Banking for all in West Africa

A few weeks ago, the Central Bank of West African States (BCEAO) announced some good news: over the past five years, the proportion of the population that is banked in the region has increased by more than 5 percentage points, from 9 percent in 2006 to 14.3 percent at the end of 2011.

Postal banks and microfinance institutions, which have a special legal status in the region, serve nearly 9 percent of the population, while the remaining 5 percent are served by commercial banks.

This development reflects the important role that the microfinance sector continues to play in providing access to financial services for low-income people. It also indicates that there is still a long way to go, especially since there are still significant disparities between countries-for example, 28.3 percent of the population is banked in Benin, compared to only 2.6 percent in Niger.

See also: Banking Recruitment in Africa

New microfinance regulations

In 2012, all eight countries (Mali, Senegal, Benin, Burkina Faso, Côte d’Ivoire, Togo, Niger and Guinea Bissau) of the West African Economic and Monetary Union (WAEMU) finally adopted the new microfinance regulations. This new regulatory framework could change the landscape of financial inclusion over the next few years.

It opens the door to legal forms other than financial cooperatives/mutual funds, which predominate in the region, and allows, for example, limited companies such as “Greenfields” to offer financial services to low-income people.

The BCEAO has also introduced a risk-based supervision mechanism and, together with the Banking Commission, will supervise large microfinance institutions (MFIs). Other important initiatives are also among the BCEAO’s priorities, such as the creation of a deposit guarantee fund, the establishment of a credit bureau, and the protection of consumers of financial services.

From 2001 to 2011, the volume of deposits mobilized and the outstanding loan portfolio of microfinance institutions more than quadrupled, growing at an average annual rate of 16 and 18 percent, respectively. At the end of 2011, there were 759 microfinance institutions and nearly 4,700 points of service across the region. These institutions continue to play a particularly important role in savings mobilization, holding 20 percent of the money supply.

In this context, it is worth noting the dynamism of West Africa’s mobile banking sector. The current relatively flexible regulatory environment is also conducive to branchless banking. Eighteen mobile operators are currently active in the region, and a new player entered the Côte d’Ivoire market in 2012. Cell phone penetration continues to increase, with annual growth of 9.4 percent in 2012, and averaged 70.2 percent for the region (Source: Wireless Intelligence, Q4, 2012).

Remote banking financial services are already offered in six of the eight WAEMU countries through seven players: three cell phone operators that have deployed a “Mobile Money” product, three non-banking institutions that issue e-money, and one bank that has developed its own product. Some MFIs and banks are partnering with these players, while others are developing their own mobile banking solution.

MFIs intend to play a more active role in this area, and some of them applied in 2012 to be licensed as non-bank e-money issuers. In Côte d’Ivoire, a country with the highest penetration rate in the region (92 percent), two mobile operators had a total of 2.6 million registered customers for mobile money services in 2012. That same year, one of them joined the elite club of mobile operators (there are 11 in all worldwide, according to a recent CGAP study) with more than one million registered mobile money customers and more than 200,000 active customers.

In an effort to advance financial inclusion in the region through these new types of services, BCEAO engaged in open dialogue with key stakeholders from the private sector, public sector, and regulatory authorities in the region in 2012.

Despite these advances, financial inclusion remains low in the region and falls short of the ambitious target of 20 percent that BCEAO set in its 2007-2012 action plan. There are a number of reasons for this situation, including the fact that some large microfinance institutions have experienced difficulties during this period. These situations have had a negative impact on the health of the sector and highlighted some challenges in the management and governance of these institutions. This deterioration in the situation of MFIs, combined with weak supervisory capacity in the region, raises some concerns about depositor protection.

In 2012, the BCEAO adopted an action plan to address these weaknesses, and various stakeholders (including the Banking Commission, Ministries of Finance, and national microfinance associations) have committed to taking steps to improve the health of the microfinance sector. Donors are ready to support these actions and improvements.

In 2013, a new regional financial inclusion strategy will be adopted for the next five years. It will be based on the principle of “one account for all”: all financial service providers should now be required to offer a basic bank account and free services without minimum regular income requirements.

While 2012 laid the groundwork for a number of major initiatives to advance financial inclusion in the region, 2013 must be a year of action: it is now a matter of turning these good intentions into concrete changes for those at the bottom of the income ladder. In addition to the intervention of BCEAO and private actors, success will require the mobilization of the governments of each of the eight WAEMU countries.

Corinne Riquet is GAP’s regional representative for West Africa and Djibril Maguette Mbengue is a microfinance specialist, also with CGAP.