Monetary and Fiscal Policy

Overview of the Microfinance Sector in Cameroon: Regulation and Prospects

Introduction

Microfinance therefore plays a very important role in developing countries, and Cameroon is no exception. The percentage of the total population with access to banking services remains very low, despite a steady rise from 27.8% in 2018 to 33.1% in 2022 (APPECAM, 2022). According to official statistics, as at 31 December 2022, the BEAC counted 2,809,986 bank accounts in 15 banks, even though the country has a population of no less than 28 million.

The informal sector plays too large a role in the economic system, employing 90% of Cameroon’s workers and contributing almost 60% of GDP. The World Food Programme (2024) finds that over 55% of Cameroonians live in poverty which affects several aspects of their lives – from health to education, living conditions and work among others. 37.7% of people are severely impoverished. This article looks at the Microfinance Sector in Cameroon, outlines a brief snapshot of related regulation and proposes recommendations to improve the functioning of the sector.

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Overview of the Microfinance Sector

Microcredit plays a major role in financial inclusion by offering financial products to individuals and businesses who cannot meet the requirements of financial institutions such as banks. Usually, such businesses operate in the informal sector and over 90% of employees re trapped in informality (Kouete, 20220).

There were 351 Microfinance institutions in Cameroon, bring the total number in the CEMAC region to 491 (Tchofo, 2023). According to the Banks of Central African States – the central bank for central African countries – the total assets of MFIs were estimated at FCFA 1,422 billion in 2021, rising to FCFA 1,756 billion in 2022. The majority of these came from customer deposits, which grew from FCFA 1,076 million to FCFA 1,306 million. The contribution from MFIs in Congo saw the largest contributions with 59% of total assets and 30% of deposits.

Credit from MFIs were estimated rose 24% to FCFA 892 million in 2022, with the greatest contribution coming from Cameroon and Chad at 29% of the grand total. Net credit was FCAF 816.4 billion, a 21% increase from 2021 driven by short-term credit (FCFA 313 billion), medium term loans (FCFA 182 billion) and long-term credit estimated at (FCFA 252 billion). Because of the place that microfinance institutions now occupy in the Cameroonian economy, their working methods, their proximity to customers, their resources and their targets, we share, with the father of microfinance, the idea that it is imperative to regulate this sector of activity: “microfinance must be better regulated.

Governments need to put in place regulatory frameworks for these activities. This will enable the sector to be opened up more widely, particularly to private banks, which are beginning to take an interest in it, provided that their objective is not just to make money. Otherwise, they will simply be an institutionalized version of the traditional loan sharks. At the same time, supervisory bodies need to be put in place to ensure that the activities of the various institutions are well-founded.

2. Microfinance Regulation in Cameroon

Microfinance institutions, like other organisations in Cameroon, operate within the framework of OHADA (Organisation pour l’Harmonisation en Afrique du Droits des Affaires). The OHADA treaty governs the activities of cooperatives and MFIs and is divided into four main parts. The first part is general guidance on the formation of cooperative societies in Africa, guidance on what should be done in the event of the dissolution of a cooperative society, penalties and sanctions and other matters relating to the activities of cooperatives across Africa (OHADA, 2011).

Meanwhile, COBAC’s microfinance regulations were implemented in 2002 after huge losses in the 1990s and irregularities and lack of accountability in the conduct of microfinance activities. The 2002 microfinance regulation divides MFIs into three categories, with different minimum capital requirements, depending on the type and form of loans they make to their clients. COBAC regulates and ensures regular reporting of Microfinance institutions via a centralized platform. We provide a brief overview of the most important Microfinance regulations below.

All managers must be approved by COBAC and investors and institutions in independent MFIs must adhere to strict disclosure requirements.
Articles 12 and 13 distinguish between microfinance institutions operating under the aegis of an umbrella company such as CamCCUL and those operating independently.
There are specific liquidity and disclosure requirements that prevent MFIs from engaging in risky lending and minimising non-performing loans (Regulation MFI R-2017/02; MFI R-2017/02; EMF R-2017/04).
Several amendments have been created to update the previous law and cover management compensation, investor activity, quotas on lending to MFI partners and investors, risk management and reporting and auditing.
MFIs are required to put in place a number of procedures ranging from credit policy to lending policy. They must also adhere to strict know-your-customer and anti-money laundering requirements set by COBAC and national legislators in the CEMAC region.
The interest rate must be capped at an effective overall rate to protect consumers.
The regulator, COBAC, equally has a platform where MFIs are required to submit periodic financial documents to ensure effective monitoring of their activities.

Recommendations

MFIs should be required to disclose their interest rates to regulators on a quarterly basis and these rates should be visible on their websites. Customers should also be able to report banks that charge excessively high rates. Currently, there are no such mechanisms to strengthen the work of regulators.
Microfinance regulations should propose a clearer methodology for calculating banks’ liquidity ratios and minimum liquidity requirements should be communicated to regulators.
MFIs should also segregate their lending to individuals and institutions into categories such as agriculture, energy, manufacturing, etc. so that regulators and civil society can better understand which sectors of the economy are receiving funding and which are not. Cameroon’s microfinance regulations have progressed over the years to protect the interests of investors and borrowers.

Conclusion

With over 419 MFIs in the CEMAC sub-region and 351 in Cameroon, policy makers should ensure that these standards and laws are applied in all banks. The COBAC platform, currently centralised, is a starting point, but a disclosure format should be provided to banks and MFIs. The public should be made more aware of the level of interest rates charged by banks and the overall effective interest rate should be published quarterly to help individuals and businesses make economic decisions and plan long-term investment.

Reference

Afrique24 TV. (2024). Cameroun : 4,7 milliards de FCFA de crédits octroyés aux populations entre 2018 et 2022. https://africa24tv.com/cameroun-47-milliards-de-fcfa-de-credits-octroyes-aux-populations-entre-2018-et-2022#:~:text=Au%20cours%20des%20cinq%20derni%C3%A8res,33%2C1%20%25%20en%202022.
COBAC Regulation EMF R-2017/04/ on corporate governance in microfinance institutions.
COBAC Regulation MFI R- 2017/05 laying down the terms and Conditions for the Accreditation of Microfinance Institutions their managers and External Auditors.
COBAC Regulation MFI R-2017/03 on microfinance capital requirement for category two and three Microfinance Institution.
COBAC Régulation MFIR-2017/01 on the legal forms of Microfinance institutions adopted on 24/10/2017 in Libreville (Gabon).
COBAC Regulation MFIR-2017/05 laying down the terms and conditions for the Accreditation of Microfinance institutions, their managers and External Auditors
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