Notes from the Field: Benin

Benin was the site of the third test of CGAP's Country-level Savings Assessment tool in July 2005. Over two weeks, four reviewers met with approximately 70 stakeholders through individual interviews and a focus group. The fieldwork concluded with a debriefing session where the review team made a presentation (zipped ppt 2.6M) on its preliminary conclusions, which are summarized below.

Background

Benin presented an interesting contrast to CGAP's previous assessments in Mexico and the Philippines. First, it is on a different scale both geographically and economically. Its borders hold less than 7 million people, within an area roughly the size of Pennsylvania (or Guatemala, Hungary, or Nepal). And at $380, the per capita GNI is less than half of that in the Philippines or Mexico -- with visible consequences on the financial and banking sectors. There are a sum total of 37 bank branches in the whole country, the ratio of people to ATMs is 500,000:1, and accounts in banks number less than 200,000.

Yet for such a small country, Benin has an enormous number of MFIs. At last count, there were some 1300 points of service, or one for every 4,698 people - roughly twice the ratio in the Philippines or Mexico. In terms of clients served, these non-bank financial institutions play a much larger role in providing deposit services than do banks. The most comprehensive survey of MFIs available indicates that 79 institutions together serve some 690,000 clients, as compared to a total of 185,600 accounts in the entire banking system. About 90% of MFI clients are served by FECECAM, a network of originally rural cooperatives. The Caisse Nationale d'Epargne, the financial services arm of the post office, is another major supplier with over 400,000 additional accounts.

Preliminary Findings:
Micro Level	Meso Level	Macro Level

Competition between MFIs is stiff in Benin, but focused on credit rather than savings services.

Micro Level: Clients and institutions: a story of mutual mistrust?

Deposits in both FECECAM and the CNE have been steadily outpacing economic growth over the last 5 years -despite a precipitous drop in FECECAM's portfolio and despite the fact that the CNE offers no credit at all. This belies an extremely widespread assumption that we encountered among stakeholders, namely that poor Beninese do not save and that if they do, it is only to obtain a loan. If certain practitioners sense unwillingness to deposit among clients, we suspect that it is rather because of inappropriate product design that enables the informal sector to out-compete financial institutions.

As elsewhere, the proximity/cost trade-off and security were the two most important factors in attracting savers. On the first front, institutions face stiff competition from roving deposit collectors who deliver doorstep savings services to clients, collecting as little as 100 FCFA ($0.20) per day for a fee of about 3% per month. Although institutions do offer interest on savings accounts, it is generally not enough to offset the financial and opportunity costs of traveling to make a deposit.

On the security front, institutions that benefit from legal authorization and supervision should theoretically rate better than informal sector operators. However, fresh memories of a total collapse of the banking system in the late 1980s, and numerous anecdotes of fly-by-night MFIs and savings collectors that make off with client savings, exacerbate mistrust of financial institutions. From this point of view, it is telling that the largest non-bank deposit-taking institutions (FECECAM and CNE) enjoy an implicit state guarantee -- an imperfect sign of institutional soundness at best. But this implicit guarantee is still a better indicator than size alone, which correlated with neither profits nor delinquency nor efficiency among top MFIs.

Meso Level: The missing middle

If meso level infrastructure showed promise in the Philippines and some signs of advancement in Mexico, in Benin there were serious gaps. While independent technical service providers are numerous and the MFI association is highly regarded, the federations that encompass many deposit-taking institutions have had serious problems carrying out their main roles of prudential supervision and management support. After a stint of rapid growth induced by a donor-funded line of subsidized credit, FECECAM suffered a delinquency crisis in 2000 and has been working on getting back into the black ever since. FENACREP, formerly the country's second largest cooperative network, was put into provisional receivership (administration provisoire) in 2003.

If meso level infrastructure showed promise in the Philippines and some signs of advancement in Mexico, in Benin there were serious gaps.

More severe still was the almost total absence of payment and liquidity management systems accessible to most institutions serving the poor. To remedy the first problem, the MFI association is working on a replication of "smart" ATMs used by PRODEM in Bolivia. The law governing MFIs contains a specific provision permitting cooperative federations to establish an organe financiere (like a cooperative bank) to intermediate funds. However, given the weakness of most federations, the Ministry of Finance has blocked all their past attempts to establish such formal mechanisms to help members manage liquidity.

Instead, banks are play a de facto (if inefficient) liquidity management role for these institutions by taking their deposits and extending loans for portfolio financing. In fact, in 2003 the sector received over 6 times more in commercial bank funding than it did from government and donors together - a dramatic change from just five years earlier, when only 3% came from commercial banks.

The minimal role of donor and government subsidies was one of the bright spots in Benin compared to both Mexico and the Philippines. Although banks in all three countries are liquid, in Benin few public resources are competing with those excess deposits. In fact, from 1998-2003 only the World Bank contributed more resources to the sector than any single commercial bank - and its interventions have been widely recognized for building the MFI association, two of the strongest MFIs in the country, as well as reinforcing supervisory capacity at the Ministry of Finance.

Macro Level: Getting it right at the top

While the micro and meso elements could be strengthened significantly, macro conditions for small-balance savings mobilization are largely favorable. The country's regulatory framework, established at the regional level by the West African Economic and Monetary Union (WAEMU), pays specific attention to microfinance. A dedicated law governing "decentralized financial systems", while biased towards cooperatives, is actually open (perhaps too open) to deposit-taking by a variety of institutional forms and imposes no minimum capital requirements for this function.

While the micro and meso elements could be strengthened significantly, macro conditions for small-balance savings mobilization are largely favorable.

On the other hand, conservative prudential ratios prevent deposit-taking institutions from intermediating deposits as efficiently as they could, dampening institutional incentives for mobilizing more savings. This is especially true for banks. In reality, however, these ratios are often ignored, signaling a problem at the supervisory level. Compared to other regions, WAEMU countries have an impressive supervisory apparatus for microfinance, with dedicated departments in both the central bank and national ministries of finance. Nonetheless, supervisory capacity is still inadequate for the number of institutions in Benin. Sufficient increases in this capacity are not likely any time soon and even if they were, shuttering insolvent MFIs - particularly cooperatives - is a thorny issue in the best of situations. One way to alleviate this awkward burden on the supervisory authorities might be to establish a rating or branding system for signaling institutional quality to clients. By helping them make informed choices about where to put their deposits, clients themselves can employ the forces of competition to reward institutions that perform well and punish the ones that do not.