Deepening Financial Inclusion In West Africa

A few weeks ago the Central Bank of the eight countries of the West Africa Economic and Monetary Union (WAEMU), BCEAO, shared the good news that in the last five years the banked population in the region increased by more than 5% from 9% in 2006 to 14.3% at the end of 2011.  Postal banks and microfinance institutions that have a specific legal status in the region are now serving close to 9% of the population. The other 5% is served by commercial banks.

A man and woman sit holding loan checks

Photo Credit: Mary Thibaut

This highlights the continued importance of the microfinance sector for providing access to financial services to low income people. But it also shows there is still a long way to go. Moreover, wide disparities remain from one country to another with 2.6% banked population in Niger against 28.3% in Benin.

In 2012, the new microfinance regulation has been finally adopted by all eight WAEMU countries.The new regulatory framework could change the financial inclusion landscape in the next years. It opens the way for other institutional forms than financial cooperatives/mutual structures prevalent in the region, such as limited companies, and greenfield banks to provide financial services to low income people. BCEAO also introduced risk-based supervision with the banking commission and BCEAO committed to oversee large MFIs. Along with these changes, key initiatives such as the creation of deposit insurance funds, a public credit registry, and financial consumer protection are high on BCEAO’s agenda.

From 2001 to 2011, the amount of deposit mobilized and outstanding loan portfolio of microfinance institutions have more than quadrupled, registering an average annual growth rate of respectively 16% to 18%. At the end of 2011 there were 759 microfinance providers with close to 4700 branches throughout the region. These institutions continue to be particularly important in mobilizing savings as they hold 20% of the money stock.

West Africa has become a dynamic region when it comes to mobile banking.  The current relatively permissive regulatory environment makes it attractive for branchless banking activities. Eighteen mobile network operators are currently active in the region with a new player entered the market in Côte d’Ivoire in 2012. The penetration rate of mobile phones continues to growth with an annual increase of 9.4% in 2012 for an average penetration rate at 70.2% in the region (Source: Wireless Intelligence, Q4, 2012).

Mobile money and branchless banking services are already offered in six out of the eight countries of WAEMU through the deployments of three mobile operators, three nonbank e-money issuers, and one bank that developed its own product. Some MFIs and banks are partnering with these actors while others are developing their own mobile banking solution. MFIs want to play a more active role and some of them applied in 2012 for being licensed as nonbank e-money issuers. In Côte d’Ivoire where the penetration rate is the highest of the region (92%), in 2012 there were 2.6 million clients registered for mobile money services with two mobile operators. In 2012, one of them entered the narrow group of MNOs (11 around the world according to a recent study by CGAP) that have more than 1 million registered customers and more than 200,000 active customers.  In this context, to advance financial inclusion in the region through mobile money and branchless banking services, BCEAO engaged in 2012 an open dialogue with the major players in the region between the private sector, public sector, and regulators.

Despite this progress, financial inclusion remains at a low level and below the ambitious objective of 20% for the region as forecasted in BCEAO’s regional action plan 2007-2012. Diverse constraints can explain this situation including the fact that some large microfinance institutions have gotten into trouble in this period. That has affected the health of the sector and highlighted some of the challenges in management and governance of these institutions. The deteriorating health coupled with the relatively weak supervisory capacity in the region raises the concern for the protection of depositors.

BCEAO therefore also adopted in 2012 an action plan to address these weaknesses and various parties – including the Central Bank, Banking Commission, Ministries of Finance and National Microfinance Associations – have committed to take actions to improve the microfinance sector. Funders stand by to support these actions and improvements.

In 2013, new financial inclusion strategy for the next five years will be adopted for the region. The starting point will be: “an account for all” with the requirement for all financial service providers to offer a basic bank account with a package of free services without any condition for a minimum regular income as per now.

The year 2012 laid the foundations for major initiatives to fill the financial inclusion gap in the region. 2013, has to be a year of action on these fronts to translate good intentions into concrete changes for people at the base of the pyramid. In addition to the Central Bank and private actors, commitment of each Government of the eight countries in WAEMU will be key to success.

 

------- Corinne is CGAP's regional representative in West Africa, and Djibril is a microfinance specialist, also at CGAP.