The Transparent Pricing Initiative in West Africa was undertaken by MFTransparency from July 2010 to November 2011, marking the expansion of MFTransparency’s work to this region for the first time. The program was funded by Luxembourg Cooperation and covered the eight countries of the West African Monetary Union.Microfinance in the WAEMU Region
The West African Economic and Monetary Union (WAEMU) (in French: Union Economique et Monétaire Ouest-Africaine, UEMOA) is an organization of eight states in West Africa: Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The Union was established to promote economic integration in the region, consolidating regional economic activity under the guidance of one bank, the Central Bank of West African States (in French: Banque Centrale des États de l’Afrique de l’Ouest, BCEAO).
The BCEAO acts as the head regulatory and supervisory body for all financial institutions operating in member states. In 1993 the BCEAO developed the PARMEC Law in order to regulate licensed MFIs in WAEMU countries. More than 410 MFIs with total deposits of about FCFA 170 million and outstanding loans of FCFA 130 million were registered in the WAEMU region as of 2003. Since then the policy framework has undergone several phases of change, including issuance of the New Microfinance Law in 2007.
The official formula for calculating prices for all microloans in the WAEMU region, as stipulated by BCEAO, is known as the “Taux Effectif Global (TEG)” or the Effective Interest Rate (EIR). The official pricing regulation specifies that the TEG takes into account fees paid by the borrower as well as interest payments, but there is ambiguity whether insurance fees are included in the calculation. The formula does exclude compulsory savings requirements. Although the law is well-known, the formula for calculating the TEG is not well-known. In fact, there is a great deal of confusion about the formula and how to interpret and apply the formula.
While the microfinance industry is generally governed by the new microfinance law of 2007, the pricing component is specifically addressed separately in the “Law on Usury” which was published by BCEAO in 1997. This law applies to all financial institutions that provide loans, including microloans. The most significant stipulation of the Law on Usury is a price rate cap. This law fixed the cap at 27% for all non-bank institutions offering microfinance services. The cap was revised down to 24% in 2013.
A total of 96 institutions in the WAEMU voluntarily submitted their pricing data to MFTransparency, representing the vast majority of microfinance institutions in the region. Analysis of the dataset revealed that some microloan products provided in the WAEMU region were priced above the price cap, but that in most if not all cases this was due to ambiguities about how to apply the TEG formula. MFTransparency has decided to withhold all WAEMU pricing data from publication pending clarifications on the formula used for the price cap.
MFTransparency believes that the Law on Usury has the best of intentions for 16 years, and indications are that the MFIs wish to respect the Law and believe they are acting in accordance with the price cap. MFT supports further dialogue and instruction on how to interpret and apply the formula.
West Africa Institutions
|Country||Institution||# Borrowers||# Products||Participating Since||Age of Data|
|Burkina Faso||MICRO START||14187||4||11-Jan|
|Burkina Faso||PRODIA- AC||3016||1||11-Jan|
|Guinea Bissau||CPC ADI||118||1||11-Nov|
|Guinea Bissau||CPC ADIM||97||1||11-Nov|