BENIN - World Bank · This analysis suggests nine strategies to improve small deposit mobilization in Benin that which ... donors, and other interested parties define poten-

BENIN

COUNTRY-LEVEL SAVINGS ASSESSMENTCGAP SAVINGS INITIATIVE

August 2005

Brigit Helms, Lead Microfinance Specialist, CGAP

Rani Deshpande, Microfinance Analyst, CGAP

Mark Pickens, Associate Microfinance Analyst, CGAP

Nazaire Sado, BIM

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LIST OF ACRONYMS

AgeFIB Agence de Financement des Initiatives de Base

ATM Automatic teller machine

BCEAO Banque Centrale des Etats de l’Afrique de l’Ouest

CMF Cellule de Microfinance

CNE Caisse Nationale d’Epargne

FCFA Franc de la Communauté Financière Africaine

GEC Groupement d’épargne et de crédit

IMCEC Institutions mutualistes ou coopératives d’épargne et de crédit

MFI Microfinance institution

FECECAM Fédération de Caisses d’Epargne et de Crédit Agricole Mutuel

MIS Management information system

PAPME Projet d’Appui aux Petites et Moyennes Entreprises

PADME Projet d’Appui aux Développement des Micro-Entreprises

PARMEC Projet d’Appui à la Réglementation sur les Mutuelles d’Epargne et de Crédit

SFD Système financier decentralisé

UEMOA Union Economique et Monétaire Ouest-Africaine

ii

CONTENTS

LIST OF ACRONYMS ..................................................................................................................................... ii

EXECUTIVE SUMMARY ............................................................................................................................... 1

INTRODUCTION ..............................................................................................................................................3

CLIENTS: DEMAND FOR DEPOSIT SERVICES....................................................................................... 5

La génération méfiante (the mistrustful generation) ..............................................................5

Lack of confidence is mutual .................................................................................................5

Hope for the believers............................................................................................................ 5

MICRO: INSTITUTIONAL CAPACITY AND SUPPLY OF DEPOSIT SERVICES ...............................8

A rich and diverse landscape of providers ............................................................................ 8

Fulfilling the demand?.......................................................................................................... 10

What prevents MFIs from competing more effectively for deposits?.................................. 115

MESO: SUPPORTING INFRASTRUCTURE FOR DEPOSIT MOBILIZATION..................................16

Management support for financial institutions varies in quality .......................................... 16

Abundant resources reduce incentives to mobilize small savings ...................................... 16

Liquidity management and payment systems lacking ......................................................... 18

MACRO: POLICY AND REGULATORY ENVIRONMENT ....................................................................19

An open regulatory framework results in numerous unsupervised institutions ................... 19

Government- and donor-funded initiatives can undermine financial institutions’ viability and incentives to mobilize deposits ........................................................................20

STRATEGIES TO IMPROVE SMALL-BALANCE DEPOSIT MOBILIZATION IN BENIN .............21

ANNEXES

ANNEX I: SUMMARY MATRIX OF FINDINGS AND SUGGESTIONS .................................24

ANNEX II: LIST OF SOURCES CONSULTED ...........................................................................25

iii

EXECUTIVE SUMMARY

This report summarizes the results of the third test of the Country-Level Savings Assessment Toolkit beingdeveloped as part of CGAP’s Savings Initiative. The purpose of the toolkit is to help government agencies,donors, and others identify opportunities and constraints in increasing poor people’s access to high-quality deposit services. The methodology examines four levels of the financial system: clients, financialinstitutions (micro), supporting infrastructure (meso), and policy (macro). It concludes with suggestionsfor possible strategies to improve the quality and quantity of deposit services available to poor and low-income households.

A decade-and-a-half after a banking collapse that saw the failure of all three of Benin’s state-runbanks, mistrust of the banking system is still widespread. At the same time, a lack of data on clientpatterns and preferences with respect to savings perpetuates a widespread perception that low-incomeBeninese do not or cannot save.

In reality, there is a deeply entrenched tradition of saving in Benin. Much of it occurs in theinformal sector. Despite the number and variety of formal deposit-taking institutions, they have beenlargely unsuccessful in competing with informal deposit service providers in terms of costs andconvenience. Moreover, the safety of savings in formal institutions is not guaranteed because institutionalfinancial performance is highly variable.

The quality of management support available to retail institutions is also variable, althoughtraining and TA providers are numerous. This issue is especially worrisome for cooperative networks,which are delegated supervision responsibility by the Ministry of Finance. In addition, institutions andnetworks have not established internal liquidity management mechanisms, and they must accomplish thistask by transacting with banks. Easily available bank refinancing, along with donor and government linesof credit, diminish the incentives for retail institutions to focus on deposit mobilization.

At the macro level, the assessment does not find that the much-analyzed regulatory framework inBenin significantly hinders small deposit mobilization, although some conservative prudential ratiosreduce the attractiveness of deposits for banks. Regarding MFIs, the framework is, if anything, toopermissive, resulting in a plethora of often weak deposit-taking institutions that cannot be effectivelymonitored with current supervisory resources. Also of concern are state-run initiatives that underminestrong MFIs’ viability and incentives to mobilize deposits.

This analysis suggests nine strategies to improve small deposit mobilization in Benin that whichwarrant further research and reflection:

1. Research client preferences to understand the size and characteristics of the market.

2. Design and actively market deposit products and delivery mechanisms tailored to the needs ofspecific low-income client niches.

3. Create a system that enables the public to distinguish among different types of institutionsbased on their regulatory status and financial soundness.

4. Conduct consumer education campaigns about the importance of saving in regulated institutions.

5. Consider consolidating institutions and networks—but ensure management capacity to matchtheir size.

6. Accelerate the use of e-payment mechanisms to integrate proximity to customers, security, andcost-effectiveness in deposit service delivery.

7. Improve supervision methods and increase supervision capacity within the government.

8. Consider adjusting certain provisions in the regulatory framework that reduce the attractivenessof deposits as a source of funds.

9. Review the proposed National Microfinance Policy through a savings mobilization lens.

BENIN - COUNTRY-LEVEL SAVINGS ASSESSMENT

1

INTRODUCTION

This report summarizes the results of CGAP’scountry-level savings assessment in Benin. Theassessment was conducted to test a Country-LevelSavings Assessment Toolkit being developed aspart of CGAP’s Savings Initiative.1 The purposeof the toolkit is to help government agencies,donors, and other interested parties define poten-tial strategies for increasing poor people’s accessto high-quality deposit services.

Deposit services play multiple roles indevelopment. For the economy, collecting largenumbers of small-balance deposits producespools of capital that can be efficiently invested.Financial institutions can also derive substantialbenefits from deposit mobilization, includingcustomer acquisition, product diversification, andaccess to a potentially inexpensive and stablesource of funds. Most important, well-designeddeposit services can help low-income clientsbuild a cushion against economic shocks,enabling poor households to smooth consumptionand reduce vulnerability.2

The toolkit examines evidence ondemand for deposit services among low-incomeclients and identifies opportunities and constraintsto meeting that demand. It examines three levelsof the financial system: (1) the capacity for smalldeposit mobilization among financial serviceproviders (“micro” level); (2) financial infra-structure and second-tier support for the micro-level institutions to reach scale (“meso” level);and (3) public policies and government entitiesthat create an enabling environment for savingsmobilization (“macro” level). It concludes byidentifying promising strategies to improve the

quality and quantity of deposit services availableto low-income households.

The assessment draws on (1) analysis ofexisting studies and information on demandlevels, institutional capacity, and the macroenvironment in Benin (see Annex II for the list ofdocuments consulted); (2) interviews with 55informants related to small deposit mobilizationin Benin during the in-country assessment carriedout July 11–23, 2005 (see Annex II for the list ofindividuals consulted); (3) a focus group withrepresentatives of 12 microfinance institutions(MFIs), who provided information on theirdeposit products for this study; and (4) visits tofinancial institutions to collect information onsavings products.3

Overview of savings in the Benineseeconomy and financial system

Benin’s combination of political and economicstability should, in theory, provide highly favor-able conditions for the mobilization of financialsavings. Inflation has been low and steady for thepast several years, averaging 2.7 percent between1999 and 2002. The economy has simultaneouslyregistered impressive performance, growing at anaverage annual rate of 8 percent over the sameperiod. However, this drops to only 2.3 percentwhen adjusted for inflation and populationgrowth. Moreover, 2004 performance is widelyexpected to be worse, as the economy sufferedshocks to two of its main drivers: cotton farmingand trade with Nigeria. The country’s 2003 GNIof $3 billion ($440 per capita) is therefore notexpected to grow significantly.

The small size of the economy partlyexplains the small size of Benin’s banking sector.In 2004, the country’s nine banks had 42 branches

COUNTRY-LEVEL SAVINGS ASSESSMENT

3

__________________________1 For more information on CGAP’s savings initiative andinformation on savings mobilization visit the CGAPSavings Information Resource Center (SIRC) atwww.cgap.org/savings.2 For more information on the consumption smoothing useof deposit services by low-income people, see StuartRutherford, 2001, The Poor and Their Money, New Delhi:Oxford University Press; Zeller, Manfred, March 2000,“Product Innovation for the Poor: The Role ofMicrofinance,” IFPRI Policy Brief No. 3, Washington,D.C.: International Food Policy Research Institute; andGoldstein Gilles, Issa Barro, and Dominique Gentil,February 1999, “Etude sur le rôle de l’impact des serviceset produits d’épargne du secteur informel et des institutionsde micro finances en Afrique de l’Ouest,’’ New York:UNCDF/SUM.

__________________________3 The assessment team consisted of CGAP staff BrigitHelms, lead microfinance specialist; Rani Deshpande,microfinance analyst; and Mark Pickens, research analyst;and consultant Nazaire Sado. Consortium Alafia organizedmeetings and mission logistics for the team.

Defining Savings: Poor people save in vari-ous forms—financial and non-financial, formaland informal. The focus of the assessment ison deposits in formal financial institutions,defined as non-compulsory liabilities thatcome from clients.

total, putting the ratio of people per bank branchat almost 161,000:1. The proportion of econom-ically active adults with bank accounts is esti-mated at a maximum of 7 percent, and liquidliabilities and savings in banks are only 26.4percent and 16.4 percent of GDP, respectively.4

The latter figures are roughly similar to those inneighboring Togo (23.6% and 16% respectively),which is similar from a size and economic devel-opment standpoint, but lower than the region’seconomic powerhouse Nigeria (28.5% and 20%respectively).5

These figures must be viewed in the con-text of the complete disappearance of the sectorthat occurred as a result of a banking crisis in thelate 1980s. In a crash that preceded a generalizedcrisis in Benin’s then-communist economy, allthree state-run banks failed, and 11 billion FCFA(US$21 million) of deposits were frozen. Whiletwo of the banks were liquidated, clients of thefailed Caisse Nationale de Crédit Agricole weretransferred to the newly created FECECAM, nowthe country’s largest network of savings and cred-it cooperatives. The only large financial institu-tion to survive the crisis was not a bank, but ratherthe Caisse National d’Epargne (CNE), the finan-cial services arm of the post office.7

BENIN

4

Table 1: Key Economic and Banking Indicators

Sources: World Bank, BCEAO, UNDP, CNE.6 Note: Totals for branches andaccounts are based on the most recent data available (2003–2005) from BCEAOreports on the banking sector and a survey of 79 MFIs, the CNE, and CGAPestimates. Not all of these institutions take deposits; when only authorizeddeposit-taking institutions are counted, the figure for population per branch risesto just under 12,000:1. See Table 3 for breakdown of branches by type ofinstitution.

__________________________4 The 7% figure assumes each bank account belongs to aunique user; stakeholder interviews indicated that a rate of4–5% was more likely.5 Liquid liabilities and bank deposits figures are fromWorld Bank Financial Structure Database, 2003, availableat www.worldbank.org/research/projects/finstructure/database.htm.

__________________________6 Unless otherwise specified, all BCEAO data cited in thispaper were drawn from documents published by the headoffice in Dakar, Senegal.7 The CNE is currently in the process of becoming inde-pendent from the post office.

Population (2003) 6,769,914 Economically active population (2003) 2,830,876 Total number of households (2003) 1,210,463 Average US dollar exchange rate, 2004 528 FCFA Inflation (2003) 1.5% GNI per capita (2003, Atlas method) $440 National savings rate (2002) 9.9% Liquid liabilities/GDP (2002) 26.4% Savings in banks/GDP (2002) 16.4% Cash in circulation/deposits in banks (2003) 70.9% Private credit/GDP (2002) 10.5% Savings in banks/private credit 156.2% Daily minimum wage (2004) $1.71 Daily income at national poverty line, rural areas (2000) $0.27 Daily income at national poverty line, urban areas (2000) $0.48 % Population under national poverty line (2001) 33% Estimated number of accounts in financial institutions 1,394,498 Estimated total financial institution branches 1,446 Population/financial institution branch 4,682 Financial institution branches/million inhabitants 214

CLIENTS: DEMAND FOR DEPOSITSERVICES

La génération méfiante (the mistrustfulgeneration)

The relatively recent memory of the bankingcrisis, along with the deep devaluation of theregional currency in 1994, largely explains theoften-cited problem of client mistrust of financialinstitutions. One interviewee termed those wholived through this crisis “la génération méfiante,”because the memory of the loss of their savingscontinues to color their savings behavior today.

However, client mistrust is far from lim-ited to the banks. Anecdotes abound of fly-by-night institutions and unscrupulous informal oper-ators who have made off with client savings. Forhonest institutions, this translates into an uphillbattle to convince clients that their deposits aresafe. The lack of deposit insurance for the micro-finance institutions (MFIs) does not help thiscause.8 Nor does legal authorization to takedeposits seem to make much of a difference.Stakeholders indicate that clients do not under-stand the difference between institutions that arelicensed by the Ministry of Finance and BCEAOto mobilize deposits, and those that are not.

Lack of confidence is mutual

Many institutions seem to believe that poor clientsare incapable of saving. Many stakeholderscommented that (1) most clients are too poor tosave, so improving savings mobilization meansincreasing incomes, for example through accessto credit; and (2) when clients do save, it is onlyto access a loan.

These widespread beliefs are not neces-sarily backed up by documented evidence onclient savings practices. Studies focusing onmicrocredit are plentiful, but the subject of small-

balance savings is usually addressed only tangen-tially and in the context of informal savings mech-anisms. The one study that touched most directlyon savings preferences contradicts the conven-tional wisdom. It indicates that 70 percent ofclients of two well-known MFIs did save withoutnecessarily expecting a loan later.9

This result suggests that beliefs aboutsavings may be shaped by particular institutionalpolicies as much as actual client preferences orbehavior. For example, in many deposit-takinginstitutions, loan sizes are based on a multiple ofclient savings. It is therefore possible that insti-tutions themselves view deposits mainly as collat-eral for a loan. Deposit products are therefore notdesigned to attract truly voluntary savings (forexample, through simple withdrawal proceduresand attractive interest rates). Institutions’ beliefthat clients only save to get loans is thus commu-nicated to clients through their product design andmay end up becoming a self-fulfilling prophecy.

Hope for the believers

Despite the dearth of studies on savings behaviorin Benin, other types of evidence support theprevalence of saving. In the informal sector, thewidespread use of tontines (ROSCAs) attests tohow deeply rooted the act of putting somethingaside is in Beninese culture. In the same studycited above, tontine participation among clients ofthe two MFIs studied was 81–89 percent. Anotherpaper estimated the volume of savings mobilizedannually by tontines at 1 billion FCFA (roughly$2 million) in 1995.10

Perhaps an even better demonstration ofthe demand for savings services is the success ofinformal banquiers ambulants. These rovingsavings collectors mobilize substantial amountsof money in daily deposits as small as 100 FCFAand typically charge the equivalent of one day’sdeposit per month for their services. In otherwords, for the right deposit service, demand is sostrong that clients are willing to accept a negativeinterest rate.


5

__________________________8 MFIs are referred to as systèmes financiers decentralisés(SFDs) in West Africa. The two terms are used inter-changeably in this paper.

__________________________9 Matul, Michal. October 2000. “IKM Case Study:FINADEV, Benin” and “IKM Case Study: PADME,Benin.” Paris: Planète Finance.10 Gracia, Mathieu. “Apport de la Banque Ambulante auxSystèmes Financiers Décentralises et aux OpérateursEconomiques” Paper presented at the InternationalSymposium on Microfinance and the Promotion of Micro-and Small Enterprises, 12–14 June 2000, Praia, Cape Verde.

Main finding: Steady deposit growth uncon-nected to credit belies the common assump-tion that Beninese clients only save to accessloans, although consumer confidence remainsa barrier.

According to the only study available onbanquiers ambulants, clients seemed to value twoaspects of the service most highly: convenience,and their interactions with a particular individual.Convenience relates to the ability to deposit dailyor on a schedule that suits the client; the fact thatthe collector comes to the client; and the speed oftransactions (three minutes on average). Clientsappreciate that savings collectors come from thearea, speak the local language, and demonstrate“the qualities of a good person.”11

Institutional experiences in the formalsector also indicate a strong demand for depositservices. As illustrated in Figure 1 and Table 2,total deposits have increased steadily amongformal sector institutions, growing by at leasttwice the rate of the overall economy in bothbanks and non-bank institutions between 2000and 2003.

The spike in deposit growth rates amongnon-FECECAM MFIs beginning in 2001 was dueto the launch of several credit-only MFIs mobiliz-ing compulsory deposits. However, in absoluteterms, increases among institutions that collectvoluntary deposits have historically been higherthan for credit-only institutions.

Much of this increase comes from theCNE, whose deposits have experienced particular-ly fast growth. As shown in Figure 2, CNE depositshave almost doubled in the last four years (from$31.5 million to $54.8 million), despite the fact thatthe institution does not offer credit. It is currentlythe largest non-bank deposit-taking institution andmobilizes more savings than several banks as well.The demand for CNE’s savings services—both involume of savings as well as growth—is strongevidence of the independent demand for savings,completely unlinked to credit.

BENIN

6

Table 2: Deposit Growth Rates 2000–2003, by Type of Institution

__________________________11 Ibid.

0

100,000

200,000

300,000

400,000

500,000

1999 2000 2001 2002 2003

Others SFD

FECECAM

CNE

Banks

FCFA

(milli

ons)

Figure 1: Deposits over Time, by Type of Institution

Source: BCEAO.

Year Banks CNE FECECAM Other MFIs All MFIs Total 2000 21% 20% 6% 21% 7% 17% 2001 46% 15% 11% 169% 21% 36% 2002 7% 17% 19% 42% 23% 10% 2003 10% 7% 4% 108% 21% 14%

Source: BCEAO.

Further evidence of demand for savingsservices independent of the demand for creditcomes from FECECAM. Figure 3 shows thatdeposits continued to grow even duringFECECAM’s recent crisis, when the loan portfo-lio volume and quality decreased precipitously,eventually necessitating significant write-offs.

Finally, credit-only institutions report thattheir clients demand savings services. WhenPAPME introduced voluntary savings products in2000, it saw deposits rise from less than 200million FCFA ($400,000) to 4.5 billion FCFA($8.5 million) in five years, despite no activemarketing campaign.12 PADME, currently thelargest credit-only institution, is also seeingdemand for voluntary deposits, with compulsorysavings currently in excess of the level requiredby the portfolio. Vital Finance has also receivedrequests from its clients to keep their savings.

Some observers attribute FECECAM’ssuccess in mobilizing deposits to its broad out-reach, which could be said of the CNE as well.However, FECECAM and the CNE do not reachas far outside of urban areas as some smaller insti-tutions. Their attraction for small depositors isthus no doubt due mostly to these institutions’apparent security and stability, perhaps stemmingfrom a perceived state guarantee (in the case ofthe CNE and FECECAM).

Despite this anecdotal evidence, fewinstitutions have made proactive attempts to studyclient savings habits and preferences. Thus, littleis known about what actually motivates smalldepositors to move their money from the mattress(or the canari) into a financial institution.13


7

__________________________12 Until it started mobilizing savings, PAPME was thecountry’s largest credit-only institution. 13 A canari is an earthenware jar often used to hide moneyin Beninese homes.

Figure 2: Deposit Growth at the CNE

Source: CNE statistics.

Figure 3: FECECAM Savings Behavior During the Crisis

Source: FECECAM statistics.

FCFA

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1999 2000 2001 2002 2003

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MICRO: INSTITUTIONAL CAPACITYAND SUPPLY OF DEPOSIT SERVICES

A rich and diverse landscape of providers

Both the formal and informal sectors in Beninfeature numerous providers of deposit services. Inthe informal sector, the three main forms ofsavings mobilization are the tontine, the banquierambulant, and the groupement de crédit etd’épargne (GEC). Unfortunately, quantitativeinformation on such informal mechanisms isscarce, and the available data vary significantly.While a 1992 study found 11,000 banquiersambulants plying their trade, a 1995 paper esti-mated their number at only 440.14 A more recentsurvey conducted by AgeFIB indicated that therewere 1,400–1,800 informal financial serviceproviders in operation, mostly GEC. Currentnumbers from the Ministry of Finance count only793 GEC, but these are likely to only be groupsthat have been formally recognized.

The Ministry of Finance does not monitorthe amounts of savings mobilized informally. Themost recent estimate of this amount was made in1995 and indicated that informal deposit schemesmobilized approximately 10 billion FCFA annu-ally (almost $19 million).15 No figures were avail-able for the amount of savings mobilized by GEC.

In the formal sector, the most recentnumbers available indicate that Benin has 1,441legally recognized points of access to financialservices (see Table 3). The three major types arebanks, the CNE, and various types of SFDs(systèmes financiers decentralisés, or MFIs). SFDsinclude savings and credit cooperatives, NGOsand associations, donor projects with financialservices components, private companies, and GEC.With one point of service for every 4,682 people,

the Beninese enjoy greater physical access to finan-cial service providers compared with other devel-oping countries, even much wealthier ones.

Table 3: Distribution of Points of Service, byType of Institution

Source: CMF (2005), CNE (2005), and BCEAO(2004) statistics.

However, not all SFDs are licensed tomobilize voluntary deposits. While all savings andcredit cooperatives can take deposits by legaldefinition, associations and NGOs must negotiatepermission on a case-by-case basis with theMinistry of Finance and BCEAO. Donor projectsrarely mobilize voluntary savings; at this time,neither do any private companies. By definition,GEC do mobilize members’ voluntary savings;however, they are not “licensed” by the authoritiesbut rather only “recognized.” While this legallymakes them formal-sector entities, GEC are notsupervised.16 When only licensed deposit-takinginstitutions are counted, the ratio of population topoints of service drops to just under 12,000:1.From a legal point of view, then, clients’ optionsfor voluntary deposit services are more restrictedthan branch numbers would suggest.

A vast majority of deposits are concen-trated in a small number of institutions. As illus-trated in Table 4, as a group, banks mobilized thelion’s share of savings, with almost 364 billionFCFA ($689 million) in deposits. This is 11–12times greater than the next largest deposit-takinginstitutions, the CNE and FECECAM, respect-ively. Although FECECAM’s share of SFD

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__________________________14 Kalala, Jean-Pierre Muimana and Alpha Ouedraogo,2001, “Savings Products and Services in the InformalSector and Microfinance Institutions in West Africa: TheCase of Mali and Benin,” Nairobi: MicroSave; Gracia.15 Nine billion FCFA of this amount was estimated to bemobilized by banquiers ambulants and the remainder bytontines. See Gracia.

__________________________16 Proposed changes in the IMCEC law (commonly knownas the PARMEC law) will eliminate “recognition” and giveGECs up to two years to become authorized.

Type of institution Number of branches

Banks 42 CNE 96 SFDs

Savings and credit cooperatives 293

Associations and NGOs 222 Donor projects with financial service components

35

Private companies 19 GEC (formally recognized) 739

Total 1,446

Main finding: Current and potential suppliersof small-balance deposit services are plentiful,but offer varying quality. Perceptions of highcosts prevent most financial institutions fromprioritizing voluntary savings mobilization.

deposits has been declining over the last fewyears, it still represents 72 percent of deposits inall SFDs. It should be noted that, in terms ofpeople served, the CNE and FECECAM each farsurpasses all banks combined (see Table 4).

Figure 4 indicates the level of fragmenta-tion in the market for deposits among SFDs,where all other institutions aside fromFECECAM (78 institutions for which figures aretracked) collect only 3 percent of all deposits andserve 20 percent of depositors.

Figure 5 illustrates the phenomenon inmore detail, with the very unequal distribution ofdeposits even among the CNE and the top 13deposit-taking MFIs. The variability in the

performance of these institutions (discussedbelow) and the density of points of service inBenin as compared with other countries may sug-gest that the sector is ripe for consolidation.

Figure 5 also shows the great diversityof average deposit balances among the top13 deposit-taking SFDs. It is possible thatthis diversity is tied to conscious targeting ofdifferent client segments by these institutions.Interestingly, the largest two institutions havevery similar average balances, which are amongthe smaller of those in the group. This distributionfurther demonstrates the significant number ofclients that can be attracted by small-balancedeposit facilities.


9

Table 4: Key Indicators on Deposit-taking Institutions

Sources: BCEAO, CNE, CMF. All figures are the latest available: bank numbers from end2003; CNE numbers from May 2005; FECECAM and SFD numbers from end 2004.

Figure 4: Deposit and Client Shares by Major Institutional Types

Sources: BCEAO, CNE, CMF.

Deposits (FCFA millions)

Clients/ accounts

Average deposit balance (FCFA)

Banks 355,866 185,600 1,917,381 CNE 31,416 409,592 76,701 FECECAM 28,245 436,924 64,645 All other SFDs 10,995 253,504 43,372

83%

14%

32%

34%

20%7%7%

3%

0%

20%

40%

60%

80%

100%

120%

% all deposits % all clients

All SFDsother thanFECECAM

FECECAM

CNE

Banks

Fulfilling the demand?

Unfortunately, the sheer number and variety ofproviders does not imply that client demand isbeing met with appropriate deposit products. Arough comparison of the level of savings mobi-lized by formal and informal sector mechanismsillustrates this point. In 1995, banquiers ambu-lants were estimated to mobilize 9 billion FCFA($17 million). By contrast, in 1999, all SFDs otherthan FECECAM together mobilized only about 1billion FCFA in savings. It can be assumed, then,that formal savings equals at most around onetenth of that collected by the informal sector.17

Clearly there is room for the formal sector tocapture more market share.

Why is it difficult for the formal sector tocompete with its informal counterparts? The fol-lowing analysis compares formal sector financialservice providers to informal ones. It focuses onfive factors of prime importance to low-incomesavers: security, proximity, remuneration, avail-ability, and minimum balance.

SecuritySecurity is cited time and again as the attributeclients worldwide most value in a depositinstitution, especially low-income clients.18

Unfortunately, the performance of Beninese depositinstitutions on this front is rather variable. Althoughthere have not been any bank liquidations since thecrisis of the late 1980s, a few banks have recentlyemerged from administration provisoire; one stillis under this temporary administration by the author-ities.19 Bank provisioning and compliance withprudential ratios is reported to be inconsistent, andseveral banks are undercapitalized. Nonetheless,bank performance is being closely monitored by theBCEAO and Banking Commission.

BENIN

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Figure 5: Total Deposits and Average Deposit Balances at Top SFDs

Sources: BCEAO, CMF, 2004.

__________________________17 Earlier numbers are not available for SFDs because theauthorities only began tracking their performance after thepassage of the PARMEC law in Benin in 1997.

__________________________18 See for example: Gardiol, I. D. “La mobilisation del’épargne. Questions clef et pratiques universelles pour lapromotion de l’épargne. ” Direct du Développement et de laCoopération-Suisse, 2004; Wright, G., and L. Mutesasira,“L’épargne des pauvres et ses risques relatifs” MicroSave,2003; Rutherford S. (2002), Comment les Pauvres gèrentleur Argent. GRET—Karthala, France; CGAP. “Stratégiesde mobilisation de l’épargne: leçons tirées de l’expériencede quatre institutions” Focus Note No. 13. August 1998.19 Ouattara, Korotoumou. Email dated September 23, 2005,and paper dated August 2004. “Bénin: Analyse du SecteurFinancier.” Washington, D.C.: World Bank, Africa Region,Finance Department.

0

5,000

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15,000

20,000

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35,000

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FECECAM

PAPMECPEC

AssEF

APHEDDMDB

Caisse

CODES

CBDIBA

CBEC

Mutuali

te Chre

tienn

e

Conve

rgenc

e 200

02C

M

MODEC0

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700,000

800,000

Deposits (FCFA millions) Average deposit balance (FCFA)

Tota

l Dep

osits

Average Deposit B

alance

The performance of top SFDs is alsoextremely variable, but their depositors do notbenefit from similar safety nets. Figure 6 showsprofitability and delinquency in the largest eightdeposit-taking SFDs by number of clients. Thereis no discernable pattern of performance, althougha few of the institutions with the widest outreachare among the worst performing.

At the same time, those SFDs moreaccessible to poor clients seem to be the least wellsupervised. Certain GEC are at least registeredwith the government, which is more than can besaid for informal sector providers. Customers ofthe banquiers ambulants have no legal recourse ifthey lose their savings, making them, in theory atleast, less secure than either SFDs or banks.

ProximityProximity to customers is a paramount considera-tion in the attractiveness of deposit services,especially because clients are generally notwilling to travel as far to deposit their savings asthey are to access a loan. Although Benin has rel-atively many points of service, the distribution offormal sector deposit providers is far from equalacross the country. Figure 7 illustrates the differ-ence in population per point of access to financialservices by départment. In other countries, thedistribution of deposit providers is strongly corre-lated with indicators of marginalization: the moremarginal the region, the fewer financial institutionbranches. In Benin the pattern is more uneven, butthe inequality of access to points of service forregulated financial service providers is clear.


11

Figure 6: Clients, Profitability, and Delinquency in Top Deposit-taking SFDs

Source: BCEAO, CMF (2003).

050,000

100,000150,000200,000250,000300,000350,000400,000450,000

FECECAM

ASSEF

CBDIBA

PAPMECPEC

Conve

rgen

ce 2

000

MDB

CAISSE C

ODES

Clients

0%2%4%6%8%10%12%14%16%18%

500,000 20%

Clients Delinquency Profitability

BENIN

12

Figure 7: Population per Regulated Financial Institution Service Point20

__________________________20 This map does not include GECs.

Figure 7: Population per Regulated Financial Institution Service Point20


13

AvailabilityImmediate availability can perhaps be seen as theflip side of security. In many clients’ eyes, if theirsavings are not available on demand, they are notlikely to be secure. With well-developed liquiditymanagement systems, banks are normally able tosatisfy this requirement. Banquiers ambulantsalso have a good reputation in this regard, appar-ently making advances on future savings avail-able with fairly quick turnaround.

Cooperatives and other non-bank institu-tions (e.g., CNE, MFIs) are the subject of mostcomplaints with respect to availability of funds.This is perhaps not surprising given the restric-tions on withdrawals that are written into manycooperative deposit products, particularly require-ments about advance notice for large with-drawals. Many of the financial institutions inter-viewed spontaneously admitted that their internalliquidity/treasury management systems needimprovement.

RemunerationAlthough interest rates on deposits in Benin arecomparable to those in many other countries,inadequate remuneration was cited as an impedi-ment to savings mobilization. The distinctionbetween the three types of providers is clear.Banks are required by law to pay at least 3.5 per-cent per year on passbook savings accounts(although some seem to apply this rule only to

balances above a certain minimum). Cooperativestypically do not pay any interest on liquid savings;however, our sample reveals rates of up to 12percent per year on term accounts.

On the face of it, banquiers ambulantsseem to fare the worst on this parameter, charginga negative interest rate. However, the servicesthey offer save customers the cost of traveling toan institution to make their deposits. Dependingon where the institution is located, these costs canbe considerable. Figure 8 charts the net returns ofthe three options, including hypothetical travelcosts for weekly trips to the local cooperative andmonthly trips to the bank, for different amounts ofmonthly savings.21 Under these assumptions, theclient would need to save 36,000 FCFA ($68) permonth before the cooperative became as attractiveas the banquier ambulant, and approximately130,000 FCFA ($246) per month before the samecould be said of the bank. The lower the amountsaved, the more attractive banquier ambulant’sexplicit negative interest rate of 3 percent permonth. Given income levels in Benin, even thecooperative is likely to be unaffordable for thevast majority of potential clients.__________________________21 Assumptions: (1) Banquier ambulant collects 30 depositsper month for a fee equal to 1 daily deposit; (2) clientmakes weekly trips to local cooperative at a per trip cost of150 FCFA, cooperative pays no interest; (3) client makesmonthly trips to the bank at a per trip cost of 5000 FCFA,bank pays 3.5% annual interest.

Figure 8: Net return on savings by mechanism

Source: Authors’ calculations.

-40%

-30%

-20%

-10%

0%

10%2

005,000,5 01

000, 0,52

00 0,05

00 ,001

000 ,052

000 ,005

000 00,1

,0000

105,

,0000

200,

,0000

205,

,0000

00,3

,0000

Monthly savings

Net r

etur

n

Banquier ambulant Cooperative Bank

BENIN

14

Minimum opening balanceAlthough other features may make certainproviders more or less attractive, the minimumbalance needed to open an account can inhibitaccess from the start. Banks’ opening balanceseffectively exclude the vast majority of the popu-lation, explaining in large part why only 7 percentof economically active adults in Benin possess abank account (see Table 5 for a comparison ofentry-level account conditions of eight depositcollecting institutions). This leaves the remaining93% with essentially two options for their sav-ings: non-bank institutions (SFDs and the CNE)and the informal sector.

Cooperatives have much lower openingbalances but still pose affordability barriers withenrollment and application fees. Eight hundredto 1,000 FCFA ($1.60–$2.00) may not soundprohibitive, but in Benin, it is the equivalent of afull day’s minimum wage. Comparing fees to

even this income level may be optimistic, becauseone-third of Beninese are estimated to haveincomes far below the poverty level ($0.27 inrural areas and $0.48 in urban areas). Requiredshare purchases also add to the expense and bringdown the effective interest rate on deposits incases where such interest is paid.

Figure 9 presents a stylized summary ofthe comparison of different types of financialservice providers. Note that although bankservices are, on balance, slightly more attractivethan the other two, access to them is effectivelyimpossible for the majority of clients because ofthe minimum balance requirement. The questionthat presents itself is why institutions that couldtake advantage of a relatively wide-open marketfor deposits have not developed products anddelivery mechanisms to compete effectively withthe informal sector.

Table 5: Entry-Level Deposit Product Features at Sample Institutions

Source: Survey of financial institutions.

All figures in FCFA

Financial Bank

Bank of Africa CPEC MDB CAVECA

de CBDIBA CLCAM CNE PAPME

Minimum balance to open

500,000 100,000 10,000 1,000 1,000 8,000 5,000 25,000

ID and other requirements to open account

3 photos

ID card, 2 photos, 1 proof of residence

Photocopy of ID,

1 photo

Photocopy of ID,

2 photos 2 photos 3 photos ID card,

2 photos

Legal photocopy of ID card, 2 photos

Other costs to open account

— — —

Enrollment fee = 1,000;

Share = 10,000

Enrollment fee = 300; Application fee = 500; Share = 3,000

Enrollment fee = 200 — —

Minimum maintaining balance

10,000 15,000 5,000 3,000 1,000 8,000 5,000 5,000

Minimum withdrawal amount

— — — 1,000 — 1,000 2,000 —

Minimum balance to earn interest

400,00 — — — — 50,000–100,000 — 25,000

Annual interest rate 3.5% 3.5% 0% 0% 0% 3% 3.5% 2%


15

What prevents MFIs from competing moreeffectively for deposits?

The fundamental problem is that SFDs find itdifficult to identify the right business model tocapture market share from the informal sector.Several institutions have experimented with insti-tutionalizing the banquier ambulant model itselfbut have encountered problems. A benefit, interms of cost-effectiveness, of the banquierambulant model is that it can be run by oneperson. Apparently, the temptation to have a one-person business has often been too strong formany MFI agents. Although the banquier mightbe working as the agent of an MFI, he still ownsthe customer relationships—and can take thecustomers with him if he decides to leave.22

Failed experiments like these havecontributed to the notion among many MFIs thatsafely mobilizing small savings is prohibitivelyexpensive. These perceptions are reinforced byassumptions about the small total amount ofsavings that might be mobilized, as well as thesmall and frequent nature of transactions in suchaccounts. This assumption was also echoed bybanks. However, the review team was not able tofind costing studies conducted by financial insti-tutions in order to investigate the question.

Nonetheless, a few MFIs do see potentialin savings mobilization as a relatively cheapersource of funding compared with bank refinanc-ing, as well as a way to increase customer loyal-ty.23 For these institutions, the biggest obstacleseems to be organizational: putting in place thesystems and staff to conduct true financial inter-mediation, as opposed to mainly managing credit.One of the biggest hurdles is developing manage-ment information systems (MIS) to processdeposits and cope with small, frequent transac-tions. Although multiple donors have invested indeveloping software for different institutions,most have been focused on areas like portfoliomanagement, accounting, and financial manage-ment. Development efforts have also largely beenconducted in isolation from one another. Worse,they often depend on a single technician, meaningthat the system developed is not maintained whenthe technician leaves.

It is encouraging that credit-only (or cred-it-mainly) institutions understand the fundamentalchanges necessary before they start collectingdeposits. As the review team heard from severalinterviewees, “L’épargne, c’est tout un autremétier” (Savings is a completely different line ofwork).

Figure 9: Stylized Comparison of Savings Options

Note: The number of + characters indicates the relative attractiveness of a given product feature as offeredby a particular type of provider compared to the two others.

__________________________22 Focus group with 12 MFIs, Cotonou, July 19, 2005. Formore information on client preferences regarding servicesof banquiers ambulants, see Gracia.

__________________________23 One practitioner estimated that his institution would beable to mobilize small savings at a 5% all-in cost.

Bank Cooperative Banquier ambulant Security +++ ++ + Proximity + ++ +++ Remuneration +++ ++ + Availability +++ + ++ Minimum opening balance + ++ +++

MESO: SUPPORTING INFRASTRUCTUREFOR DEPOSIT MOBILIZATION

Management support for financial institutionsvaries in quality

Financial institutions serving the poor have a widechoice of professional support services in Benin.Practitioners reported having access to a numberof well-regarded providers, including rating, audit,and IT. In addition, there is a range of organiza-tions and individuals that conducts training, tech-nical assistance, consulting, and lobbying/advoca-cy activities. These organizations include interna-tional and local NGOs, donor projects, privateconsultants, and networks of retail institutions.

Despite this variety, the review teamfound little specialized expertise in savings mobi-lization. Moreover, the quality of serviceproviders is reported to be inconsistent, especial-ly within large networks that represent the bulk ofthe country’s points of service. Cooperative net-works are perhaps the most important of thisgroup, not only because of their size but becauseof the special supervision responsibilities delegat-ed to them by the Ministry of Finance.

The Ministry of Finance relies onnetworks, such as FECECAM, CBDIBA, andAPHHED, to ensure the safety and soundness oftheir member cooperatives through both on-siteand remote inspection and monitoring. Whilegovernment supervisors can take a more indirector delegated approach to supervising these indi-vidual unit cooperatives, in reality, the lack ofcapacity and resources within many networks hasforced them to become more closely involved.They may partially take over a network’s respon-sibilities for on-site inspections or fully take overthe network themselves in the case of insolvency.

How to strengthen the networks to prop-erly assume their responsibilities vis-à-vis theirmember institutions is currently the subject oflively debate. Some feel that the ineffectivenessof large networks is because of their physical andbureaucratic separation from member institutions.This renders monitoring and management supportharder to deliver and those who would deliver itless aware of actual conditions on the ground.

According to this line of reasoning, networksshould remain small and regional.

However, performance of networks doesnot necessarily correlate with size; UEMOA andother regions feature many examples of strong,large cooperative networks covering countriesmuch bigger than Benin. The quality of manage-ment is the real determining factor in the strength ofa network, not the number of institutions it includes.

But quality management and technicalexperts are expensive, and the overall cost of theseresources to the sector is multiplied as small net-works proliferate. Larger networks that can spreadhuman resource costs over a greater number ofmembers benefit from economies of scale, reducedcost burdens per institution, and more viable serv-ices. From this point of view, it is encouraging thatat least one cooperative federation, AssEF, hasalready begun a process of internal consolidation.

In addition, given their supervisoryresponsibilities, the multiplication and fragmenta-tion of networks may create opportunities forregulatory arbitrage among member institutions.In some countries with multiple networks, institu-tions have been known to switch their affiliation toavoid strict supervision and/or a negative rating.

Abundant resources reduce incentives tomobilize small savings

Plentiful savings obtained from wealthier, easier-to-reach clients and institutions—paired with con-servatism in lending—have resulted in excessliquidity in the financial system. Savings in banksequal 156 percent of private credit. Successfulinstitutions have managed to capture deposits rel-atively effortlessly, eliminating the need for themto proactively develop better deposit services. Atthe same time, many institutions, especiallybanks, believe there is a dearth of good invest-ment opportunities on the asset side of the balancesheet. The incentives to devote energy andresources to mobilizing small-balance savings arethus low to non-existent.

On top of this, financial institutions of alltypes seem to have ready access to refinancing.Between 1998 and 2003, local commercial banksextended 16 billion FCFA ($30 million) in loansto the microfinance sector. Bank refinancing hasincreased relative to donor funds; in 2003, bankloans were over 6 times greater than donor andgovernment funds in the sector (see Figure 10).

BENIN

16

Main finding: The most serious meso-levelgaps are liquidity management and paymentsystems for institutions that serve the poor.


17

Easy access to credit lines is less encour-aging from a deposit mobilization perspective,however. Because they do not demand the time,effort, and investment of mobilizing small savingsfrom the public, bank loans can end up beingmore attractive to financial institutions even ifinterest rates are higher.

The standard rationale for these creditlines is a “financing gap” in long-term resources(over 1 year in tenor), but it may be that this gapcan be filled by currently mobilized deposits.Although no formal studies have been done,stakeholder interviews indicated that thesedeposits—even sight deposits—may be muchmore stable than previously thought.

For example, analysis of CNE passbookaccount balances over 18 months reveals only 4months when the total volume of depositsdecreased, and these were predictably during theholidays and the beginning of the school year. Asillustrated in Figure 11, savings increase steadilyfrom the beginning of the year through July, thenplateau until the following January or February.Thus, even though small savers may deposit andwithdraw frequently, these transactions do notnecessarily imply volatility in the aggregatebalance.

Figure 10: Second-Tier Financing to MFIs by Source

Source: CMF.

Figure 11: Monthly Deposit Growth at the CNE

Source: CNE statistics.

24,000

25,000

26,000

27,000

28,000

29,000

30,000

31,000

32,000

Feb-03

Apr-03

Jun-03

Aug-03

Oct-03

Dec-03

Feb-04

Apr-04

Jun-04

Aug-04

Oct-04Dec-04

Feb-05

Apr-05

FCFA

(mill

ions

)

0

2,000

4,000

6,000

8,000

10,000

12,000

1998 1999 2000 2001 2002 2003

FCFA

(mill

ions

)

BOA Financial Bank EcobankSG Benin FECECAM Budget National

BENIN

18

Liquidity management and payment systemslacking

Effective systems to manage excess liquiditycould help mitigate the disincentives it poses toadditional savings mobilization. Unfortunately,second-tier structures have not been deemedstrong enough by the Ministry of Finance toestablish their own organes financiers (essential-ly cooperative banks) to manage liquidity amongnetwork member institutions. Nonetheless, sever-al of them are currently doing it through accountsat commercial banks.24 Dedicated organes finan-ciers would be more efficient, making excess liq-uidity available where it is needed at a lower cost.They could also facilitate liquidity transfersbetween different institutions (as opposed to with-in the same institution or network), which severalstakeholders mentioned as a gap in the system.However, they would require much stronger

institutions/networks and supervisory capacitythan currently exist.

Well-functioning payment mechanismsaccessible to low-income customers can encour-age them to deposit more of their funds.Connecting financial institutions, branches, andother potential points of service, such as retailersand ATMs, gives customers more functionality intheir accounts and better access to their moneyanywhere in the country. This flexibility is keyfor mobilizing small savings.

Apparently, plans are currently underway to build an UEMOA-wide ATM network forbanks. Simultaneously, MFIs in Benin areattempting to construct an ATM network appro-priate for low-income clients. Making these twosystems interoperable would give low-incomeclients a level of access to their accounts thatwould be unprecedented in the region.

__________________________24 One MFI is partnering with several foreign commercialbanks to launch an investment bank to help it manageliquidity, among other functions.


19

MACRO: POLICY AND REGULATORYENVIRONMENT

An open regulatory framework results innumerous unsupervised institutions

Much has been written about regulatory contextfor microfinance in UEMOA because it operatesat a regional level and was one of the first micro-finance-specific schemes.25 On the whole, theframework is fairly favorable to deposit taking bynon-bank institutions—perhaps too favorable.The law allows several different types of institu-tions to offer services and imposes no minimumcapital requirements—resulting in a plethora ofsmall players entering the field. The large numberof institutions is good for access, but creates asupervisory burden that authorities are ill-equipped to bear. There also seems to be a lack ofclarity on the ground regarding which institutionsare allowed to mobilize voluntary deposits.26

In addition, certain prudential regulationslessen the attractiveness of savings vis-à-vis othersources of funding. Double reserve requirements,in particular, means that banks must mobilize$1.30 in savings for every dollar they wish tolend. Conservative maximum loan-to-depositratios for both banks and non-bank institutionsalso decrease incentives for savings mobilizationby limiting the proportion of funds available toearn revenue through loans. Although these ratioswere established with the memory of crises inmind, there may be room to raise this ceiling forwell-performing institutions.

As it is, prudential norms are often ignoredby banks and non-banks alike, which regularlyuse short-term deposits to cover longer-term

loans.27 Fortunately, bank performance is closelymonitored by the BCEAO, with a staff of sixinspectors to supervise the country’s nine banks.

Non-bank institutions do not benefit fromthe same level of supervision. Only 191 out of1,308 legally recognized SFDs are licensed totake deposits and are, therefore, supervised by theMinistry of Finance’s microfinance unit (Cellulede Microfinance, or CMF). However, many non-licensed institutions do take deposits, even if onlyfrom a limited circle of members. A vast majorityof deposit service providers are probably not incompliance with many of the prudential regula-tions applied to licensed SFDs.

If the CMF were to inspect these 191 insti-tutions itself, at its current level of humanresources, it could visit each institution only onceevery four years. Under the delegated supervisionsystem, 164 individual deposit-taking institutionsare supposed to be directly supervised by their net-works. However, the largely inadequate capacityof these networks means that the CMF must stilltake on a substantial portion of inspections itself.It currently conducts about 50 inspections peryear, which corresponds to the maximum theoret-ically possible (see box below). From this point ofview, BCEAO’s increasing role in supervisinglarger MFIs is a welcome development. It shouldalso be noted that several interviewees underlinedthe need for more efficiency in the Ministry’sinspections, which currently require 48 person-days each. More rigorous enforcement of regula-tions in cases where infractions are found wouldalso increase the deterrence value of inspections,even among institutions that are not inspected.

__________________________25 See for example: Ouattara, Korotoumou, “MicrofinanceRegulation in Benin: Implications of the PARMEC Law forDevelopment and Performance of the Industry,”Washington, D.C.: World Bank Africa Region WorkingPaper Series No. 50, June 2003; Ouattara, Korotoumou,“Implementation of the PARMEC Law for Regulation ofMicrofinance, Findings No. 240,” World Bank, July 2004;and the PARMEC page in the IRIS database of micro-finance regulation, available at microfinancegateway.com/resource_centers/reg_sup/ micro_reg/country/35/.26 Focus group with 12 MFIs, Cotonou, July 19, 2005.

How many institutions could the Celluletheoretically inspect?

The CMF currently has eight inspectors qualifiedto conduct on-site supervision. Each inspectionmission requires four people to visit the institutionfor a total of approximately12 days, including travelto sometimes remote locations. Given these num-bers, it would require 229 person-weeks per year toinspect all 191 institutions. Under current supervi-sion methods, the maximum possible supervisionmissions per year is 44. So the CMF could visit the27 institutions and federations requiring directinspection and conduct spot-checks of 17 institu-tions under supervision by their federations.However, given the weakness within federationsand the number of institutions under federations, 17such inspections per year is clearly insufficient—asare the current level of CMF resources.

__________________________27 Ouattara, August 2004.

Main finding: The legal and regulatory frame-work is not a major obstacle to savings mobi-lization in Benin, although the Ministry ofFinance does not have adequate resources tomonitor the number of existing institutions.

BENIN

20

Government- and donor-funded initiativescan undermine financial institutions’ viabilityand incentives to mobilize deposits

Another important, yet less high-profile, facet ofthe policy environment is the impact of govern-ment credit programs—many of which are backedand funded by foreign donors—on small-balancesavings mobilization. Because they are often sub-sidized and do not maintain adequate borrowerdiscipline, government credit schemes can makecertain markets unviable, crowding out sustain-able financial intermediaries that might otherwisebe interested in serving poor clients.28

A report commissioned by the Ministryof Planning in 2003 indicates that the Beninesegovernment was the sole or a significant funder to26 microfinance programs through at least eightline ministries. Of these, only four programs weredeemed to adhere to best practice, which isdefined through the pursuit of four main goals(institutionalization, scale, depth of outreach, andfinancial sustainability).29

The newly proposed National Micro-finance Policy emphasizes distributing credit tounderserved populations. It also establishes anational fund for that purpose. Emerging evidencein Benin indicates that credit may not be the mostappropriate financial management tool for all

poor clients. Encouraging the distribution of morecredit through mechanisms like a national fundmay be at cross-purposes with the goal of allevi-ating poverty.

Subsidizing this credit may cause addi-tional harm to poor borrowers by saddling themwith unpayable debts. Furthermore, subsidizedcompetition makes lower-income market nichesless attractive for sustainable institutions, whichare more likely to continue offering services whengovernment and donor subsidies run out.Ironically, these sustainable institutions are alsooften the same ones that can offer secure, high-quality deposit services. Undermining sustainableinstitutions’ credit business, therefore, also under-mines client access to savings services.

Easing the availability of portfoliofinancing by establishing an on-lending fundwould also diminish these institutions’ incentivesto develop products capable of attracting poorclients’ deposits—short-, medium-, and long-term. It would also displace domestic funds mobi-lized by already over-liquid banks. Instead ofchanneling additional external funding into thesector, the government should work with develop-ment partners to overcome banks’ reluctance toextend longer-term financing to MFIs, and thegovernment should work with MFIs to developappropriate deposit products.

__________________________28 An inventory of government microfinance programsreported repayment rates as low as 27%. See Centre deRecherche Appliquée pour l’Endogéneisation desCompétences (CERAPEC), December 2003, “Mise enplace d’un mécanisme de concertation des structures demicro-crédits disseminés dans les départementsministeriels,” Cotonou: Government of Benin, Ministryof Planning, Forecasting, and Development.29 Ibid.

STRATEGIES TO IMPROVE SMALL-BALANCE DEPOSIT MOBILIZATION INBENIN

This section suggests potential strategies forincreasing and improving the quality of small-balance deposit mobilization in Benin. Ratherthan offer definitive recommendations or pre-scriptions, these suggestions raise key points thatwarrant further research and reflection amongstakeholders.

1. Research client preferences to understandthe size and characteristics of the market. Thestudy should document client savings behaviorand preferences, investigating who saves, in whatform, how much, where, and why. Particularemphasis should be placed on understandinginformal savings mechanisms to determine theirmost attractive characteristics and the level ofdeposits they elicit. Such information wouldenable institutions to understand how much couldbe mobilized and under what conditions. In addi-tion, an analysis of the stability of small-balancesavings would help institutions evaluate thecontribution small savings could make to theirfunding base.

Numerous alternatives exist for conduct-ing such a study. One interesting option involvespooling public and private funding from a combi-nation of government, donors, and financial insti-tutions that would use the information. TheFinScope surveys currently being implemented insouthern and eastern Africa employ this type of amodel, with declining public funding over time.30

Because they combine resources from manydifferent institutions, MFI networks may be wellplaced to coordinate such an effort.

2. Design and actively market deposit productsand delivery mechanisms tailored to the needsof specific low-income client niches. Newproducts could be targeted to current clients. Butgiven the current emphasis of most institutions oncredit, the bulk of potential depositors probablylie outside the current clientele. For example, onebank indicated it was cultivating individualbanquiers ambulants as clients, by giving them ahigher interest rate when they deposit theircollected funds, and access to well-priced short-term loans to honor end-clients’ requests. Thesebanquiers ambulants essentially act as “retailers”for financial institutions’ “wholesale” services.

Other potential products could include thefollowing:

l Savings boxes, such as those used in thePhilippines, where savings box keys are heldat the financial institutions so the savings boxcan be opened only when it is brought into theinstitution by either a collector or the client.

l Housing savings, especially given the strongcultural preoccupation with owning one’s ownhome in Benin. Linking savings to these pur-chases (potentially involving a loan as well)could serve to attract longer-term deposits.

However, better products will not sellthemselves: institutions must match efforts todiversify product offerings with better, moreactive marketing efforts that effectively commu-nicate product benefits to customers. Productdevelopment also needs to be accompanied byinvestments in adequate internal systems, such astreasury management, process improvements toenhance efficiency, and proper managementinformation systems (MIS). A common MIS plat-form, developed jointly by several smaller institu-tions with a local IT provider, might produce costsavings for each institution and facilitate a stan-dardized reporting format.

3. Create a system that enables the public todistinguish among different types of institu-tions. Given the diversity of savings providers inBenin, it is paramount that depositors understandthe nature and quality of the institution in whichthey choose to save. A system to help customersunderstand the quality of financial institutionsmight be developed in two consecutive phases.The first phase would distinguish betweeninstitutions that are licensed to take deposits andthose that are not. Information about whether aninstitution is licensed could, for example, be com-municated through a symbol displayed on theirpremises and in documentation. Such marketing-oriented material could be included as part of thepackage issued by the Ministry of Finance when itissues a license.31


21

__________________________31 In theory, informal operators would not be part of thisclassification system; however, given the success ofbanquiers ambulants at mobilizing savings, the supervisoryauthorities might eventually consider creating an officialcategory for those who submit to regular off-site reporting.Interviews indicated that certain banquiers ambulants hadactually expressed a desire to become recognized legallyfor tax reasons. Such a system would also help financialauthorities by enabling them to better quantify the level ofsavings mobilized in the informal sector.

__________________________30 www.finscope.co.za

BENIN

22

A second phase would classify super-vised, licensed institutions according to theirfinancial performance. Without any visible indi-cators of institutional quality, consumers cannotmake informed choices about where to deposittheir funds. A mechanism for disclosing moreinformation about institutional performancewould increase transparency for clients, enhanc-ing incentives for institutions to improve thatperformance.

Such a mechanism might be implementedby an industry association or, if this proves toodifficult because of conflicts of interest, by anindependent non-governmental entity. It couldalso be implemented within a single cooperativefederation, as a pilot. It should not be seen as asubstitute for increasing the currently insufficientlevel of supervisory resources within the Ministryof Finance, but rather as a complementary effort.

4. Conduct consumer education campaignsabout the importance of saving in regulatedinstitutions. A grading system like the onesuggested above needs to be accompanied byconcerted efforts to help the public understand themeaning of the various categories of institutions.A generalized consumer education campaignshould focus on the importance of saving in regu-lated institutions and on communicating themeaning of the symbols used for different typesand categories of institutions. It could also touchon a range of educational themes having to dowith personal financial management.

Typically, such messages are disseminat-ed by public organizations like the government(often through a consumer protection agency) orNGOs. Because of the link to the classificationsystem, the agency charged with publicizinginformation on performance might be well-posi-tioned to coordinate consumer education. Ideally,such an effort would be a joint project betweenthe two (i.e., between the CMF and ConsortiumAlafia).

5. Consider consolidating institutions and net-works—but ensure management capacity tomatch their size. Especially among cooperatives,there are perceived trade-offs related to increasingaccess (through more points of service) andreducing costs on the retail level; and increasingmanageability (through smaller, more numerousnetworks) and achieving economies of scale at thewholesale level.

The level of market fragmentation amongdeposit-taking retail institutions in Benin suggeststhat consolidation through mergers, acquisitions,and even closures could improve efficiencyand the quality of deposit services offered.Implementing a classification system and publiceducation campaign as suggested above wouldgive additional impetus to this process sector-wide, by encouraging depositors to “vote withtheir feet.” Non-licensed and poorly performinginstitutions would likely see a drop off in theirbusiness, thereby facilitating consolidation of thesector.

At the second-tier level, increasing man-agement capacity within networks is the key toimproving performance. Evidence from othercountries indicates that, in terms of their size,Beninese networks are far from hitting a manage-ability ceiling. Reinforcing management capacitywould allow them to grow and capture economiesof scale while preserving their financial stability.

However, in light of repeated and largelyunsuccessful attempts to accomplish this goal,the way to reinforce management capacity mustbe the subject of deeper reflection by theMinistry of Finance, donors, retail institutions,and the networks. Structural changes that haveproven fruitful elsewhere should also be consid-ered. These changes include clarifying the role ofnetworks as either a fee-for-service TA provider,with a rational and enforced fee schedule, orincreasing centralized control, with the federa-tion acting as a head office, and member institu-tions evolving eventually into branches of asingle institution.

6. Accelerate the use of e-payment mecha-nisms. IT-enabled devices are currently the mostpromising solution to two major impediments tosmall-balance savings mobilization in Benin.First is the difficulty of integrating proximity tocustomers, security, and cost-effectiveness in asingle deposit-service delivery model. Second isthe inability of most small-balance depositors tomake payments and move money around thecountry using their accounts. Promising tech-nologies in this area include ATMs, POS termi-nals, and mobile phone banking applications, incombination with debit cards and possibly bio-metric technology. Such devices could enable themost secure (or at least, the most closely super-vised) institutions to reach out to lower-incomeclients without incurring the costs of additional


23

branches. At least one bank indicated that ifautomation could lower the costs of reachingthese customers, it would be motivated to pursuethem.

The plans currently under way for MFIsto establish a network of “smart” ATMs, appro-priate even for illiterate clients, are also to beencouraged. Assuming such technologies weredeployed according to a sound business plan, theycould represent a worthy area for donor subsidy.Advocates for the sector should also strongly urgethat any such system set up for SFDs eventuallybecomes interoperable with the UEMOA-widesystem being implemented for banks.

7. Improve supervision methods and increasesupervision capacity within the government.Strengthening the networks will likely makemore, not fewer, demands on the CMF initially.Further pressure will be placed on CMF by thecurrent proposal to eliminate the recognized(reconnaissance) category, which will trigger aprocess of regulatory conversion and capacityupgrades for many small institutions. Both thesedevelopments mean that the CMF will needincreased capacity.

However, the demands on the CMF couldbe mitigated if the BCEAO plays a bigger role insupervising the country’s largest MFIs and net-works, as has been proposed. More of theCellule’s resources could then be directed towardsupervising the medium and smaller institutionscurrently engaged in deposit collection. However,given the fragmentation in that segment of themarket, the Cellule is likely to run into similarproblems of resource insufficiency.

Authorities should also consider intro-ducing other supervisory methods to reduce theirburden. Requiring MFIs, at least of a certain size,to have yearly audits might be one way of accom-plishing this. Relying more on off-site methodsbacked up by spot checks, rather than on-siteinspection missions as is currently the practice,would also maximize supervisory resources.

8. Consider adjusting certain provisions in theregulatory framework. The specific regulationsgoverning deposit taking should be reviewed inrelation to their effect on small-balance savingsmobilization. Specific examples include doublereserve requirements and strict term-based asset-liability matching rules for banks, and the lack ofminimum capital requirements (which encouragesmarket fragmentation) for deposit-taking MFIs.Institutions of both types might find it useful toidentify potential constraints in the current andproposed norms and to develop a joint position foradvocating to the regional authorities. Industryconsortia, such as Alafia and the bankers’ associ-ation, would be well placed to conduct suchanalysis and lobbying.

9. Review the proposed National MicrofinancePolicy through a savings mobilization lens. Thegoal of building inclusive financial sectors is notto provide a conduit for subsidized or foreignfunds, but rather to promote the intermediation oflocally generated resources. The current versionof the proposed national microfinance policyfocuses too much on access to credit, especiallythrough the establishment of a national micro-credit fund. The government should review thepolicy to determine its potential impact on low-income clients’ access to deposit services.

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ANNEX I: SUMMARY MATRIX OF FINDINGS AND SUGGESTIONS

Level Opportunities Obstacles Suggestions

Clients

- Deeply entrenched tradition of saving - Positive demand response to appropriately designed deposit products

- Client mistrust of financial institutions - Lack of data on savings preferences leading to perception that poor clients don’t save

Research client preferences to understand demand for deposit services Create a system that enables clients to differentiate among institutions Educate consumers about saving in regulated institutions

Micro

- Dense and varied landscape of deposit-taking institutions

- Inappropriately designed and expensive products that cannot compete with informal sector providers - Inability to find cost-effective business model to collect small-balance savings - Highly variable financial performance of institutions

Design and market deposit products tailored to specific low-income market segments Accelerate the use of e-payment mechanisms Create a system that enables clients to differentiate among institutions Consider consolidating institutions

Meso

- Numerous providers of management support and training for financial institutions

- Variable quality of management support to MFIs, especially from networks - Inadequate liquidity management and payment systems - Abundant non-deposit sources of portfolio financing

Consider consolidating networks Accelerate the use of e-payment mechanisms

Macro

- Low and stable inflation - Enabling regulatory framework

- Proliferation of institutions resulting from permissive regulatory framework - Authorities who are unable to cope with supervisory burden - Government initiatives that undermine strong institutions’ viability and incentives to mobilize deposits

Consider adjusting the regulatory framework Improve supervision methods and increase capacity within government Review impact of proposed National Microfinance Policy on small-balance savings mobilization


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ANNEX II: LIST OF SOURCES CONSULTED

Individuals

Jonathan Georges Aballo, Transco

Denis Acclassato, FASEC Université Abomey-Calavi

Luce Kuassi Accrombessi, PAPME

Franck Adanmado, Association pour la Promotion des Initiatives Locales

Michelle Guidigbi Adjalla, Africare

Wakil Adjibi, Vital Finance

Simon Pierre Adovelande, Présidence de la Republique

Dieudonné Affossogbe, Caisse de Financement à la Base de ACFB

Alexis A. Agassounon, CLCAM Ste. Rita, Cotonou

Janine Senou Agnikpe, AssEF

Hugues Agossou, Banque Mondiale

Corneille Agossou, PNUD

Celestin Ahonon, Continental Bank Benin

Max Franck Ahouandjinou, PADSA II

Nicolas Ahouissoussi, Banque Mondiale

Victor Akplogan, Borne Fonden

Henri Corneille P. Akuesson, Programme de relance du secteur privé

Abd-El Whahab C. Amoussa, Programme de relance du secteur privé

Patrice Amoussou, MCA BENIN

Dieudonné C. Assogba, MFE

Damienne Atigossou, CBEC

Bonaventure Avagbo, PAPME

René Azokli, PADME

Mouritalabi Badarou, Ministère des finances et de l’économie

Gabriel Bankole, Continental Bank Benin

Louis Biao, Ministère des finances et de l’économie

Zakari Bouraima, Caisse Nationale d’Epargne

Jean François Cavana, AFD

Mamadou Chabi, Chambre nationale d’agriculture

A. Rahamane Chitou, Vital Finance

Jean Dah Hounnon, Consortium ALAFIA

Dieudonné Bleossi Dahoun, MFE

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Cilia de Cock, SNV

Jean Noël de Meester, CASPA

Gabriel Degbegni, Présidence de la Republique

François-Constant Diogo, BCEAO

Yvette Doubogan, Coopération Suisse

Teddy K. Ekoue, Prism/CARE International

Camille Eteka, FENACREP

Gilbert Fanou, AssEF

Arnaud Flimatin, GRAPAD

Emmanuel Gahou, ACFB

Jean Pierre Galibert, Bank of Africa

Solange Gnacadja, CT/MAEIA

Mathieu Gracia, BASF

Albert Honlonkou, AFRIDAS

Lazare Hoton, SUD Consulting

Josiane Houehanou Agossou, CPEC

Cossi Houeninvo, Planet Finance

Latif Houndeve, MODEC

Antoine Houngbedji, SNV

Valentin Hounkonnou, FENACREP

Jelus Hounnouga, FIFA

Valere Houssou, Initiative Développement

Victorin Codjo Huedanou, FECECAM

Ousmane Kadiri, Chambre d’agriculture

Gilbert Kakpossa, Ministère de la famille

Jean-Claude Sourou Keke, CAPE

Berthe Bada Kougblenou, PNDCC

Michel Kouveglo, Initiative Développement

Eliane Kuadjo, IAMD

Jean Luc Labonte, Financial Bank

Late M. Lawson-Lartego, CARE International

Patrick Lelong, FINADEV

Martial Lipeb, ISPEC

Hyacinthe S. Lodeou, Plan International

Jean-Baptiste Mamah, Ecobank-Benin


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Wilfrid Aubert Serge Martin, La Poste SA

Maximin Megnigbeto, Mutualité Chrétienne

Nassirou Moussa, PROMIC

Hanzize Abdou Oceni, CAT/PRSP

Francis G. Oke, USAID

Pierre Marie Alex Pathinvo, BECM

Martin Pilser, Union Européenne

Amzat Bissiriou Salami, CAT/PRSP

Marcos Lauro Sampablo, Union Européenne

Prosper Soglo, Mutuelle pour le Développement à la Base

Mathieu Soglonou, Consortium Alafia

Amelie Soukossi Hessou, Plan International

Eustache Tokpa, ACFB

Resmin Tomanaga, FENACREP

Thierry Tossa, Convergence 2000

Herman Van De Voorde, PADSA

Julien Yegangbede, MODEC

S. Fiacre Armel Yemadjro, Caisse CODES

Zacharie A. Yometowu, Ministère des finances et de l’économie

Georges Zola, CMMB

Cosme Lucien Zounon, Projet National d’appui au Developpement Conduit par les Communautés

Documents

Banque de France. 2004. Rapport Zone Franc—Benin. Paris: Banque de France.

BCEAO. January 2005. “Bulletin de statistiques monétaires et financiers.” Dakar, Senegal: BCEAO.

———. 2004. Rapport annuel. Dakar, Senegal: BCEAO.

———. 2003. Monographie des systèmes financiers décentralisés (SFD). Abidjan: BCEAO.

———. 2001. Rapport annuel. Dakar, Senegal: BCEAO.

Cellule de la Microfinance. 2004. Evaluation et impacts de la microfinance sur les beneficiaries demicro-crédits. Cotonou: PADSP.

———. Bulletin trimestriel no. 003 Avril–Juin 2004: note trimestrielle de conjuncture de lamicrofinance. Cotonou: PADSP.

Centre de Recherche Appliquée pour l’Endogéneisation des Compétences (CERAPEC). December 2003.“Mise en place d’un mécanisme de concertation des structures de micro-crédits disseminés dansles départements ministeriels.” Cotonou: Government of Benin, Ministry of Planning,Forecasting, and Development.

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Commission Nationale pour le Développement et la Lutte contre la Pauvreté (CNDLP). December 2002.“Document de stratégie de réduction de la pauvreté au Bénin 2003–2005.” Cotonou: CNDLP.

Consortium Alafia. 2004. “Analyse globale des performances de l’année 2002 des IMF membres duConsortium Alafia.” Cotonou: Consortium Alafia.

———. November 2004. “Rapport des performances des membres (année 2003).” Cotonou: ConsortiumAlafia.

Dieter Seibel, Hans. July 2003. “Les Associations de Services Financiers (ASF) au Bénin: institutions demicro finance autogérées en milieu rural.” Rome: IFAD.

Goldstein Gilles, Issa Barro, and Dominique Gentil. February 1999. “Etude sur le rôle de l’impact desservices et produits d’épargne du secteur informel et des institutions de micro finances enAfrique de l’Ouest.” New York: UNCDF/SUM.

Government of Benin, Ministry of Finance and Economy. 1997. “La loi PARMEC.” Cotonou:Government of Benin.

———, Office of the President. 1990. “La loi bancaire.” Cotonou: Government of Benin.

———. December 2001. “Rapport sur l’état de l’économie nationale.” Cotonou: Government of Benin.

Government of Benin. February 27, 2003. Arrêté: Portant fixation du montant de reference desoperations réalisées en monnaie fiduciaire. Cotonou: Government of Benin.

———. May 5, 2004. Arrêté: Portant fixation du taux d’intérêt legal en République du Bénin pourl’année 2004. Cotonou: Government of Benin.

———, Ministère de la Famille. 2005. “Présentation du Fonds d’Appui à la Solidarité Nationale et àl’Action Sociale (FASNAS).” Cotonou: Government of Benin.

Gracia, Mathieu. 2000. “Apport de la Banque Ambulante aux Systèmes Financiers Décentralises et auxOpérateurs Economiques” Paper presented at the International Symposium on Microfinance andthe Promotion of Micro- and Small Enterprises, 12–14 June 2000, Praia, Cape Verde.

Honlonkou, Albert N., Denis H. Acclassato, and Célestin Venant C. Quenum. September 2001.“Problématique de remboursement des crédits dans les systèmes financiers décentralisés etgarantie de prêts aux petits opérateurs économiques au Bénin.” Geneva: ILO.

IFAD. March 2005. “Document du Fonds International de Développement Agricole: Evaluation duprogramme du pays.” Rapport N° 1624-BJ. Cotonou: IFAD.

———. “La collaboration entre le gouvernement, le FIDA et les ONG: Etude de cas sur l’ONGSYPRO, projets PAGER et PROMIC.” Cotonou: IFAD.

Kalala, Jean-Pierre Muimana, and Alpha Ouedraogo. 2001. “Savings Products and Services in theInformal Sector and Microfinance Institutions in West Africa: The Case of Mali and Benin.”Nairobi: MicroSave.

PlanetFinance. December 2002. “Les produits de micro crédit disponibles à Cotonou, Abomey Calavi, etPorto-novo au Bénin.” Cotonou: PlanetFinance.

UEMOA. Directive No. 07/2002/CM/UEMOA relative a la lutte contre le blanchiment de capitaux dansles états membres de l’union économique et monétaire ouest-africaine.

UMOA. 2003. Rapport Annuel de la Commission Bancaire. Abidjan: UMOA.

UNDP. 2003. Rapport sur le Développement Humain au Bénin. Cotonou: UNDP.

———. 2003. “Rapport sur le développement Humain au Bénin (année 2003).” Cotonou: UNDP.

World Bank. 2003. Benin: note sur la pauvreté. Cotonou: World Bank.