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Africa: Rural Credit in Benin
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Africa: Rural Credit in Benin
Date Distributed (ymd): 960703
World Bank, Africa Region
Findings, Number 66, July 1966
Findings reports on ongoing operational, economic and sector
work carried out by the World Bank and its member governments
in the Africa Region. It is published periodically by the
Africa Technical Department on behalf of the Region.
Financing the Rural Poor: Savings and Loan Network in Benin
The rural poor can save, although commercial banks are rarely
able to mobilize these savings in financial form. Rural credit
demand is also high, not only to survive drought and other
periodic disasters but also to help move out of poverty
through investments that improve productivity and tap into
economic opportunities. Yet the high perceived costs and risks
of intermediation have deterred formal financial institutions
from serving the rural poor. The experience of the World
Bank-assisted Rural Savings and Loan Project in Benin shows
that well-designed investment in grass roots financial
institutions can fill this gap on a sustainable basis.
Benin's Financial Sector
Rural savings and loan associations were originally
established in 1975 on the French mutual credit model, which
emphasized local ownership and a democratic, bottom-up system
of regional and national groupings. However, the government's
decision to put the network under the jurisdiction of a public
agricultural development bank undermined the mutualistic
principles by shifting decision-making from elected members to
government-appointed management. A disproportionate share of
clients tended to be those who were not so poor--cotton
farmers, traders and artisans. The agricultural development
bank channeled savings from the network to public enterprises,
but poor management and lack of rigorous credit appraisals led
to the collapse of the agricultural development bank.
After Benin's state-owned banking sector collapsed in 1990, it
was restructured to comprise 5 private commercial banks, which
operate in the major urban centers, and a national savings
bank and postal checking service with wider outreach but
limited deposits and loans.
Reaching the Rural Poor
Sixty-five percent of Benin's 5.4 million people live in rural
areas, most of them poor or vulnerable (especially just before
harvest season). In the past, most of the poor had difficulty
accessing the rural savings and loan network because of
distance, lack of information, low confidence, and economic
and psychological barriers. They also tended to hold savings
in tangible assets.
With the collapse of the banking system, a program to build on
rural savings and loans and better serve the rural poor was
designed on the following 'best practice' principles derived
from experiences worldwide.
* Savings is at least as important as credit, for
precautionary purposes and for safe placement of assets.
* Financial discipline tends to be greater when local savings
are the main source of credit funds.
* Personal reputation, group lending and peer pressure can be
effective collateral substitutes.
* Convenient access to savings and credit services is more
important than interest rates. Successful micro credit
programs often charge real effective interest rates (after
inflation) on the order of 2 percent to 5 percent per month
without affecting high repayment rates.
* Short-term savings and credit are generally preferable to
meet immediate needs and opportunities.
* Prudential policies, regulation and supervision are
important to identify problems and ensure long-term
sustainability.
Rehabilitation of Rural System
The rehabilitation program launched in 1990 aimed to restore
the savings and loan system to its original mutualist
principles, with the government withdrawing from management.
Measures to rebuild people's confidence included:
* Decentralization and empowerment of local members in
managing (as well as owning) local cooperative banks.
* Individual as well as group membership.
* Security and financial discipline.
* Deposit-taking from the general public.
Loans are provided to members only after six months of
savings, and cannot exceed double the amount on deposit. The
decentralized decision-making structure helps reduce the
screening, monitoring and enforcement costs of lending, and
empowers members to both take decisions and help ensure
repayment.
Under the new structure, banking services could be provided
only by local cooperative banks, which were grouped into
regional unions and federated in a national governing body.
Regional unions provide technical assistance to local banks.
The national federation provides institutional support and
liquidity management. Although interest rates to borrowers are
not subsidized, the revenues generated are not yet sufficient
to cover these capacity-building costs. These have been
treated as development expenditures under the project,
accompanied by a monitorable plan to reach financial
sustainability as portfolio size expands.
Results
Over the period 1990-1995, membership increased by 360 percent
to 127,000 (an additional 100,000 depositors), share capital
by 160 percent, deposits by 240 percent, and loans by 2300
percent [see Table 1]. Growth is accelerating, with loans more
than doubling in 1995 and deposits and share capital rising by
half. Loans account for 64 percent of deposits. The recovery
rate has risen to above 98 percent in the years 1993-95.
While the network includes relatively poor regions such as
Atacora, Oeume and Mono, the cotton-producing regions such as
Borgou and Zou represent 50 percent of deposits and 60 percent
of loans.
Table 1: Benin Rural Savings and Loan Network: Performance
Parameters
Indicator********************1989/90*************1994/95
Number of:
Members*********************27,700**************127,329
Depositors******************76,889**************185,131
Loans************************3,977***************48,471
Value of (CFAF billion):
Deposits*********************2.8********************9.4
Loans************************0.2********************6.0
Share capital****************0.1********************0.4
Average (CFAF '000):
Deposit***********************36*********************51
Loan**************************51********************124
Ratios (%):
Loans/deposits*****************7*********************64
Loan recovery*****************96*********************98
Note: 1 billion = 1,000 million; CFAF = CFA Franc; 1 billion
CFAF = Approximately US$2 million.
Issues
The training of local members and empowerment of their elected
officials has led to some differences of opinion with the
government technocrats who, ironically, have promoted this
empowerment process. The success of the network raises the
interest of government and donors in using it as a channel to
further their own objectives. There is some concern that
accelerating expansion through external lines of credit-often
oriented toward particular objectives of the providers-could
undermine the orientation toward savings mobilization and
autonomy that has motivated the network's success.
Can Benin's experience be replicated ? While no single model
is generally applicable, the principles listed above can be
adapted to each local situation. The Benin experience
indicates that it is especially important to empower local
members through training and sensitization, develop a
corporate culture and ethical business environment, and strive
toward self-sustainability to maintain autonomy.
This article was prepared by Luciano Mosele (ex-World Bank
staff) with assistance from Ousmane Sissoko in the World
Bank's Resident Mission in Cote d'Ivoire and William F. Steel,
Private Sector Adviser, Private Sector Development and
Economics Division, Technical Department, Africa Region, World
Bank. For more information, please contact P.C. Mohan, Room
J3-165, AFTDR, World Bank, 1818 H Street NW, Washington D.C.
20433. Tel. no. (202) 473-4114. E-mail: pmohan@worldbank.org.
*************************************************************
This and other issues of Findings, covering a variety of
topics and perspectives within the World Bank's work related
to Africa, are available on-line at the World Bank Web site:
http://www.worldbank.org/aftdr/findings/english/findtoc.htm
Recent issues of Findings include:
Findings No. 67 - Impact of the Uruguay Round on Sub-Saharan
Africa: 07/96.
Findings No. 65 - Africa can Compete in Europe: 06/96.
Findings No. 64 - Special Program for African Agricultural
Research (SPAAR): 06/96.
Findings No. 63 - Cost Sharing : Towards Sustainable Health
Care in Sub-Saharan Africa. 05/96.
Findings No. 62 - Restoring Urban Infrastructure and Services
in Nigeria. 05/96.
************************************************************
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC), the educational
affiliate of the Washington Office on Africa. APIC's primary
objective is to widen the policy debate in the United States
around African issues and the U.S. role in Africa, by
concentrating on providing accessible policy-relevant
information and analysis usable by a wide range of groups and
individuals.
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