MICROCAPITAL STORY: Cameroon's Microfinance Industry in Need of Regulation if it is to Meet Poverty Eradication Expectations

Cameroon’s growing microfinance industry is in need of regulation if it is to become effective in the fight against poverty, it was reported by IPS News recently. Key factors for impeding the growth of the microfinance industry are highlighted as a lack of cooperation between banks and microfinance institutions (MFIs), as well as MFIs operating outside of the law and being unregulated. While the article did not state any particular event prompting the report, it does mention that the national government is organising training seminars and forums for stakeholders to tackle some of these problems. A review of news articles regarding microfinance in Cameroon reveals that the microfinance industry has had a great deal of hope placed on its role for poverty reduction, yet there has been an equal or greater amount of disappointment in how it has developed thus far.

While there have been reports over the last two to three years expressing the desire for microfinance to play its role in eradicating poverty in Cameroon, even being called the “anti-poverty drug“, these are accompanied by assessments of the MFIs as “unprofessional” and the industry in general as being in need of regulation. Some of the challenges for the Cameroon microfinance sector have been identified in a study which was summarized on the Microfinance Gateway. They included: the regulations of COBAC, the Commission for Central African Banks, are not well disseminated among stakeholders, policy decisions on taxation regarding transfer of funds among microfinance institutions are not clearly interpreted, and there is an absence of policy guidelines regarding the protection of savings of clients. It is further reported in an article on IPS News that this situation is compounded by conflicts over issues of sovereignty as well as interference of numerous ministries in the project which has led to delays. Additionally, MFIs in Cameroon are reportedly challenged further by the fact that they are regulated by three different laws: the national law, the Economic and Monetary Community of Central Africa (CEMAC) law and the Organization for Harmonization of Business Law in Africa (OHADA) law.

An example of the challenges in the microfinance sector is highlighted in an article in IPS News. Small groups called Common Initiative Groups (CIGs) who borrow from the Programme for the Amelioration of Rural Family Incomes (PARFAR) through MFIs but cannot continue to borrow even after they have fully repaid the initial loan because the MFI has not in turn paid back PARFAR to continue the lending cycle, and yet no authority has taken any action against the MFI, which is suspected of investing the funds elsewhere.

Some of the negative press has been directed at the Commission Bancaire de l’Afrique Centrale (COBAC) of the Banque des Etats de l’Afrique Centrale (BEAC) through which the microfinance regulations for Central Africa are developed. However BEAC has been taking action recently to rectify its role in this situation. Since 2002, CEMAC adopted a legal framework to organise the activities of the sector. This framework according to the Governor of BEAC, Philibert Andzembe became operational in 2007. It involves the publication of the list of authorised microfinance establishments in each Central African country in order to get rid of some of the MFIs giving the rest a bad name and cleanse the sector. Andzembe has reportedly added that in addition to the adopted legal framework, COBAC will now go into a more repressive phase to ensure that the established rules are respected.

At the country level, the national government is organising training seminars and forums for stakeholders. It is also working with the African Development Bank to put in place a revolving fund to assist the sector. Recommendations for the sector included increasing professional competence of microfinance institution developing linkages between the informal and formal financial sectors disseminating rules and regulations of COBAC. While there have been sporadic articles on the individual efforts taken by the national government and BEAC, there has not been an assessment undertaken to evaluate the likely impact of these efforts cumulatively.

Cameroon is a member of (CEMAC), a group of six countries with a common central bank, BEAC. The COBAC is the national and supranational “watchdog” for finance within CEMAC. According to a 2006 CEMAC study, there are 714 MFIs in Cameroon, with over 475 thousand clients, making up 2.9 percent of the total population. The total loans outstanding were reported at USD 111 million, with the average loan size reported as USD 233. This study did not reflect the closure of over 200 MFIs in 2005, and the number is likely closer to 400 at present. As of December 8, 2008, there were 15 MFIs in Cameroon that reported to the Mix Market. Another study, the results of which were summarized on Microfinance Gateway, concluded that microfinance in Cameroon makes up over 44 percent of the financial sector and covers over 287 localities as opposed to 15 by commercial banks.