35827 BENIN COUNTRY-LEVEL SAVINGS ASSESSMENT CGAP SAVINGS INITIATIVE August 2005 Brigit Helms, Lead Microfinance Specialist, CGAP Rani Deshpande, Microfinance Analyst, CGAP Mark Pickens, Associate Microfinance Analyst, CGAP Nazaire Sado, BIM 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 BENIN - COUNTRY-LEVEL SAVINGS ASSESSMENT EXECUTIVE SUMMARY This report summarizes the results of the third test of the Country-Level Savings Assessment Toolkit being developed 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, financial institutions (micro), supporting infrastructure (meso), and policy (macro). It concludes with suggestions for 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-run banks, mistrust of the banking system is still widespread. At the same time, a lack of data on client patterns and preferences with respect to savings perpetuates a widespread perception that low-income Beninese do not or cannot save. In reality, there is a deeply entrenched tradition of saving in Benin. Much of it occurs in the informal sector. Despite the number and variety of formal deposit-taking institutions, they have been largely unsuccessful in competing with informal deposit service providers in terms of costs and convenience. Moreover, the safety of savings in formal institutions is not guaranteed because institutional financial performance is highly variable. The quality of management support available to retail institutions is also variable, although training 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 and networks have not established internal liquidity management mechanisms, and they must accomplish this task by transacting with banks. Easily available bank refinancing, along with donor and government lines of 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 in Benin significantly hinders small deposit mobilization, although some conservative prudential ratios reduce the attractiveness of deposits for banks. Regarding MFIs, the framework is, if anything, too permissive, resulting in a plethora of often weak deposit-taking institutions that cannot be effectively monitored with current supervisory resources. Also of concern are state-run initiatives that undermine strong MFIs' viability and incentives to mobilize deposits. This analysis suggests nine strategies to improve small deposit mobilization in Benin that which warrant 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 of specific low-income client niches. 3. Create a system that enables the public to distinguish among different types of institutions based 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 match their size. 6. Accelerate the use of e-payment mechanisms to integrate proximity to customers, security, and cost-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 attractiveness of deposits as a source of funds. 9. Review the proposed National Microfinance Policy through a savings mobilization lens. 1 COUNTRY-LEVEL SAVINGS ASSESSMENT INTRODUCTION quality and quantity of deposit services available to low-income households. This report summarizes the results of CGAP's The assessment draws on (1) analysis of country-level savings assessment in Benin. The existing studies and information on demand assessment was conducted to test a Country-Level levels, institutional capacity, and the macro Savings Assessment Toolkit being developed as environment in Benin (see Annex II for the list of part of CGAP's Savings Initiative.1 The purpose documents consulted); (2) interviews with 55 of the toolkit is to help government agencies, informants related to small deposit mobilization donors, and other interested parties define poten- in Benin during the in-country assessment carried tial strategies for increasing poor people's access out July 11­23, 2005 (see Annex II for the list of to high-quality deposit services. individuals consulted); (3) a focus group with Deposit services play multiple roles in representatives of 12 microfinance institutions development. For the economy, collecting large (MFIs), who provided information on their numbers of small-balance deposits produces deposit products for this study; and (4) visits to pools of capital that can be efficiently invested. financial institutions to collect information on Financial institutions can also derive substantial savings products.3 benefits from deposit mobilization, including customer acquisition, product diversification, and Defining Savings: Poor people save in vari- access to a potentially inexpensive and stable ous forms--financial and non-financial, formal source of funds. Most important, well-designed and informal. The focus of the assessment is deposit services can help low-income clients on deposits in formal financial institutions, build a cushion against economic shocks, defined as non-compulsory liabilities that come from clients. enabling poor households to smooth consumption and reduce vulnerability.2 The toolkit examines evidence on Overview of savings in the Beninese demand for deposit services among low-income economy and financial system clients and identifies opportunities and constraints to meeting that demand. It examines three levels Benin's combination of political and economic of the financial system: (1) the capacity for small stability should, in theory, provide highly favor- deposit mobilization among financial service able conditions for the mobilization of financial providers ("micro" level); (2) financial infra- savings. Inflation has been low and steady for the structure and second-tier support for the micro- past several years, averaging 2.7 percent between level institutions to reach scale ("meso" level); 1999 and 2002. The economy has simultaneously and (3) public policies and government entities registered impressive performance, growing at an that create an enabling environment for savings average annual rate of 8 percent over the same mobilization ("macro" level). It concludes by period. However, this drops to only 2.3 percent identifying promising strategies to improve the when adjusted for inflation and population growth. Moreover, 2004 performance is widely __________________________ expected to be worse, as the economy suffered 1 For more information on CGAP's savings initiative and shocks to two of its main drivers: cotton farming information on savings mobilization visit the CGAP and trade with Nigeria. The country's 2003 GNI Savings Information Resource Center (SIRC) at of $3 billion ($440 per capita) is therefore not www.cgap.org/savings. expected to grow significantly. 2For more information on the consumption smoothing use of deposit services by low-income people, see Stuart The small size of the economy partly Rutherford, 2001, The Poor and Their Money, New Delhi: explains the small size of Benin's banking sector. Oxford University Press; Zeller, Manfred, March 2000, "Product Innovation for the Poor: The Role of In 2004, the country's nine banks had 42 branches Microfinance," IFPRI Policy Brief No. 3, Washington, D.C.: International Food Policy Research Institute; and __________________________ 3 Goldstein Gilles, Issa Barro, and Dominique Gentil, The assessment team consisted of CGAP staff Brigit February 1999, "Etude sur le rôle de l'impact des services Helms, lead microfinance specialist; Rani Deshpande, et produits d'épargne du secteur informel et des institutions microfinance analyst; and Mark Pickens, research analyst; de micro finances en Afrique de l'Ouest,'' New York: and consultant Nazaire Sado. Consortium Alafia organized UNCDF/SUM. meetings and mission logistics for the team. 3 BENIN Table 1: Key Economic and Banking Indicators 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 Sources: World Bank, BCEAO, UNDP, CNE.6 Note: Totals for branches and accounts are based on the most recent data available (2003­2005) from BCEAO reports on the banking sector and a survey of 79 MFIs, the CNE, and CGAP estimates. Not all of these institutions take deposits; when only authorized deposit-taking institutions are counted, the figure for population per branch rises to just under 12,000:1. See Table 3 for breakdown of branches by type of institution. total, putting the ratio of people per bank branch These figures must be viewed in the con- at almost 161,000:1. The proportion of econom- text of the complete disappearance of the sector ically active adults with bank accounts is esti- that occurred as a result of a banking crisis in the mated at a maximum of 7 percent, and liquid late 1980s. In a crash that preceded a generalized liabilities and savings in banks are only 26.4 crisis in Benin's then-communist economy, all percent and 16.4 percent of GDP, respectively.4 three state-run banks failed, and 11 billion FCFA The latter figures are roughly similar to those in (US$21 million) of deposits were frozen. While neighboring Togo (23.6% and 16% respectively), two of the banks were liquidated, clients of the which is similar from a size and economic devel- failed Caisse Nationale de Crédit Agricole were opment standpoint, but lower than the region's transferred to the newly created FECECAM, now economic powerhouse Nigeria (28.5% and 20% the country's largest network of savings and cred- respectively).5 it cooperatives. The only large financial institu- tion to survive the crisis was not a bank, but rather the Caisse National d'Epargne (CNE), the finan- cial services arm of the post office.7 __________________________ 4 The 7% figure assumes each bank account belongs to a unique user; stakeholder interviews indicated that a rate of __________________________ 4­5% was more likely. 6 Unless otherwise specified, all BCEAO data cited in this 5 Liquid liabilities and bank deposits figures are from paper were drawn from documents published by the head World Bank Financial Structure Database, 2003, available office in Dakar, Senegal. at www.worldbank.org/research/projects/finstructure/ 7The CNE is currently in the process of becoming inde- database.htm. pendent from the post office. 4 COUNTRY-LEVEL SAVINGS ASSESSMENT CLIENTS: DEMAND FOR DEPOSIT balance savings is usually addressed only tangen- SERVICES tially and in the context of informal savings mech- anisms. The one study that touched most directly on savings preferences contradicts the conven- Main finding: Steady deposit growth uncon- nected to credit belies the common assump- tional wisdom. It indicates that 70 percent of tion that Beninese clients only save to access clients of two well-known MFIs did save without loans, although consumer confidence remains necessarily expecting a loan later.9 a barrier. This result suggests that beliefs about savings may be shaped by particular institutional La génération méfiante (the mistrustful policies as much as actual client preferences or generation) behavior. For example, in many deposit-taking institutions, loan sizes are based on a multiple of The relatively recent memory of the banking client savings. It is therefore possible that insti- crisis, along with the deep devaluation of the tutions themselves view deposits mainly as collat- regional currency in 1994, largely explains the eral for a loan. Deposit products are therefore not often-cited problem of client mistrust of financial designed to attract truly voluntary savings (for institutions. One interviewee termed those who example, through simple withdrawal procedures lived through this crisis "la génération méfiante," and attractive interest rates). Institutions' belief because the memory of the loss of their savings that clients only save to get loans is thus commu- continues to color their savings behavior today. nicated to clients through their product design and However, client mistrust is far from lim- may end up becoming a self-fulfilling prophecy. ited to the banks. Anecdotes abound of fly-by- night institutions and unscrupulous informal oper- Hope for the believers ators who have made off with client savings. For honest institutions, this translates into an uphill Despite the dearth of studies on savings behavior battle to convince clients that their deposits are in Benin, other types of evidence support the safe. The lack of deposit insurance for the micro- prevalence of saving. In the informal sector, the finance institutions (MFIs) does not help this widespread use of tontines (ROSCAs) attests to cause.8 Nor does legal authorization to take how deeply rooted the act of putting something deposits seem to make much of a difference. aside is in Beninese culture. In the same study Stakeholders indicate that clients do not under- cited above, tontine participation among clients of stand the difference between institutions that are the two MFIs studied was 81­89 percent. Another licensed by the Ministry of Finance and BCEAO paper estimated the volume of savings mobilized to mobilize deposits, and those that are not. annually by tontines at 1 billion FCFA (roughly $2 million) in 1995.10 Lack of confidence is mutual Perhaps an even better demonstration of the demand for savings services is the success of Many institutions seem to believe that poor clients informal banquiers ambulants. These roving are incapable of saving. Many stakeholders savings collectors mobilize substantial amounts commented that (1) most clients are too poor to of money in daily deposits as small as 100 FCFA save, so improving savings mobilization means and typically charge the equivalent of one day's increasing incomes, for example through access deposit per month for their services. In other to credit; and (2) when clients do save, it is only words, for the right deposit service, demand is so to access a loan. strong that clients are willing to accept a negative These widespread beliefs are not neces- interest rate. sarily backed up by documented evidence on __________________________ client savings practices. Studies focusing on 9 Matul, Michal. October 2000. "IKM Case Study: microcredit are plentiful, but the subject of small- FINADEV, Benin" and "IKM Case Study: PADME, Benin." Paris: Planète Finance. 10 __________________________ Gracia, Mathieu. "Apport de la Banque Ambulante aux Systèmes Financiers Décentralises et aux Opérateurs 8 MFIs are referred to as systèmes financiers decentralisés Economiques" Paper presented at the International (SFDs) in West Africa. The two terms are used inter- Symposium on Microfinance and the Promotion of Micro- changeably in this paper. and Small Enterprises, 12­14 June 2000, Praia, Cape Verde. 5 BENIN According to the only study available on The spike in deposit growth rates among banquiers ambulants, clients seemed to value two non-FECECAM MFIs beginning in 2001 was due aspects of the service most highly: convenience, to the launch of several credit-only MFIs mobiliz- and their interactions with a particular individual. ing compulsory deposits. However, in absolute Convenience relates to the ability to deposit daily terms, increases among institutions that collect or on a schedule that suits the client; the fact that voluntary deposits have historically been higher the collector comes to the client; and the speed of than for credit-only institutions. transactions (three minutes on average). Clients appreciate that savings collectors come from the Much of this increase comes from the area, speak the local language, and demonstrate CNE, whose deposits have experienced particular- "the qualities of a good person."11 ly fast growth. As shown in Figure 2, CNE deposits have almost doubled in the last four years (from Institutional experiences in the formal $31.5 million to $54.8 million), despite the fact that sector also indicate a strong demand for deposit the institution does not offer credit. It is currently services. As illustrated in Figure 1 and Table 2, the largest non-bank deposit-taking institution and total deposits have increased steadily among mobilizes more savings than several banks as well. formal sector institutions, growing by at least The demand for CNE's savings services--both in twice the rate of the overall economy in both volume of savings as well as growth--is strong banks and non-bank institutions between 2000 evidence of the independent demand for savings, and 2003. completely unlinked to credit. Figure 1: Deposits over Time, by Type of Institution 500,000 )snoillim(AFCF 400,000 Others SFD 300,000 FECECAM 200,000 CNE Banks 100,000 0 1999 2000 2001 2002 2003 Source: BCEAO. Table 2: Deposit Growth Rates 2000­2003, by Type of Institution 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. __________________________ 11Ibid. 6 COUNTRY-LEVEL SAVINGS ASSESSMENT Figure 2: Deposit Growth at the CNE 35,000 30,000 )snoillim(AFCF 25,000 20,000 15,000 10,000 5,000 0 1999 2000 2001 2002 2003 Source: CNE statistics. Figure 3: FECECAM Savings Behavior During the Crisis )snoillim(AFCFoiloftroP 15,000 25,000 20,000 10,000 15,000 5,000 10,000 5,000 0 0 DepositsFCFA(millions) Jan-00Mar-00May-00Jul-00Sep-00Nov-00Jan-01Mar-0May-0 1 1 1 Jul-0Sep-0Nov-0 1 1 Portfolio Deposits Source: FECECAM statistics. Further evidence of demand for savings Some observers attribute FECECAM's services independent of the demand for credit success in mobilizing deposits to its broad out- comes from FECECAM. Figure 3 shows that reach, which could be said of the CNE as well. deposits continued to grow even during However, FECECAM and the CNE do not reach FECECAM's recent crisis, when the loan portfo- as far outside of urban areas as some smaller insti- lio volume and quality decreased precipitously, tutions. Their attraction for small depositors is eventually necessitating significant write-offs. thus no doubt due mostly to these institutions' Finally, credit-only institutions report that apparent security and stability, perhaps stemming their clients demand savings services. When from a perceived state guarantee (in the case of PAPME introduced voluntary savings products in the CNE and FECECAM). 2000, it saw deposits rise from less than 200 Despite this anecdotal evidence, few million FCFA ($400,000) to 4.5 billion FCFA institutions have made proactive attempts to study ($8.5 million) in five years, despite no active client savings habits and preferences. Thus, little marketing campaign.12 PADME, currently the is known about what actually motivates small largest credit-only institution, is also seeing depositors to move their money from the mattress demand for voluntary deposits, with compulsory (or the canari) into a financial institution.13 savings currently in excess of the level required __________________________ by the portfolio. Vital Finance has also received 12Until it started mobilizing savings, PAPME was the requests from its clients to keep their savings. country's largest credit-only institution. 13A canari is an earthenware jar often used to hide money in Beninese homes. 7 BENIN MICRO: INSTITUTIONAL CAPACITY the Beninese enjoy greater physical access to finan- AND SUPPLY OF DEPOSIT SERVICES cial service providers compared with other devel- oping countries, even much wealthier ones. Main finding: Current and potential suppliers of small-balance deposit services are plentiful, Table 3: Distribution of Points of Service, by but offer varying quality. Perceptions of high Type of Institution costs prevent most financial institutions from prioritizing voluntary savings mobilization. Type of institution Number of branches Banks 42 A rich and diverse landscape of providers CNE 96 Both the formal and informal sectors in Benin SFDs feature numerous providers of deposit services. In Savings and credit the informal sector, the three main forms of cooperatives 293 savings mobilization are the tontine, the banquier Associations and NGOs 222 ambulant, and the groupement de crédit et d'épargne (GEC). Unfortunately, quantitative Donor projects with financial service components 35 information on such informal mechanisms is scarce, and the available data vary significantly. Private companies 19 While a 1992 study found 11,000 banquiers GEC (formally recognized) 739 ambulants plying their trade, a 1995 paper esti- Total 1,446 mated their number at only 440.14 A more recent Source: CMF (2005), CNE (2005), and BCEAO survey conducted by AgeFIB indicated that there (2004) statistics. were 1,400­1,800 informal financial service providers in operation, mostly GEC. Current However, not all SFDs are licensed to numbers from the Ministry of Finance count only mobilize voluntary deposits. While all savings and 793 GEC, but these are likely to only be groups credit cooperatives can take deposits by legal that have been formally recognized. definition, associations and NGOs must negotiate permission on a case-by-case basis with the The Ministry of Finance does not monitor Ministry of Finance and BCEAO. Donor projects the amounts of savings mobilized informally. The rarely mobilize voluntary savings; at this time, most recent estimate of this amount was made in neither do any private companies. By definition, 1995 and indicated that informal deposit schemes GEC do mobilize members' voluntary savings; mobilized approximately 10 billion FCFA annu- however, they are not "licensed" by the authorities ally (almost $19 million).15 No figures were avail- but rather only "recognized." While this legally able for the amount of savings mobilized by GEC. makes them formal-sector entities, GEC are not In the formal sector, the most recent supervised.16 When only licensed deposit-taking numbers available indicate that Benin has 1,441 institutions are counted, the ratio of population to legally recognized points of access to financial points of service drops to just under 12,000:1. services (see Table 3). The three major types are From a legal point of view, then, clients' options banks, the CNE, and various types of SFDs for voluntary deposit services are more restricted (systèmes financiers decentralisés, or MFIs). SFDs than branch numbers would suggest. include savings and credit cooperatives, NGOs A vast majority of deposits are concen- and associations, donor projects with financial trated in a small number of institutions. As illus- services components, private companies, and GEC. trated in Table 4, as a group, banks mobilized the With one point of service for every 4,682 people, lion's share of savings, with almost 364 billion __________________________ FCFA ($689 million) in deposits. This is 11­12 14Kalala, Jean-Pierre Muimana and Alpha Ouedraogo, times greater than the next largest deposit-taking 2001, "Savings Products and Services in the Informal institutions, the CNE and FECECAM, respect- Sector and Microfinance Institutions in West Africa: The ively. Although FECECAM's share of SFD Case of Mali and Benin," Nairobi: MicroSave; Gracia. __________________________ 15Nine billion FCFA of this amount was estimated to be 16Proposed changes in the IMCEC law (commonly known mobilized by banquiers ambulants and the remainder by as the PARMEC law) will eliminate "recognition" and give tontines. See Gracia. GECs up to two years to become authorized. 8 COUNTRY-LEVEL SAVINGS ASSESSMENT Table 4: Key Indicators on Deposit-taking Institutions Deposits (FCFA Clients/ Average deposit millions) accounts 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 Sources: BCEAO, CNE, CMF. All figures are the latest available: bank numbers from end 2003; CNE numbers from May 2005; FECECAM and SFD numbers from end 2004. deposits has been declining over the last few performance of these institutions (discussed years, it still represents 72 percent of deposits in below) and the density of points of service in all SFDs. It should be noted that, in terms of Benin as compared with other countries may sug- people served, the CNE and FECECAM each far gest that the sector is ripe for consolidation. surpasses all banks combined (see Table 4). Figure 5 also shows the great diversity Figure 4 indicates the level of fragmenta- of average deposit balances among the top tion in the market for deposits among SFDs, 13 deposit-taking SFDs. It is possible that where all other institutions aside from this diversity is tied to conscious targeting of FECECAM (78 institutions for which figures are different client segments by these institutions. tracked) collect only 3 percent of all deposits and Interestingly, the largest two institutions have serve 20 percent of depositors. very similar average balances, which are among Figure 5 illustrates the phenomenon in the smaller of those in the group. This distribution more detail, with the very unequal distribution of further demonstrates the significant number of deposits even among the CNE and the top 13 clients that can be attracted by small-balance deposit-taking MFIs. The variability in the deposit facilities. Figure 4: Deposit and Client Shares by Major Institutional Types 120% 3% 100% All SFDs 7% other than 7% 20% FECECAM 80% FECECAM 60% 34% 40% 83% CNE 32% 20% Banks 14% 0% % all deposits % all clients Sources: BCEAO, CNE, CMF. 9 BENIN Figure 5: Total Deposits and Average Deposit Balances at Top SFDs 35,000 800,000 30,000 700,000 600,000 Average 25,000 500,000 Deposit 20,000 Deposits 400,000 otalT 15,000 Balance 300,000 10,000 200,000 5,000 100,000 0 0 CNE PAPMECPECAssEF MDB 20002CM FECECAM APHEDD CODES CBDIBACBECChretienne MODEC Caisse MutualiteConvergence Deposits (FCFA millions) Average deposit balance (FCFA) Sources: BCEAO, CMF, 2004. Fulfilling the demand? Security Unfortunately, the sheer number and variety of Security is cited time and again as the attribute providers does not imply that client demand is clients worldwide most value in a deposit being met with appropriate deposit products. A institution, especially low-income clients.18 rough comparison of the level of savings mobi- Unfortunately, the performance of Beninese deposit lized by formal and informal sector mechanisms institutions on this front is rather variable. Although illustrates this point. In 1995, banquiers ambu- there have not been any bank liquidations since the lants were estimated to mobilize 9 billion FCFA crisis of the late 1980s, a few banks have recently ($17 million). By contrast, in 1999, all SFDs other emerged from administration provisoire; one still than FECECAM together mobilized only about 1 is under this temporary administration by the author- billion FCFA in savings. It can be assumed, then, ities.19 Bank provisioning and compliance with that formal savings equals at most around one prudential ratios is reported to be inconsistent, and tenth of that collected by the informal sector.17 several banks are undercapitalized. Nonetheless, Clearly there is room for the formal sector to bank performance is being closely monitored by the capture more market share. BCEAO and Banking Commission. __________________________ Why is it difficult for the formal sector to 18 See for example: Gardiol, I. D. "La mobilisation de compete with its informal counterparts? The fol- l'épargne. Questions clef et pratiques universelles pour la lowing analysis compares formal sector financial promotion de l'épargne. " Direct du Développement et de la service providers to informal ones. It focuses on Coopération-Suisse, 2004; Wright, G., and L. Mutesasira, "L'épargne des pauvres et ses risques relatifs" MicroSave, five factors of prime importance to low-income 2003; Rutherford S. (2002), Comment les Pauvres gèrent savers: security, proximity, remuneration, avail- leur Argent. GRET--Karthala, France; CGAP. "Stratégies ability, and minimum balance. de mobilisation de l'épargne: leçons tirées de l'expérience de quatre institutions" Focus Note No. 13. August 1998. __________________________ 19 Ouattara, Korotoumou. Email dated September 23, 2005, 17Earlier numbers are not available for SFDs because the and paper dated August 2004. "Bénin: Analyse du Secteur authorities only began tracking their performance after the Financier." Washington, D.C.: World Bank, Africa Region, passage of the PARMEC law in Benin in 1997. Finance Department. 10 COUNTRY-LEVEL SAVINGS ASSESSMENT Figure 6: Clients, Profitability, and Delinquency in Top Deposit-taking SFDs 500,000 20% 450,000 18% 400,000 16% 350,000 14% 300,000 12% entsliC250,000 10% 200,000 8% 150,000 6% 100,000 4% 50,000 2% 0 0% 2000 ASSEF CPEC MDB FECECAM CBDIBA PAPME CODES Convergence CAISSE Clients Delinquency Profitability Source: BCEAO, CMF (2003). The performance of top SFDs is also Proximity extremely variable, but their depositors do not Proximity to customers is a paramount considera- benefit from similar safety nets. Figure 6 shows tion in the attractiveness of deposit services, profitability and delinquency in the largest eight especially because clients are generally not deposit-taking SFDs by number of clients. There willing to travel as far to deposit their savings as is no discernable pattern of performance, although they are to access a loan. Although Benin has rel- a few of the institutions with the widest outreach atively many points of service, the distribution of are among the worst performing. formal sector deposit providers is far from equal At the same time, those SFDs more across the country. Figure 7 illustrates the differ- accessible to poor clients seem to be the least well ence in population per point of access to financial supervised. Certain GEC are at least registered services by départment. In other countries, the with the government, which is more than can be distribution of deposit providers is strongly corre- said for informal sector providers. Customers of lated with indicators of marginalization: the more the banquiers ambulants have no legal recourse if marginal the region, the fewer financial institution they lose their savings, making them, in theory at branches. In Benin the pattern is more uneven, but least, less secure than either SFDs or banks. the inequality of access to points of service for regulated financial service providers is clear. 11 BENIN Figure 7: Population per Regulated Financial Institution Service Point20 Figure 7: Population per Regulated Financial Institution Service Point20 __________________________ 20This map does not include GECs. 12 COUNTRY-LEVEL SAVINGS ASSESSMENT Figure 8: Net return on savings by mechanism 2,500 5,000 10,000 25,000 50,000 100,000 250,000 500,000 1,000,0001,500,0002,000,0002,500,0003,000,000 10% 0% nruterteN-10% -20% -30% -40% Monthly savings Banquier ambulant Cooperative Bank Source: Authors' calculations. Availability balances above a certain minimum). Cooperatives Immediate availability can perhaps be seen as the typically do not pay any interest on liquid savings; flip side of security. In many clients' eyes, if their however, our sample reveals rates of up to 12 savings are not available on demand, they are not percent per year on term accounts. likely to be secure. With well-developed liquidity On the face of it, banquiers ambulants management systems, banks are normally able to seem to fare the worst on this parameter, charging satisfy this requirement. Banquiers ambulants a negative interest rate. However, the services also have a good reputation in this regard, appar- they offer save customers the cost of traveling to ently making advances on future savings avail- an institution to make their deposits. Depending able with fairly quick turnaround. on where the institution is located, these costs can Cooperatives and other non-bank institu- be considerable. Figure 8 charts the net returns of tions (e.g., CNE, MFIs) are the subject of most the three options, including hypothetical travel complaints with respect to availability of funds. costs for weekly trips to the local cooperative and This is perhaps not surprising given the restric- monthly trips to the bank, for different amounts of tions on withdrawals that are written into many monthly savings.21 Under these assumptions, the cooperative deposit products, particularly require- client would need to save 36,000 FCFA ($68) per ments about advance notice for large with- month before the cooperative became as attractive drawals. Many of the financial institutions inter- as the banquier ambulant, and approximately viewed spontaneously admitted that their internal 130,000 FCFA ($246) per month before the same liquidity/treasury management systems need could be said of the bank. The lower the amount improvement. saved, the more attractive banquier ambulant's explicit negative interest rate of 3 percent per Remuneration month. Given income levels in Benin, even the Although interest rates on deposits in Benin are cooperative is likely to be unaffordable for the comparable to those in many other countries, vast majority of potential clients. inadequate remuneration was cited as an impedi- __________________________ ment to savings mobilization. The distinction 21 Assumptions: (1) Banquier ambulant collects 30 deposits between the three types of providers is clear. per month for a fee equal to 1 daily deposit; (2) client Banks are required by law to pay at least 3.5 per- makes weekly trips to local cooperative at a per trip cost of cent per year on passbook savings accounts 150 FCFA, cooperative pays no interest; (3) client makes monthly trips to the bank at a per trip cost of 5000 FCFA, (although some seem to apply this rule only to bank pays 3.5% annual interest. 13 BENIN Table 5: Entry-Level Deposit Product Features at Sample Institutions All figures in Financial Bank of CAVECA FCFA Bank Africa CPEC MDB de CBDIBA CLCAM CNE PAPME Minimum balance to 500,000 100,000 10,000 1,000 1,000 8,000 5,000 25,000 open ID and other ID card, Legal requirements 2 photos, Photocopy Photocopy ID card, photocopy to open 3 photos 1 proof of of ID, of ID, 2 photos 3 photos 2 photos of ID card, account residence 1 photo 2 photos 2 photos Enrollment Other costs Enrollment fee = 300; to open -- -- -- fee=1,000; Application Enrollment -- -- account Share = fee = 500; fee = 200 10,000 Share = 3,000 Minimum maintaining 10,000 15,000 5,000 3,000 1,000 8,000 5,000 5,000 balance Minimum withdrawal -- -- -- 1,000 -- 1,000 2,000 -- amount Minimum balance to 400,00 -- -- -- -- 50,000­ -- 25,000 earn interest 100,000 Annual interest rate 3.5% 3.5% 0% 0% 0% 3% 3.5% 2% Source: Survey of financial institutions. Minimum opening balance even this income level may be optimistic, because Although other features may make certain one-third of Beninese are estimated to have providers more or less attractive, the minimum incomes far below the poverty level ($0.27 in balance needed to open an account can inhibit rural areas and $0.48 in urban areas). Required access from the start. Banks' opening balances share purchases also add to the expense and bring effectively exclude the vast majority of the popu- down the effective interest rate on deposits in lation, explaining in large part why only 7 percent cases where such interest is paid. of economically active adults in Benin possess a Figure 9 presents a stylized summary of bank account (see Table 5 for a comparison of the comparison of different types of financial entry-level account conditions of eight deposit service providers. Note that although bank collecting institutions). This leaves the remaining services are, on balance, slightly more attractive 93% with essentially two options for their sav- than the other two, access to them is effectively ings: non-bank institutions (SFDs and the CNE) impossible for the majority of clients because of and the informal sector. the minimum balance requirement. The question Cooperatives have much lower opening that presents itself is why institutions that could balances but still pose affordability barriers with take advantage of a relatively wide-open market enrollment and application fees. Eight hundred for deposits have not developed products and to 1,000 FCFA ($1.60­$2.00) may not sound delivery mechanisms to compete effectively with prohibitive, but in Benin, it is the equivalent of a the informal sector. full day's minimum wage. Comparing fees to 14 COUNTRY-LEVEL SAVINGS ASSESSMENT Figure 9: Stylized Comparison of Savings Options Bank Cooperative Banquier ambulant Security +++ ++ + Proximity + ++ +++ Remuneration +++ ++ + Availability +++ + ++ Minimum opening balance + ++ +++ Note: The number of + characters indicates the relative attractiveness of a given product feature as offered by a particular type of provider compared to the two others. What prevents MFIs from competing more Nonetheless, a few MFIs do see potential effectively for deposits? in savings mobilization as a relatively cheaper The fundamental problem is that SFDs find it source of funding compared with bank refinanc- difficult to identify the right business model to ing, as well as a way to increase customer loyal- capture market share from the informal sector. ty.23 For these institutions, the biggest obstacle Several institutions have experimented with insti- seems to be organizational: putting in place the tutionalizing the banquier ambulant model itself systems and staff to conduct true financial inter- but have encountered problems. A benefit, in mediation, as opposed to mainly managing credit. terms of cost-effectiveness, of the banquier One of the biggest hurdles is developing manage- ambulant model is that it can be run by one ment information systems (MIS) to process person. Apparently, the temptation to have a one- deposits and cope with small, frequent transac- person business has often been too strong for tions. Although multiple donors have invested in many MFI agents. Although the banquier might developing software for different institutions, be working as the agent of an MFI, he still owns most have been focused on areas like portfolio the customer relationships--and can take the management, accounting, and financial manage- customers with him if he decides to leave.22 ment. Development efforts have also largely been conducted in isolation from one another. Worse, Failed experiments like these have they often depend on a single technician, meaning contributed to the notion among many MFIs that that the system developed is not maintained when safely mobilizing small savings is prohibitively the technician leaves. expensive. These perceptions are reinforced by assumptions about the small total amount of It is encouraging that credit-only (or cred- savings that might be mobilized, as well as the it-mainly) institutions understand the fundamental small and frequent nature of transactions in such changes necessary before they start collecting accounts. This assumption was also echoed by deposits. As the review team heard from several banks. However, the review team was not able to interviewees, "L'épargne, c'est tout un autre find costing studies conducted by financial insti- métier" (Savings is a completely different line of tutions in order to investigate the question. work). __________________________ 22Focus group with 12 MFIs, Cotonou, July 19, 2005. For __________________________ more information on client preferences regarding services 23 One practitioner estimated that his institution would be of banquiers ambulants, see Gracia. able to mobilize small savings at a 5% all-in cost. 15 BENIN MESO: SUPPORTING INFRASTRUCTURE According to this line of reasoning, networks FOR DEPOSIT MOBILIZATION should remain small and regional. However, performance of networks does Main finding: The most serious meso-level not necessarily correlate with size; UEMOA and gaps are liquidity management and payment other regions feature many examples of strong, systems for institutions that serve the poor. large cooperative networks covering countries much bigger than Benin. The quality of manage- Management support for financial institutions ment is the real determining factor in the strength of varies in quality a network, not the number of institutions it includes. Financial institutions serving the poor have a wide But quality management and technical choice of professional support services in Benin. experts are expensive, and the overall cost of these Practitioners reported having access to a number resources to the sector is multiplied as small net- of well-regarded providers, including rating, audit, works proliferate. Larger networks that can spread and IT. In addition, there is a range of organiza- human resource costs over a greater number of tions and individuals that conducts training, tech- members benefit from economies of scale, reduced nical assistance, consulting, and lobbying/advoca- cost burdens per institution, and more viable serv- cy activities. These organizations include interna- ices. From this point of view, it is encouraging that tional and local NGOs, donor projects, private at least one cooperative federation, AssEF, has consultants, and networks of retail institutions. already begun a process of internal consolidation. Despite this variety, the review team In addition, given their supervisory found little specialized expertise in savings mobi- responsibilities, the multiplication and fragmenta- lization. Moreover, the quality of service tion of networks may create opportunities for providers is reported to be inconsistent, especial- regulatory arbitrage among member institutions. ly within large networks that represent the bulk of In some countries with multiple networks, institu- the country's points of service. Cooperative net- tions have been known to switch their affiliation to works are perhaps the most important of this avoid strict supervision and/or a negative rating. group, not only because of their size but because of the special supervision responsibilities delegat- Abundant resources reduce incentives to ed to them by the Ministry of Finance. mobilize small savings The Ministry of Finance relies on Plentiful savings obtained from wealthier, easier- networks, such as FECECAM, CBDIBA, and to-reach clients and institutions--paired with con- APHHED, to ensure the safety and soundness of servatism in lending--have resulted in excess their member cooperatives through both on-site liquidity in the financial system. Savings in banks and remote inspection and monitoring. While equal 156 percent of private credit. Successful government supervisors can take a more indirect institutions have managed to capture deposits rel- or delegated approach to supervising these indi- atively effortlessly, eliminating the need for them vidual unit cooperatives, in reality, the lack of to proactively develop better deposit services. At capacity and resources within many networks has the same time, many institutions, especially forced them to become more closely involved. banks, believe there is a dearth of good invest- They may partially take over a network's respon- ment opportunities on the asset side of the balance sibilities for on-site inspections or fully take over sheet. The incentives to devote energy and the network themselves in the case of insolvency. resources to mobilizing small-balance savings are thus low to non-existent. How to strengthen the networks to prop- erly assume their responsibilities vis-à-vis their On top of this, financial institutions of all member institutions is currently the subject of types seem to have ready access to refinancing. lively debate. Some feel that the ineffectiveness Between 1998 and 2003, local commercial banks of large networks is because of their physical and extended 16 billion FCFA ($30 million) in loans bureaucratic separation from member institutions. to the microfinance sector. Bank refinancing has This renders monitoring and management support increased relative to donor funds; in 2003, bank harder to deliver and those who would deliver it loans were over 6 times greater than donor and less aware of actual conditions on the ground. government funds in the sector (see Figure 10). 16 COUNTRY-LEVEL SAVINGS ASSESSMENT Figure 10: Second-Tier Financing to MFIs by Source 12,000 10,000 )snoillim(AFCF 8,000 6,000 4,000 2,000 0 1998 1999 2000 2001 2002 2003 BOA Financial Bank Ecobank SG Benin FECECAM Budget National Source: CMF. Easy access to credit lines is less encour- For example, analysis of CNE passbook aging from a deposit mobilization perspective, account balances over 18 months reveals only 4 however. Because they do not demand the time, months when the total volume of deposits effort, and investment of mobilizing small savings decreased, and these were predictably during the from the public, bank loans can end up being holidays and the beginning of the school year. As more attractive to financial institutions even if illustrated in Figure 11, savings increase steadily interest rates are higher. from the beginning of the year through July, then The standard rationale for these credit plateau until the following January or February. lines is a "financing gap" in long-term resources Thus, even though small savers may deposit and (over 1 year in tenor), but it may be that this gap withdraw frequently, these transactions do not can be filled by currently mobilized deposits. necessarily imply volatility in the aggregate Although no formal studies have been done, balance. stakeholder interviews indicated that these deposits--even sight deposits--may be much more stable than previously thought. Figure 11: Monthly Deposit Growth at the CNE 32,000 31,000 30,000 )snoillim(AFCF 29,000 28,000 27,000 26,000 25,000 24,000 Feb-03Apr-03Jun-03 Aug-03Oct Dec -03 -03Feb-04Apr-04Jun-04 Aug-04Oct -04Dec-04Feb-05Apr-05 Source: CNE statistics. 17 BENIN Liquidity management and payment systems institutions/networks and supervisory capacity lacking than currently exist. Effective systems to manage excess liquidity Well-functioning payment mechanisms could help mitigate the disincentives it poses to accessible to low-income customers can encour- additional savings mobilization. Unfortunately, age them to deposit more of their funds. second-tier structures have not been deemed Connecting financial institutions, branches, and strong enough by the Ministry of Finance to other potential points of service, such as retailers establish their own organes financiers (essential- and ATMs, gives customers more functionality in ly cooperative banks) to manage liquidity among their accounts and better access to their money network member institutions. Nonetheless, sever- anywhere in the country. This flexibility is key al of them are currently doing it through accounts for mobilizing small savings. at commercial banks.24 Dedicated organes finan- Apparently, plans are currently under ciers would be more efficient, making excess liq- way to build an UEMOA-wide ATM network for uidity available where it is needed at a lower cost. banks. Simultaneously, MFIs in Benin are They could also facilitate liquidity transfers attempting to construct an ATM network appro- between different institutions (as opposed to with- priate for low-income clients. Making these two in the same institution or network), which several systems interoperable would give low-income stakeholders mentioned as a gap in the system. clients a level of access to their accounts that However, they would require much stronger would be unprecedented in the region. __________________________ 24One MFI is partnering with several foreign commercial banks to launch an investment bank to help it manage liquidity, among other functions. 18 COUNTRY-LEVEL SAVINGS ASSESSMENT MACRO: POLICY AND REGULATORY loans.27 Fortunately, bank performance is closely ENVIRONMENT monitored by the BCEAO, with a staff of six inspectors to supervise the country's nine banks. Main finding: The legal and regulatory frame- Non-bank institutions do not benefit from work is not a major obstacle to savings mobi- the same level of supervision. Only 191 out of lization in Benin, although the Ministry of Finance does not have adequate resources to 1,308 legally recognized SFDs are licensed to monitor the number of existing institutions. take deposits and are, therefore, supervised by the Ministry of Finance's microfinance unit (Cellule de Microfinance, or CMF). However, many non- An open regulatory framework results in licensed institutions do take deposits, even if only numerous unsupervised institutions from a limited circle of members. A vast majority Much has been written about regulatory context of deposit service providers are probably not in for microfinance in UEMOA because it operates compliance with many of the prudential regula- at a regional level and was one of the first micro- tions applied to licensed SFDs. finance-specific schemes.25 On the whole, the If the CMF were to inspect these 191 insti- framework is fairly favorable to deposit taking by tutions itself, at its current level of human non-bank institutions--perhaps too favorable. resources, it could visit each institution only once The law allows several different types of institu- every four years. Under the delegated supervision tions to offer services and imposes no minimum system, 164 individual deposit-taking institutions capital requirements--resulting in a plethora of are supposed to be directly supervised by their net- small players entering the field. The large number works. However, the largely inadequate capacity of institutions is good for access, but creates a of these networks means that the CMF must still supervisory burden that authorities are ill- take on a substantial portion of inspections itself. equipped to bear. There also seems to be a lack of It currently conducts about 50 inspections per clarity on the ground regarding which institutions year, which corresponds to the maximum theoret- are allowed to mobilize voluntary deposits.26 ically possible (see box below). From this point of In addition, certain prudential regulations view, BCEAO's increasing role in supervising lessen the attractiveness of savings vis-à-vis other larger MFIs is a welcome development. It should sources of funding. Double reserve requirements, also be noted that several interviewees underlined in particular, means that banks must mobilize the need for more efficiency in the Ministry's $1.30 in savings for every dollar they wish to inspections, which currently require 48 person- lend. Conservative maximum loan-to-deposit days each. More rigorous enforcement of regula- ratios for both banks and non-bank institutions tions in cases where infractions are found would also decrease incentives for savings mobilization also increase the deterrence value of inspections, by limiting the proportion of funds available to even among institutions that are not inspected. earn revenue through loans. Although these ratios were established with the memory of crises in How many institutions could the Cellule mind, there may be room to raise this ceiling for theoretically inspect? well-performing institutions. The CMF currently has eight inspectors qualified to conduct on-site supervision. Each inspection As it is, prudential norms are often ignored mission requires four people to visit the institution by banks and non-banks alike, which regularly for a total of approximately12 days, including travel use short-term deposits to cover longer-term to sometimes remote locations. Given these num- __________________________ bers, it would require 229 person-weeks per year to 25See for example: Ouattara, Korotoumou, "Microfinance inspect all 191 institutions. Under current supervi- Regulation in Benin: Implications of the PARMEC Law for sion methods, the maximum possible supervision Development and Performance of the Industry," missions per year is 44. So the CMF could visit the Washington, D.C.: World Bank Africa Region Working 27 institutions and federations requiring direct Paper Series No. 50, June 2003; Ouattara, Korotoumou, inspection and conduct spot-checks of 17 institu- "Implementation of the PARMEC Law for Regulation of tions under supervision by their federations. Microfinance, Findings No. 240," World Bank, July 2004; However, given the weakness within federations and the PARMEC page in the IRIS database of micro- and the number of institutions under federations, 17 finance regulation, available at microfinancegateway.com/ such inspections per year is clearly insufficient--as resource_centers/reg_sup/ micro_reg/country/35/. are the current level of CMF resources. 26Focus group with 12 MFIs, Cotonou, July 19, 2005. __________________________ 27Ouattara, August 2004. 19 BENIN Government- and donor-funded initiatives poor clients. Encouraging the distribution of more can undermine financial institutions' viability credit through mechanisms like a national fund and incentives to mobilize deposits may be at cross-purposes with the goal of allevi- ating poverty. Another important, yet less high-profile, facet of the policy environment is the impact of govern- Subsidizing this credit may cause addi- ment credit programs--many of which are backed tional harm to poor borrowers by saddling them and funded by foreign donors--on small-balance with unpayable debts. Furthermore, subsidized savings mobilization. Because they are often sub- competition makes lower-income market niches sidized and do not maintain adequate borrower less attractive for sustainable institutions, which discipline, government credit schemes can make are more likely to continue offering services when certain markets unviable, crowding out sustain- government and donor subsidies run out. able financial intermediaries that might otherwise Ironically, these sustainable institutions are also be interested in serving poor clients.28 often the same ones that can offer secure, high- quality deposit services. Undermining sustainable A report commissioned by the Ministry institutions' credit business, therefore, also under- of Planning in 2003 indicates that the Beninese mines client access to savings services. government was the sole or a significant funder to 26 microfinance programs through at least eight Easing the availability of portfolio line ministries. Of these, only four programs were financing by establishing an on-lending fund deemed to adhere to best practice, which is would also diminish these institutions' incentives defined through the pursuit of four main goals to develop products capable of attracting poor (institutionalization, scale, depth of outreach, and clients' deposits--short-, medium-, and long- financial sustainability).29 term. It would also displace domestic funds mobi- lized by already over-liquid banks. Instead of The newly proposed National Micro- channeling additional external funding into the finance Policy emphasizes distributing credit to sector, the government should work with develop- underserved populations. It also establishes a ment partners to overcome banks' reluctance to national fund for that purpose. Emerging evidence extend longer-term financing to MFIs, and the in Benin indicates that credit may not be the most government should work with MFIs to develop appropriate financial management tool for all appropriate deposit products. __________________________ 28An inventory of government microfinance programs reported repayment rates as low as 27%. See 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 dans les départements ministeriels," Cotonou: Government of Benin, Ministry of Planning, Forecasting, and Development. 29Ibid. 20 COUNTRY-LEVEL SAVINGS ASSESSMENT STRATEGIES TO IMPROVE SMALL- Other potential products could include the BALANCE DEPOSIT MOBILIZATION IN following: BENIN l Savings boxes, such as those used in the This section suggests potential strategies for Philippines, where savings box keys are held increasing and improving the quality of small- at the financial institutions so the savings box balance deposit mobilization in Benin. Rather can be opened only when it is brought into the than offer definitive recommendations or pre- institution by either a collector or the client. scriptions, these suggestions raise key points that warrant further research and reflection among l Housing savings, especially given the strong stakeholders. cultural preoccupation with owning one's own home in Benin. Linking savings to these pur- 1. Research client preferences to understand chases (potentially involving a loan as well) the size and characteristics of the market. The could serve to attract longer-term deposits. study should document client savings behavior and preferences, investigating who saves, in what However, better products will not sell form, how much, where, and why. Particular themselves: institutions must match efforts to emphasis should be placed on understanding diversify product offerings with better, more informal savings mechanisms to determine their active marketing efforts that effectively commu- most attractive characteristics and the level of nicate product benefits to customers. Product deposits they elicit. Such information would development also needs to be accompanied by enable institutions to understand how much could investments in adequate internal systems, such as be mobilized and under what conditions. In addi- treasury management, process improvements to tion, an analysis of the stability of small-balance enhance efficiency, and proper management savings would help institutions evaluate the information systems (MIS). A common MIS plat- contribution small savings could make to their form, developed jointly by several smaller institu- funding base. tions with a local IT provider, might produce cost savings for each institution and facilitate a stan- Numerous alternatives exist for conduct- dardized reporting format. ing such a study. One interesting option involves pooling public and private funding from a combi- 3. Create a system that enables the public to nation of government, donors, and financial insti- distinguish among different types of institu- tutions that would use the information. The tions. Given the diversity of savings providers in FinScope surveys currently being implemented in Benin, it is paramount that depositors understand southern and eastern Africa employ this type of a the nature and quality of the institution in which model, with declining public funding over time.30 they choose to save. A system to help customers Because they combine resources from many understand the quality of financial institutions different institutions, MFI networks may be well might be developed in two consecutive phases. placed to coordinate such an effort. The first phase would distinguish between institutions that are licensed to take deposits and 2. Design and actively market deposit products those that are not. Information about whether an and delivery mechanisms tailored to the needs institution is licensed could, for example, be com- of specific low-income client niches. New municated through a symbol displayed on their products could be targeted to current clients. But premises and in documentation. Such marketing- given the current emphasis of most institutions on oriented material could be included as part of the credit, the bulk of potential depositors probably package issued by the Ministry of Finance when it lie outside the current clientele. For example, one issues a license.31 bank indicated it was cultivating individual __________________________ banquiers ambulants as clients, by giving them a 31In theory, informal operators would not be part of this higher interest rate when they deposit their classification system; however, given the success of collected funds, and access to well-priced short- banquiers ambulants at mobilizing savings, the supervisory authorities might eventually consider creating an official term loans to honor end-clients' requests. These category for those who submit to regular off-site reporting. banquiers ambulants essentially act as "retailers" Interviews indicated that certain banquiers ambulants had for financial institutions' "wholesale" services. actually expressed a desire to become recognized legally __________________________ for tax reasons. Such a system would also help financial authorities by enabling them to better quantify the level of 30www.finscope.co.za savings mobilized in the informal sector. 21 BENIN A second phase would classify super- The level of market fragmentation among vised, licensed institutions according to their deposit-taking retail institutions in Benin suggests financial performance. Without any visible indi- that consolidation through mergers, acquisitions, cators of institutional quality, consumers cannot and even closures could improve efficiency make informed choices about where to deposit and the quality of deposit services offered. their funds. A mechanism for disclosing more Implementing a classification system and public information about institutional performance education campaign as suggested above would would increase transparency for clients, enhanc- give additional impetus to this process sector- ing incentives for institutions to improve that wide, by encouraging depositors to "vote with performance. their feet." Non-licensed and poorly performing Such a mechanism might be implemented institutions would likely see a drop off in their by an industry association or, if this proves too business, thereby facilitating consolidation of the difficult because of conflicts of interest, by an sector. independent non-governmental entity. It could At the second-tier level, increasing man- also be implemented within a single cooperative agement capacity within networks is the key to federation, as a pilot. It should not be seen as a improving performance. Evidence from other substitute for increasing the currently insufficient countries indicates that, in terms of their size, level of supervisory resources within the Ministry Beninese networks are far from hitting a manage- of Finance, but rather as a complementary effort. ability ceiling. Reinforcing management capacity would allow them to grow and capture economies 4. Conduct consumer education campaigns of scale while preserving their financial stability. about the importance of saving in regulated institutions. A grading system like the one However, in light of repeated and largely suggested above needs to be accompanied by unsuccessful attempts to accomplish this goal, concerted efforts to help the public understand the the way to reinforce management capacity must meaning of the various categories of institutions. be the subject of deeper reflection by the A generalized consumer education campaign Ministry of Finance, donors, retail institutions, should focus on the importance of saving in regu- and the networks. Structural changes that have lated institutions and on communicating the proven fruitful elsewhere should also be consid- meaning of the symbols used for different types ered. These changes include clarifying the role of and categories of institutions. It could also touch networks as either a fee-for-service TA provider, on a range of educational themes having to do with a rational and enforced fee schedule, or with personal financial management. increasing centralized control, with the federa- Typically, such messages are disseminat- tion acting as a head office, and member institu- ed by public organizations like the government tions evolving eventually into branches of a (often through a consumer protection agency) or single institution. NGOs. Because of the link to the classification 6. Accelerate the use of e-payment mecha- system, the agency charged with publicizing nisms. IT-enabled devices are currently the most information on performance might be well-posi- promising solution to two major impediments to tioned to coordinate consumer education. Ideally, small-balance savings mobilization in Benin. such an effort would be a joint project between First is the difficulty of integrating proximity to the two (i.e., between the CMF and Consortium customers, security, and cost-effectiveness in a Alafia). single deposit-service delivery model. Second is the inability of most small-balance depositors to 5. Consider consolidating institutions and net- make payments and move money around the works--but ensure management capacity to match their size. Especially among cooperatives, country using their accounts. Promising tech- there are perceived trade-offs related to increasing nologies in this area include ATMs, POS termi- access (through more points of service) and nals, and mobile phone banking applications, in reducing costs on the retail level; and increasing combination with debit cards and possibly bio- manageability (through smaller, more numerous metric technology. Such devices could enable the networks) and achieving economies of scale at the most secure (or at least, the most closely super- wholesale level. vised) institutions to reach out to lower-income clients without incurring the costs of additional 22 COUNTRY-LEVEL SAVINGS ASSESSMENT branches. At least one bank indicated that if Authorities should also consider intro- automation could lower the costs of reaching ducing other supervisory methods to reduce their these customers, it would be motivated to pursue burden. Requiring MFIs, at least of a certain size, them. to have yearly audits might be one way of accom- The plans currently under way for MFIs plishing this. Relying more on off-site methods to establish a network of "smart" ATMs, appro- backed up by spot checks, rather than on-site priate even for illiterate clients, are also to be inspection missions as is currently the practice, encouraged. Assuming such technologies were would also maximize supervisory resources. deployed according to a sound business plan, they 8. Consider adjusting certain provisions in the could represent a worthy area for donor subsidy. regulatory framework. The specific regulations Advocates for the sector should also strongly urge governing deposit taking should be reviewed in that any such system set up for SFDs eventually relation to their effect on small-balance savings becomes interoperable with the UEMOA-wide mobilization. Specific examples include double system being implemented for banks. reserve requirements and strict term-based asset- liability matching rules for banks, and the lack of 7. Improve supervision methods and increase minimum capital requirements (which encourages supervision capacity within the government. Strengthening the networks will likely make market fragmentation) for deposit-taking MFIs. more, not fewer, demands on the CMF initially. Institutions of both types might find it useful to Further pressure will be placed on CMF by the identify potential constraints in the current and current proposal to eliminate the recognized proposed norms and to develop a joint position for (reconnaissance) category, which will trigger a advocating to the regional authorities. Industry process of regulatory conversion and capacity consortia, such as Alafia and the bankers' associ- upgrades for many small institutions. Both these ation, would be well placed to conduct such developments mean that the CMF will need analysis and lobbying. increased capacity. 9. Review the proposed National Microfinance However, the demands on the CMF could Policy through a savings mobilization lens. The be mitigated if the BCEAO plays a bigger role in goal of building inclusive financial sectors is not supervising the country's largest MFIs and net- to provide a conduit for subsidized or foreign works, as has been proposed. More of the funds, but rather to promote the intermediation of Cellule's resources could then be directed toward locally generated resources. The current version supervising the medium and smaller institutions of the proposed national microfinance policy currently engaged in deposit collection. However, focuses too much on access to credit, especially given the fragmentation in that segment of the through the establishment of a national micro- market, the Cellule is likely to run into similar credit fund. The government should review the problems of resource insufficiency. policy to determine its potential impact on low- income clients' access to deposit services. 23 BENIN ANNEX I: SUMMARY MATRIX OF FINDINGS AND SUGGESTIONS Level Opportunities Obstacles Suggestions - Deeply entrenched tradition - Client mistrust of financial Research client of saving institutions preferences to understand - Positive demand response - Lack of data on savings demand for deposit services to appropriately designed preferences leading to Create a system that Clients deposit products perception that poor clients enables clients to differentiate don't save among institutions Educate consumers about saving in regulated institutions - Dense and varied landscape - Inappropriately designed Design and market deposit of deposit-taking institutions and expensive products that products tailored to specific cannot compete with informal low-income market segments sector providers Accelerate the use of e- Micro - Inability to find cost-effective payment mechanisms business model to collect small-balance savings Create a system that enables clients to differentiate - Highly variable financial among institutions performance of institutions Consider consolidating institutions - Numerous providers of - Variable quality of Consider consolidating management support and management support to networks training for financial MFIs, especially from institutions networks Accelerate the use of e- payment mechanisms Meso - Inadequate liquidity management and payment systems - Abundant non-deposit sources of portfolio financing - Low and stable inflation - Proliferation of institutions Consider adjusting the - Enabling regulatory resulting from permissive regulatory framework framework regulatory framework Improve supervision - Authorities who are unable methods and increase Macro to cope with supervisory capacity within government burden Review impact of proposed - Government initiatives that National Microfinance Policy undermine strong institutions' on small-balance savings viability and incentives to mobilization mobilize deposits 24 COUNTRY-LEVEL SAVINGS ASSESSMENT 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 25 BENIN 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 26 COUNTRY-LEVEL SAVINGS ASSESSMENT 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 de micro-crédits. Cotonou: PADSP. ------. Bulletin trimestriel no. 003 Avril­Juin 2004: note trimestrielle de conjuncture de la microfinance. 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 dans les départements ministeriels." Cotonou: Government of Benin, Ministry of Planning, Forecasting, and Development. 27 BENIN Commission Nationale pour le Développement et la Lutte contre la Pauvreté (CNDLP). December 2002. "Document de stratégie de réduction de la pauvreté au Bénin 2003­2005." Cotonou: CNDLP. Consortium Alafia. 2004. "Analyse globale des performances de l'année 2002 des IMF membres du Consortium Alafia." Cotonou: Consortium Alafia. ------. November 2004. "Rapport des performances des membres (année 2003)." Cotonou: Consortium Alafia. Dieter Seibel, Hans. July 2003. "Les Associations de Services Financiers (ASF) au Bénin: institutions de micro finance autogérées en milieu rural." Rome: IFAD. Goldstein Gilles, Issa Barro, and Dominique Gentil. February 1999. "Etude sur le rôle de l'impact des services et produits d'épargne du secteur informel et des institutions de micro finances en Afrique 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 des operations réalisées en monnaie fiduciaire. Cotonou: Government of Benin. ------. May 5, 2004. Arrêté: Portant fixation du taux d'intérêt legal en République du Bénin pour l'année 2004. Cotonou: Government of Benin. ------, Ministère de la Famille. 2005. "Présentation du Fonds d'Appui à la Solidarité Nationale et à l'Action Sociale (FASNAS)." Cotonou: Government of Benin. Gracia, Mathieu. 2000. "Apport de la Banque Ambulante aux Systèmes Financiers Décentralises et aux Opérateurs Economiques" Paper presented at the International Symposium on Microfinance and the Promotion of Micro- and Small Enterprises, 12­14 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 et garantie de prêts aux petits opérateurs économiques au Bénin." Geneva: ILO. IFAD. March 2005. "Document du Fonds International de Développement Agricole: Evaluation du programme du pays." Rapport N° 1624-BJ. Cotonou: IFAD. ------. "La collaboration entre le gouvernement, le FIDA et les ONG: Etude de cas sur l'ONG SYPRO, projets PAGER et PROMIC." Cotonou: IFAD. Kalala, Jean-Pierre Muimana, and Alpha Ouedraogo. 2001. "Savings Products and Services in the Informal 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, et Porto-novo au Bénin." Cotonou: PlanetFinance. UEMOA. Directive No. 07/2002/CM/UEMOA relative a la lutte contre le blanchiment de capitaux dans les 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. 28