Microfinance Regulation in Benin: Implications of the PARMEC Law for Development and Performance of the Industry
This country study is a bench mark study, conducted to understand the role and implications of financial regulations and laws on the microfinance sector in Africa. The study focuses on the following:
- How financial laws and regulations affect the ability of microfinance institutions (MFIs) to become commercial and integrated with the formal financial system;
- How the incentives (or disincentives) for licensed financial intermediaries move down market into microfinance;
- How business and commercial laws and institutions affect contract enforcement and collateral, asset transfer, and the operation of micro and small enterprises.
The case study covers some of the prominent MFIs in Benin and traces the origin of PARMEC law specifically designed to regulate the microfinance sector. The study then explores the impact of the law on the growth of the microfinance industry. It states that the microfinance outreach grew by 1000% and penetrated 12% of the total population by the year 2000. The author identifies increasing bad loans as the major challenge facing the microfinance industry in Benin and recommends the following:
- Removal of usury ceilings on interest to introduce transparency in lending;
- Strengthening of the supervising agency for the MFIs;
- Tightening of license laws and granting licenses to deserving credit unions with strong capital adequacy;
- Promoting professional associations of MFIs.
The author concludes that supervision should be practical for both institutions and the governing body, and recommends that the central bank of Benin be granted the overall responsibility of supervising MFIs.
