While they have never been spared criticism, financial solutions for unbanked populations have rarely faced such severe attacks as those in recent months. At the end of May, Patrick Njoroge, the Governor of the Central Bank of Kenya, denounced “practices worthy of Shylock [l’usurier shakespearien] allegedly indulged in mobile credit apps with exorbitant interest rates and abrupt collection methods that have “sprouted like mushrooms in the country and don’t really work for Wanjiku [le citoyen ordinaire] “.
Among these controversial methods: sending SMS to a borrower’s contact list, informing them of the latter’s arrears… During the same month, the Central Bank of Ghana withdrew their license, due to insolvency and breach of regulations, to 347 microfinance companies (i.e. 72% of companies of this type). Compensation for affected savers – often recruited from informal sector operators – is expected to cost the public treasury around 145 million euros.
The extent of this purge and the alarm bells sounded by regulators raise questions about the protection that people really enjoy – whether in terms of deposit security or safeguards against over-indebtedness – in the face of the multiplication inclusive finance solutions across the continent.
According to many specialists, the use of the term “microfinance” to designate a wide range of solutions whose mechanisms, legality and regulation differ drastically maintains regrettable confusion. Stricto sensu, a microfinance structure or “decentralized financial system” (DFS), to use BCEAO jargon, “is an institution whose main purpose is to offer financial services to people who generally do not have access to bank operations.
Strict regulations govern these institutions in different aspects: legal forms, authorized operations (savings, loans, credits by signature, etc.), separation of control and management functions, administrative supervision and sanction regime.
This industry has seen tremendous growth in sub-Saharan Africa, with a loan portfolio growing from $4.9 billion in 2012 to over $10 billion in 2018, despite industry consolidation.
“It is not fair to say that microfinance companies do not take into account the risk of over-indebtedness of borrowers”, insists Cédrick Montetcho, director of investments in West Africa for the Dutch Oikocredit, which finances around thirty structures. in the Uemoa zone. The manager recalls that the loans granted to a client depend on his repayment capacity, which is proportional to his income. In Côte d’Ivoire, this “transferable quota” ranges from 35% for salaries of up to 200,000 CFA francs per month (305 euros) to 57% when they exceed 2 million CFA francs.
In addition, recalls the head of Oikocredit, the regulations oblige microfinance institutions – like all financial organizations and “major billers” (water, electricity, telephone) – to “declare the credit or payment history of ‘a borrower at the credit bureaus [BIC] “. Since 2016, Creditinfo VoLo has been deploying these, mandated by the BCEAO, across the eight UEMOA countries. A mechanism supposed to limit the overrun by a borrower of his transferable quota and therefore the risk of over-indebtedness. At the end of March, more than 93,000 companies and 5.7 million people were registered in the BIC databases.
Côte d’Ivoire is the only country in the region where the percentage of the adult population covered by a BIC is greater than 5%
But these efforts are far from sufficient. The teams of Tiémoko Koné, the governor of the BCEAO, point in particular to “the weakness of the collection of consents by the institutions subject to the law as well as the insufficient number of loans in the BIC database and the consultations of credit reports by the institutions subject to the “. They also note that Côte d’Ivoire is the only country in the region where the percentage of the adult population covered by a BIC is above 5% (9.6%, according to the World Bank’s 2019 Doing Business report). ). This lack of coverage and the low use of this database open several loopholes allowing a consumer to multiply credits with various organizations.
The situation seems better in East Africa in particular, where 30% of Kenyans and Rwandans benefit from this type of service, as well as more than 6% of Tanzanians and Ugandans – reflecting a greater use of mobile money . According to the World Bank, eight Kenyans aged 15 or over have an account at a financial institution or a telephone banking service, compared to six Ugandans and five Tanzanians. A proportion that has doubled since 2011.
But this progress in financial inclusion has created other risks for borrowers. According to the “FinAccess Household Survey”, a survey on access to financial services and their use published in April, the share of users of microfinance institutions in Kenya has fallen by half in ten years, to 1.7%. On the other hand, that of users of mobile lending applications has grown dizzyingly, from 0.6% in 2016 to 8.3% this year, behind savings and credit cooperatives (11.3%). .
No central bank control
However, as Governor Patrick Njoroge’s plea illustrates, these applications escape the direct supervision of the Central Bank. According to someone familiar with this industry, their promoters have agreements with financial institutions, which are – against commissions and royalties – directly responsible for creating credit. But, very often, these applications are controlled from abroad.
This is the case of those who are most successful in Kenya: Tala, subsidiaries of the Californian InVenture Capital Corp, and Opesa, owned by the Norwegian Opera. Similar situations are repeated in Ghana and Nigeria in particular. This paves the way for marketing and debt collection methods that are sometimes far removed from local practices, as Opesa’s Kenyan customers have seen.
In this context of regulatory loopholes, will consumer protection depend on the digital giants? Since the end of August, Google wants to ban applications offering loans with a maturity of less than two months or whose annual interest rate exceeds 36%, above which it is considered a rate of usury prohibited to United States.
Asked by Young Africa on the applicability of this decision to mobile phone microcredit services registered outside the United States, the group did not immediately react. If so, this policy could curb the worst excesses of some of these apps. Does it also risk preventing the digital development of traditional microfinance players, who are subject to regulation? The question is valid.
The US usury rate is certainly higher than the 24% limit in force in the UEMOA zone, but it remains well below the rates applied in Ghana or Nigeria, where no such barrier exists. Under pressure from the financial industry and despite protests from Governor Njoroge, the Kenyan government is working on lifting a similar limitation, introduced in 2016. Isn’t this, however, the first protection against excessive debt?
In the fight against “margouillats”
Although offering borrowing rates that cannot exceed a usury rate defined by law (24% in the Uemoa zone), microfinance institutions are sometimes neglected in favor of unscrupulous informal actors. These loan sharks – commonly known as “margouillats” on the streets of Abidjan – are able to provide large sums to borrowers very quickly. They often do this at exorbitant rates under a veneer of legality. Many of their victims sign acknowledgments of debt and provide a “certificate of transferable quota” indicating the part of their salary that can be seized – which often happens.
The new Penal Code adopted in 2016 in Cameroon punishes loan sharks with a fine of up to 1 million CFA francs (1,500 euros). Since 2013, Côte d’Ivoire and Burkina Faso have twice had to pass laws against usury. But their effects are still awaited, because these texts are not yet accompanied by a more offensive policy of repression against these lawless lenders.