Local Non-Government Organizations (NGOs) and Microfinance Institutions (MFIs) in Benin which were subcontracted by the Government-run ‘Microloans to the Poorest’ program have been accused of taking bribes from their borrowers, according to a press release found on IRIN News. The Government-run program, which operates through five partner banks, provides loans up to a maximum of 60 US dollars to borrowers in Benin. No information on the partner banks involved in this program is available. These partner banks disburse loans to borrowers through local MFIs and NGOs which interface with the borrowers and serve as loan intermediaries. Loan payments from borrowers are also collected by these intermediaries and remitted back to the partner banks which lend them. The press release quoted Mr. Aboubacar Aboudou, the first director of the Government-run program, as saying that a lack of oversight coupled with the rapid growth of the program led to hiring of several ‘unscrupulous intermediaries’ to process loans. Mr. Aboudou stated that these intermediary organizations squandered funds and ‘made the poor even poorer’. The program’s current director, Komi Koutche has called for step to eliminate these intermediaries. No information is available on which local MFIs were involved in these fraudulent activities.
The ‘Microloans to the Poorest’ program run by the Benin Government was started in February 2007. No website for this program was found. According to Reckya Madougou, Benin’s Minister of Microfinance, the program has awarded more than 500,000 loans worth USD 31 million over the past nearly two years. Borrowers are given six months to repay loans, charged a loan processing fee of 2 US dollars and an interest rate of five percent. But with nearly 16 percent of Benin’s population living in extreme poverty, the subcontracted local community organizations and MFIs hired to disburse and collect loans exploit the desperation of the borrowers, according to the program’s current director Komi Koutche. He says that instead of charging the stated processing fee, the intermediaries charge up to 7 US dollars which most borrowers have no choice but to pay. According to the United Nations, the fund’s five partner lending banks have reported more than USD 1 million in unpaid loans in 2007.
Reflecting on the reason for this, former director Aboudou says the program took on more than it could handle in terms of the total loan amount and number of loans. He said that the fund, in its efforts to make a quick impact in Benin overlooked irregularities and fraud committed by the loan intermediaries who directly interfaced with the borrowers. He said that intermediaries reported fictitious loans which they pocketed leaving behind the truly needy borrowers. He added that the program should handle only 50,000 loans per year. Speaking on this issue, Martin Assogba of the non-profit organization Action Against Regionalism, Ethnocentrism and Racism said measures need to be taken to eliminate the MFIs which act as intermediaries and ensure borrowers interact directly with one of the five partner banks providing the loans. No website for the non-profit ‘Action Against Regionalism, Ethnocentrism and Racism’ is available.
The professional association of microfinance practitioners in Benin, the ALAFIA Consortium, says that the subsidized interest rate charged by the program is less than the break-even interest rate of the Government run program. The ALAFIA estimates place the break-even rate at over 30 percent per annum factoring in all the operational and management costs of the program. Therefore, for each beneficiary, the Government absorbs at least 25 percent of the interest rate. The ALAFIA Consortium has called for the Government to widely publicize the break-even rate to dispel the notion that the interest rate is the same as the break even rate. According to ALAFIA, non-state run MFIs charge market-based interest rates justified by their operational costs, however no specific data on the interest rate charged by these MFIs is available.
According to the World Bank, the West African nation of Benin has nearly 40 percent of its population living in poverty. The 2008 Human Development survey of the United Nations ranks it among the 20 poorest countries, measured on the basis of standard of living, life expectancy and literacy. MFIs have been working in Benin since the 1970s and according to a World Bank report, Benin has the largest number of MFIs in the Western Africa Monetary Union which comprises eight West African countries. There are totally 500 MFIs in Benin, less than half of which are recognized by the Benin Government. A World Bank study (p24) states that lack of adequate monitoring mechanisms and weak supervision of MFIs are one of the most important issues facing the microfinance industry in Benin. MicroCapital had also previously reported on the challenges faced by the Microfinance sector in Benin including fraudulent activity by one such MFI.
By Bharathi Ram, Research Assistant
Additional Resources:
MicroCapital.org:
Apr 18, 2008: Microfinance in Benin struggling.
United Nations: Human Development Survey
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