit or other alliances with banks. GOVERNMENT AND COBAC INVOLVEMENT Licensing Between November 2004 and February 2005, COBAC conducted a Survey and Evaluation Mission of the microfinance institutions operating in Chad. The mission was carried out with the cooperation and participation of the Ministry of Finance in order for COBAC to issue opinions on

10/17/2008 36

the MFIs’ licensure applications and for the Ministry of Finance to issue or deny licenses. According to COBAC, during the survey mission, MFIs were generally informed of weaknesses which would need to be addressed (e.g., no safe or for networks, lack of an apex organization) or additional information required in order for their application to be admissible. MFIs interviewed during the mission reported that they have had almost no contact with COBAC and little contact with the Ministry of Finance since the survey mission ended in February 2005. All actors reported that only Finadev had been licensed, as it existed prior to the new regional regulations. COBAC reports that one additional independent MFI has now been licensed, after COBAC issued its favorable opinion on January 31, 2006. As of February 2006, COBAC has issued only one other favorable opinion (to UCEC, dated January 31, 2006) and was meeting with MFIs concurrently during the mission to inform them of the status of their applications, as shown in the table below. COBAC stated that it plans to issue formal opinions on all Chadian licensure applications (presumably taking into account any new information gathered during the most recent mission) in March 2006, with the Ministry of Finance issuing licenses and announcing which establishments are not authorized to exercise microfinance activities by April or May 2006.

Chad: Status of MFI Licensure Applications Status Number of MFIs MFI Description

Licensed 2 One in Category 1; one in Category 2 COBAC: favorable opinion issued

1 Category 1 Network with 32 agencies

COBAC: application admissible 10 One Category 1 Network with 8 agencies; 9 unknown category

COBAC: mixed (some agencies’ applications admissible, others inadmissible)

4 Category 1 Networks with 142 agencies

COBAC: application inadmissible

11 One Category 1; one Category 2; 9 unknown category

TOTAL 28 (plus 182 individual “agencies”) Out of a total of 28 independent MFIs and networks in Chad, 26 (plus their 182 associated agencies) have now been waiting for over a year to find out the status of their applications for licensure. This situation has led to a certain amount of confusion and discontent with COBAC and the Ministry of Finance on the part of the MFIs and other actors. COBAC Regulation 1, dated April 13, 2002, specifies, among other things, that all establishments must be in compliance with the regulation within 36 months. Some operators have interpreted this to mean that as of April 2005, they can no longer engage in microfinance activities because they have not been licensed. There were reports that some MFIs have therefore stopped or at least slowed down lending activities. A few operators had heard about the closing of MFIs in Cameroon in late 2005 and were concerned about what might happen in Chad. Donors also mentioned that they are reluctant to finance MFIs without knowing whether or not the partner institution will be licensed. Article 23 of Regulation 1 states that if COBAC does not issue an opinion within three months receiving a licensure application, there is considered to be a

10/17/2008 37

de facto favorable opinion, and several MFIs reported that they believe this clause now applies. One MFI said that the Ministry of Finance had at least informally agreed to this point, telling the MFI to proceed with a donor financing agreement as if it were already licensed. COBAC indicated that the three month time limit is not a factor because the MFIs all submitted their applications directly to COBAC during the survey mission, bypassing the formal transmission process specified in Article 23 which starts the three month “clock.” The Ministry of Finance confirmed that the one-year lag in issuing licenses has created problems with donors and stated that once COBAC issues a favorable opinion, the Ministry can issue the license within two to three days. In the case of MFI closures, the Ministry intends to support COBAC’s decisions but wants to find a way to proceed conservatively in order to protect depositors and avoid any client confusion or panic. SupervisionFinadev, as the only licensed MFI in Chad, reported that it sends annual financial statements to COBAC and the Ministry. Other MFIs stated that because they are not yet licensed, they have no reporting requirements. In general, the MFIs expressed a desire to have more regular contact with both COBAC and the Ministry and said that supervision could constitute an important safeguard for the sector. Given distance, weak infrastructure, local languages, and other challenges, some in Chad feel that COBAC will need support to conduct meaningful supervision of the MFIs. The Ministry of Finance could provide such support, especially for non-prudential supervision. Regulation As in other countries throughout the region, there was widespread complaint of lack of communication about and training for the COBAC Microfinance Regulation. Some MFIs stated that they would be able to calculate and comply with the prudential ratios, while others were less sure. Many actors feel that the regional regulation does not sufficiently take into account the early-stage of microfinance development in Chad. DONOR INVOLVEMENT The mission met with AFD, UNDP, and the European Commission. All donors expressed concern about the significant delay in MFI licensures and stated that some funding initiatives have been blocked while they wait to find out which MFIs will be eligible. UNDP’s action plan for the coming year focuses on support to URCOOPEC, although other potential areas of funding include reinforcing the Ministry of Finance’s capacity, assisting APTEMF, and creating a credit bureau.

10/17/2008 38

CONGO MICROFINANCE INSTITUTIONS At the time of the COBAC survey mission in 2003, 86 MFIs were identified in Congo, although this includes small MFIs as part of networks or federations. The MFIs were concentrated in Brazzaville (41) and Pointe-Noire (19), with the remaining 26 MFIs in 21 different localities. As of the mission in February 2006, the mission estimates more than 100 MFIs. The microfinance sector in Congo is dominated by one large network, the Mutuelles Congolaises d’Epargne et de Crédit (MUCODEC). Many MFIs have concentrated their lending in consumer or “social” (health, funeral, weddings, etc.) loans to government or other salaried employees. Several MFIs also offer salary payments and money transfers. Representatives from various MFIs mentioned a few generalized problems facing the microfinance sector in Congo, including the extreme difficulty of realizing collateral or recovering loans through the judicial system, and the fact that lack of effective supervision has allowed some so-called MFIs to open illicitly, leading to a few high-profile failures and a subsequent loss of public trust in the industry. MFIs cited the following needs: access to a guarantee fund or bank refinancing (reportedly only MUCODEC and CAPPED have any external financing), training, and financial support for new branches and computer equipment. The mission met with a representative sample of MFIs in the country, as summarized in below. Caisse de Participation à la Promotion des Entreprises et leur Développement (CAPPED) is a Category 1 (cooperative) MFI which was established in 1991 by the Forum des Jeunes Entreprises du Congo, an association supporting micro, small and medium enterprises, with some funding from the EU. CAPPED became an autonomous organization in 2003, received its license in 2005, and has two branches in Brazzaville, one in Pointe-Noire, and one in Dolisie. CAPPED offers various loan products and mobilizes deposits. In 2004, the first full year in which CAPPED was autonomous from the Forum, the MFI had a net loss of XAF 126 million (10 percent of total assets), following a net loan loss provision expense of XAF 93 million, and operating expenses that exceeded gross interest income. Caisse pour le Commerce et le Développement (CCD) was created in 2000 as a cooperative and was incorporated in 2004 in order to qualify as a Category 2 MFI under the regional COBAC regulation. Its licensure is pending. CCD is located in Brazzaville, and in 2004, about 86 percent of its loans were for business activities and 14 percent were for health and education loans. At the end of 2004, CCD had only 193 depositors. CCD reported PAR over 30 days of 48 percent, it suffered a loss representing 23 percent of its total assets in 2004. Loan income covered only 83 percent of its personnel expenses, and the institution’s financial situation is clearly unsustainable. Established in 2002 as a Category 3 MFI (not authorized to take deposits), Crédit Maouené now operates 22 urban branches and 14 rural branches throughout the country. COBAC has issued its positive opinion, but the license is pending at the Ministry of Finance. It is reportedly the top

10/17/2008 39

10/17/2008 40

MFI in the country in terms of domestic money transfers, handling an average of 1,500 transfers totaling XAF 50-75 million per day. Some Crédit Maouené branches are now taking deposits from individual and group borrowers who are not salaried employees, requiring them to save for three to six months before obtaining a loan. MUCODEC was created in 1984 as a project sponsored by the Ministry of Agriculture and AFD. It is a Category 1 (cooperative) MFI, with 35 individual cooperatives plus an apex organization. COBAC has issued a favorable opinion for licensing over half the MUCODEC cooperatives and is requesting additional information to evaluate others. Two branches have been ordered closed by COBAC. MUCODEC serves 140,000 members/clients and is by far the largest MFI network in Congo. During the civil war in Congo, MUCODEC was one of the few financial institutions which continued operating, so it was granted special authorization to open an account with BEAC (usually forbidden for MFIs). The resulting Caisse Fédérale of MUCODEC continues to operate and is currently in the process of being converted into a bank with 65 percent ownership by MUCODEC and 35 percent by Crédit Mutuel de France. MUCODEC’s other financial services include sending and receiving international wire transfers, receiving direct deposits of salaries and pensions, and cashing checks. Most of its loans are very short term (about one month), and MUCODEC reports that 60 percent of its loans are “social” or consumer loans. Mutuelle d’Assistance aux Commerçants et aux Malades (MUDACOM) was established in 2003 as a Category 1 (cooperative) MFI. It has one cooperative in Brazzaville and another in Pointe-Noire and received its license in 2005. In 2005, over 40 percent of the loans MUDACOM granted (by number, not volume) were to government employees. The MFI was highly profitable in 2004, with net income equal to almost 20 percent of its total assets. Created in 1994, Pharma Crédit is incorporated and is a Category 2 MFI with two urban branches. COBAC has issued its opinion for Pharma Crédit, but the license is pending at the Ministry of Finance. Pharma Crédit reported a diversified loan portfolio including business loans (50 percent), consumer loans (30 percent), and social loans (20 percent). Société Financière de Développement (SOFIDE) was launched as an NGO in 1994, became a Category 1 MFI in 2003 and was licensed in 2005.

10/1

7/20

08

41

In

form

atio

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ecte

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n C

ongo

(A

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MICROFINANCE PROFESSIONAL ASSOCIATION The Association Professionnelle des Etablissements de Microfinance (APEMF) was originally created as a consultative group for MFIs while the CEMAC regulation was being drafted. It was transformed into a formal association, in compliance with the regulation, in 2002. All licensed MFIs are members, and those whose licensure is still pending are also involved. APEMF is by far the most dynamic professional association in the CEMAC region. APEMF is a member of the Africa Microfinance Network (AFMIN). APEMF established a partnership with CGAP and its regional project CAPAF to offer CGAP training courses. Six trainers have been certified in CGAP courses. The association has offered courses in Brazzaville for MFIs from Congo, Cameroon, and the Democratic Republic of Congo. The following MFIs are usually represented at each training course: MUCODEC, CAPPED, Pharma Crédit, FAM, Secu-Santé, and the Caisses Féminines.

Trainees by course type (Total as of March 8, 2006)

Portfolio

Mgmt and

Interest Rates

Fin. Projection

s with Micro Fin

Number of trainees

Fin. Stmts

Fin. Anal.

Op. Risk Mgt.

Product Devel. Accting MIS

Congo 112 APEMF 0 26 16 31 0 0 39 0

Source: CAPAF The membership fee to join APEMF is XAF 50,000 per MFI, with annual dues of XAF 100,000. APEMF has received grants totaling XAF 28 million from SOS Femmes Luxemburg to subsidize some of their operations. APEMF plans to create a website (www.apemfcongo.org), study the feasibility of a wholesale finance facility, assist MFIs in their relations with the Ministry of Finance’s Microfinance Unit and with donors, and create a credit bureau. MFIs interviewed during the mission reported that they appreciate APEMF’s efforts and that the association currently lacks the means to implement its mission fully. POSTAL SAVINGS Société des Postes et de l’Epargne du Congo (SOPECO) was created three years ago when the Congolese post office split from the telecommunications company. Its legal status is that of a public establishment of industrial or commercial character. It is the descendent of the defunct Caisse Nationale d’Epargne, which still owes approximately XAF 6 billion to 217,000 former depositors (5.5 percent of the population of Congo). This debt has been taken over by a liquidation company, but there are currently no funds to repay. SOPECO currently operates only as a post office and a payment center (money

10/17/2008 42

orders, wire transfers through a partnership with Moneygram), paying the salaries of government employees. SOPECO offers no savings accounts for now, although they would like to re-launch this service eventually. SOPECO noted strong growth in international money transfers and processed 32,000 transactions totaling XAF 12.6 billion through Moneygram and received an additional 14,000 transfers totaling XAF 2.3 billion. BANKS Two banks in Congo prepared questionnaires for the FSAP mission, and the responses summarized in the table below on minimum account requirements provide one perspective on the bank’s interest in deepening its retail services. Minimum balances to open savings accounts are quite varied between Crédit Lyonnais and LCB, although even LCB’s 100,000 minimum saving deposit may be high for low-income clients in Congo.

Account Requirements for Banks in Congo, as of January 2006 survey responses (in XAF)

Banks Checking Account Savings Account

Min. Dep. Min. Dep. Min Amt on Interest rate Fees

at opening

at opening Acct anytime served

200,000 1,000,000 500,000 7500 CREDIT LYONNAIS 4.75% LCB 350,000 100,000 500,000 5% 0

Source: Bank questionnaires MFIs reported having only limited bank accounts, with no lines of credit from banks. Several MFIs serve as money transfer agents for banks to process international and domestic transfers. GOVERNMENT AND COBAC INVOLVEMENT Ministry of Agriculture The mission was unable to meet with the staff responsible for the Ministry of Agriculture’s microfinance programs. These programs reportedly include a XAF 8 billion rural development project in the north of Congo, which started in January 2005, with XAF 6 billion from IFAD and XAF 2 billion from the Congolese government and includes a loan program for farmers. There is also a XAF 2 billion agricultural support project which is scheduled to begin in 2006 and should also include a microfinance component.

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Ministry of Small and Medium Enterprises In Congo, a small enterprise is defined as one with five to 19 employees, and medium enterprise is considered to have 20-99 employees. These companies are often confronted with financing problems and have little access to bank loans, especially for medium and long-term funding. Average SME funding requests range from around XAF 50 million for a small company to up to XAF 250 million for medium companies. The SME Ministry established a guarantee fund to help improve access to loans. The fund’s total budget was only XAF 200 million, shared between the guarantee and operational expenses, and no bank would accept the government’s guarantee given little confidence in the fund and the judicial system. The Ministry is negotiating with MUCODEC for a program to finance small companies and artisans. The program could include training and management support by the Ministry, with MUCODEC obtaining funding or a line of credit from the government or a donor. The Ministry is also considering other SME financing mechanisms, such as a specialized institution or products such as leasing. Other Ministry initiatives include the creation of a guichet unique (“one-stop shop”) for registering a company, and the possibility of providing technical support such as feasibility studies for SMEs. Ministry of Economy, Finance and Budget The Microfinance and Financial Markets Unit is part of the Currency and Credit General Directorate in the Ministry of Economy, Finance and Budget. The Unit has a staff of 17 (plus branches in Pointe-Noire and Dolisie) dedicated to microfinance and financial markets. The Unit notes its mission is to supervise the microfinance sector within the framework of the COBAC regulation and to promote the development of the sector. This is a more active role than COBAC has foreseen for the monetary authorities in each country. The Microfinance Unit feels that this reinforced role is justified because COBAC is unable to visit local MFIs regularly. The Ministry is planning a conference to finalize a national microfinance and SME strategy, in collaboration with UNDP, APEMF, and MFIs. Some of the potential measures under discussion include making MFIs tax-exempt, reinforcing the capacity of MFIs and the Ministry’s MF Unit, creating a reliable database on MFIs, setting up a guarantee structure, and conducting a survey of the sector. The proposal to make MFIs tax-exempt has already been submitted to the Minister and is awaiting a response. The Unit would also like to work with banks to encourage them to establish alliances with MFIs, seeing them as complementary institutions rather than competitors. The following table shows the status of MFI licensure applications in Congo. All nine MFIs which have been licensed were approved on the same date, April 6, 2005, and a number of MFIs indicated that COBAC gave a favorable opinion for their licensure, but that the Microfinance Unit has not yet issued their license. The Microfinance Unit stated that the licensing process is not an automatic confirmation of COBAC’s opinion. After the opinion is received, the Unit conducts an independent examination of each MFI to verify its existence, review its financial information, and confirm that it has a safe. The Unit explained that these examinations may be delayed if it does not have sufficient funds for the trip, and that the applications of a few MFIs waiting for their license since last

10/17/2008 44

summer have been sent to the cabinet and are awaiting signature. Although no licensed MFIs have been closed in Congo, the Microfinance Unit stated that is does close establishments that begin operating without a license—it reported closing three such institutions in February 2006.

Congo: Status of MFI Licensure Applications Status Number of

MFIs MFI Description

Licensed 9 4 Category 1 Networks (with 8 agencies); 2 Category 1 independents; 2 Category 2 Independents; 1 unknown category

Pending MoF MF Unit Decision

1 Category 1

COBAC: favorable opinion issued

7 5 Category 1; 1 Category 2 Network (with 1 agency); 1 Category 3 Network (with 16 agencies)

Pending COBAC decision 23 3 Category 1 Networks (with 41 agencies); 15 Category 1 independents; 2 Category 2 Networks (with 11 agencies); 3 Category 3

Unknown Status 4 Category 1 TOTAL 44 (with 77 agencies)

Source: Ministry of Finance Microfinance Unit The Microfinance Unit noted that the regulation’s provision for a de facto favorable opinion after three months may be problematic given COBAC’s backlog in issuing opinions. The Microfinance Unit planned supervision missions to all nine licensed MFIs starting in late February 2006, followed by inspections of the MFIs awaiting licensure. The supervision missions will include a review of committee minutes, security and data protection, and financial statements. The Unit has established a penalty for MFIs that do not submit financial statements on a quarterly basis (stricter than the semi-annual requirement in the COBAC regulation) but is not yet applying the penalty. In general, the MFIs interviewed were not aware of the Ministry of Finance’s activities. There is widespread dissatisfaction with what is perceived as the non-application of the microfinance regulation, and several MFIs complained that new MFIs open and close, sometimes with the knowledge of the Microfinance Unit, and that nothing is done to control them. The abrupt failures or closures of these establishments are seen as damaging to the reputation of the sector as a whole. MFIs feel that COBAC and the Microfinance Unit lack the resources to supervise the sector effectively. MFIs felt that the CEMAC Microfinance Regulation is not well adapted to the realities of the sector in Congo. The 21 prudential ratios are generally seen as too complicated and restrictive for MFIs in the country. For example, one donor mentioned that for networks such as MUCODEC, it might be better to evaluate the financial strength of the network as a whole, rather than licensing each individual cooperative. MFIs are not familiar with the regulation and calculation of prudential ratios, and the Microfinance Unit has not yet tested the ratios to see if they are realistic for Congolese MFIs. There was some confusion about the requirements for financial reporting, frequency of reports, and whether to send reports to COBAC, the Ministry, or both.

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DONOR INVOLVEMENT The mission met with several donors in Congo, as summarized below. In addition to the donor projects listed below, IFAD and the World Bank reportedly have projects in Congo with microfinance components. AFD is appraising another phase of its funding for MUCODEC. For this phase, AFD may provide a guarantee of XAF 35-38 billion for very small enterprises and housing loans by MUCODEC members. UNDP’s involvement in microfinance in the Congo started in 1993 with a regional project supporting the Caisses Féminines d’Epargne et Crédit. Although UNDP has worked on a number of projects in Congo with microfinance components, it has not directly supported a specific MFI. For 2006, UNDP plans to work with APEMF and other microfinance stakeholders to prepare a national microfinance strategy. Over a year ago, APEMF drafted a national microfinance strategy, but UNDP feels the draft was not sufficiently collaborative. UNDP recently conducted a survey of SMEs in the construction sector in Congo and found that out of 80 enterprises interviewed, only five had access to financing. UNDP is studying the possibility of creating a line of credit for SMEs. The EU provides limited funding for technical assistance to MFIs, but under the eligibility criteria, only MUCODEC and CAPPED were eligible to apply. The EU also has a EUR 10 million project supporting infrastructure economic development that includes funding for the Forum des Jeunes Entreprises, the NGO that created CAPPED.

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EQUATORIAL GUINEA A 2003 diagnostic report by the Cameroonian Ministry of Finance and IFAD cites two MFIs in Equatorial Guinea with a total of 30 million XAF in deposits and 50 million XAF in loans. No other microfinance activity was identified. The FSAP mission requested a video conference with representatives of the Ministry of Finance or other institutions, but the meeting could not be organized. One bank in Equatorial Guinea prepared questionnaires for the FSAP mission, and the response summarized in the table below on minimum account requirements provides one perspective on the bank’s interest in deepening its retail services.

Account Requirements for Banks in Equatorial Guinea, as of January 2006 survey responses

(in XAF) Savings Accounts Banks Checking Accounts

Min Amt on

Interest rate Min. Dep. Fees Min. Dep. Fees

at opening

per month

at opening

Acct anytime served

(1) 6000 200,000 100,000 75,000 0 CCEIGE 4.75%

Source: Bank questionnaires (1) Yearly account monitoring fees

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GABON MICROFINANCE INSTITUTIONS The microfinance sector in Gabon is nascent, and the three licensed institutions are still very new and small. COBAC identified 14 MFIs in Gabon in their 2003 survey and according to a subsequent survey, COBAC reported MFIs managed total outstanding loan portfolio of XAF 50 million (US$ 90,909) and deposits of XAF 40 million (US$ 72,727) as of December 2004. The FSAP mission interviewed the three licensed Category 1 MFIs (in order of size): FINAM, CEFEC, and CECAG. Together, these MFIs reported that they serve a total of 1,939 members/clients, with a total of XAF 228 million in loans and XAF 17 million in deposits. FINAM, Financière africaine de microcrédits, began activity on February 2005 as a Category 2 MFI that collects public deposits and grants loans. FINAM’s capital is XAF 100 million. As of December 31, 2005, EMF FINAM served 912 clients with outstanding loans totaling XAF 192 million and outstanding deposits of XAF 9 million. Loans range from XAF 200,000 to XAF 5 million. CEFEC, Caisse FMEO d'épargne et de credits, was created in 1999 and began activity on December 2004 as a Category 2 MFI. With capital of XAF 7 million, it served 872 clients. As of December 31, 2005, CEFEC managed XAF 20 million in outstanding loans and XAF 2 million in deposits. Loans range from XAF 50,000 to 1 million with a maximum limit of XAF 1 million. CECAG, Caisse épargne crédits Agass, was launched in 2004 and began activity the same year as a cooperative Category 1 MFI. As of December 2005, CECAG served 155 clients with outstanding loans of XAF 16 million and deposits of XAF 6 million. Loans range from XAF 100,000 to 1 million. In addition to these three licensed MFIs, there are three public sector institutions offering financial services to low-income clients: FODEX, CEP and BGD. Another 100 or more informal MFIs, including cooperatives, associations, and tontines may operate in the country. Several offer supplier-credit on behalf of retailers. About 10 of these informal MFIs have applied for licensure, and Crédit Mutuel and Trésor des Nations reportedly are seeking a Category 2 license. FODEX (Fonds de Développement et d’expansion des PME-PMI du Gabon), was created in 1993 as a public SME finance institution with a microfinance component. Due to mismanagement and high levels of delinquent loans, the AfDB line of credit that helped create FODEX was closed in 1997 but Government support has allowed FODEX to continue operating. FODEX is trying to recover delinquent loans and hopes to diversify to offer microloans. The microlending component has been funded with XAF 1.2 billion from FODEX and XAF 800 million from Fondation Espace Afrique, an

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international NGO. As of December 31, 2005, FODEX’s microlending component reported outstanding loans of XAF 1 billion with 2,800 clients. Loan sizes ranged from XAF 100,000 to 2 million. FODEX is not licensed or supervised by COBAC. Overview of MFIs in Gabon, 2004-2005 2004 2005

EMF

TOTAL FODEX CECAG CFEC FINAM TOTAL

14 Number of MFIs 1 1 1 (*)1 4

NA Total members/clients 2800 155 872 912 4739 50 Total Loans Outstanding (XAF million) 1000 16 20 192 1228 91 Total Loans Outstanding (US$000) 1800 29 36 349 2233

NA 259126 Average Loan Size (XAF) 357143 103226 22936 210526 NA 471 Average Loan Size (US$) 649 188 42 383 40 Total Deposits (XAF million) 0 6 2 9 17 73 31 Total Deposits (US$000) 0 11 4 16

NA 3587 Average Deposit (XAF) 0 38710 2294 9868 NA 7 Average Deposit (US$) 0 70 4 18

Sources: COBAC and Data collected during the FSAP Mission Notes: - NA= Not Available - 1US$ =XAF 550

As seen in the table above, as of December 31, 2005, the three licensed MFIs and FODEX served a total of 4,739 clients with an outstanding loan portfolio of XAF 1.2 billion and deposits of XAF 17 million. FODEX dominated the market with 80 percent of outstanding loans and 60 percent of clients. MICROFINANCE PROFESSIONAL ASSOCIATION The Association Professionnelle des Etablissements de Microfinance du Gabon (APEMFG) was created in 2004. The association has five members, the three licensed MFIs (FINAM, CEFEC, CECAG) and the two MFIs whose licensure is pending (Crédit Mutuel, Trésor des Nations). First time membership fees are XAF 200,000 and annual fees are XAF 300,000. The association has requested training and information on good practice is in the sector. POSTAL SAVINGS The Caisse d’Epargne Postale (CEP) postal savings bank offers deposit, savings and payment services. In 2003 it managed 175,000 individual deposit accounts (Comptes-Chèques-Postaux, CCP), through a national network of 52 branches. If each account were for a single person (unlikely, but interesting proxy), this outreach would represent about 13.5 percent of the population. CEP does not offer loans. Discussions are underway to privatize Gabon Poste, and this would require substantial investment in technical assistance and new capital.

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BANKS Four banks in Gabon prepared questionnaires for the FSAP mission, and the responses summarized in the table below on minimum account requirements provide one perspective on the bank’s interest in deepening its retail services. Minimum balances to open savings accounts are among the highest in the region.

Account Requirements for Banks in Gabon, as of January 2006 survey responses (in XAF)

Bank Checking Accounts Savings Accounts

Fees Min. Dep. at opening

Min. Dep. Min Amt on Interest rate at opening Acct anytime served

2,000,000 1,000,000 250,000 0 BGFIBANK 6.50% CITIBANK GABON 10,000,000 5,000,000 0 5% 0 FIN.BANQ. GABON 500,000 100,000 2,000,000 6.50% 0

UGB

Source: Bank questionnaires There are 43 bank branches throughout the country. MFIs reported having only limited bank accounts, with no lines of credit from banks. STATE DEVELOPMENT BANK The public Banque Gabonaise de Développement (BGD) serves as second tier source of funds for MFIs and channels UNDP funds for microfinance. BGD also provides some MFIs with grants for equipment such as a safe. GOVERNMENT INVOLVEMENT The evolution of MF in Gabon is monitored by the Comité National de Pilotage de la Micro Finance (CNPMF) which meets twice a year and coordinates the government’s MF policy. A national microfinance strategy was approved in 2003 and is linked to the PRSP. In addition, a microfinance division has been created at the Ministry of Finance. DONOR INVOLVEMENT AfDB and UNDP are the main donors active in microfinance in Gabon, although the EU also participated in a video conference with the FSAP mission as an observer. AfDB has provided credit lines for FODEX in the past, and they have been involved in the national microfinance strategy discussions. UNDP provides XAF 300 million for a) an office in

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Tchibanga that helps promote MFIs that lend to women and b) institutional support for BGD to create a microfinance department. OTHER ISSUES MFIs and others reported that the regional COBAC regulation is not adapted to the Gabonese microfinance realities, especially for the smallest MFIs seeking licensure as Category 1 MFIs. From discussions and the state of MFI development, there may be confusion about whether more informal groups should apply for MFI licenses. SME FINANCE As mentioned above, the Government launched FODEX as an SME finance company, although it has also launched microlending. FODEX originally aimed to (i) provide financial resources to commercial banks willing to make loans to SMEs and (ii) guarantee up to 50 percent of loans made to SMEs. As of 1997, FODEX had lent XAF 24 billion with loan defaults of XAF 7 billion.

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