PROMOTION OF MICRO-FINANCE TO

FOSTER INVESTMENT AND REDUCE

UNEMPLOYMENT

POLICY IMPLEMENTED IN CAMEROON

(2001-2010)

AS PRESENTED BY

PEPENANCHO GODLOVE

GRIPS,

JULY 2012

OUTLINE

Overview of the policy and Stakeholders

Ex-Ante Evaluation of the Policy

Elaboration and Implementation of the policy

Ex- Post Evaluation

Post Evaluation Measures and Future

perspectives

Appreciation and Conclusion

(I) OVERVIEW OF THE POLICY

Origin:

Policy recommendation by the Economic and

Monetary Commission for Central African States

(CEMAC) to all the 6 member states (Cameroon,

Central African Republic, Chad, Congo, Equatorial

Guinea and Gabon)

Experience from other Developing Countries such as

South Africa, Nigeria and Gabon

Objectives

Encouraging the growth of Microfinances as an

instrument of Investment financing, especially of

Small Scale Businesses, considering the reluctance of

Commercial banks to grant loans to the latter

OVERVIEW CONT.

Increase employment opportunities, and especially self

employment

Promoting the “Banking Culture” in to the citizens and

Fighting against the informal sector

Enlarge the Tax Base and increasing Government

Revenue

Period of implementation :2001-2010

STAKEHOLDERS

Institution

Role

CEMAC Issued the main guide lines

Prime Ministry -Initiating and coordinating

institution of the policy.

Ministry of Finance Custodian of all financial Institutions

and Principal ministry concerned

Ministry of Small and Medium

Size Enterprises

Procedures of Business Creation

and the encouragement of SMSe

Central Bank “Banker’s Bank”

Commercial Bank Banks of Microfinance Institutions

Other institutions and services

The Citizens Beneficiary

EX -ANTE EVALUATION OF THE POLICY

Just like in any other policy or project, it constituted of a prior assessment of the policy; that is:

An assessment of the Cameroon banking situation (Commercial Banks and Micro-finance institutions before the year 2000)

An evaluation or estimation of the cost of the policy. That is:

financial cost

Social cost

Possible risk associated with such a policy

And other local realities.

What was the outcome of the ex-ante evaluation?

BANKING INSTITUTIONS BEFORE THE POLICY

Central Bank: BEAC

Commercial Banks

10 in 2000, 7 of which are foreign owned and are only located in few main cities.

Minimum deposit for a “deposited account”: 1000 USD

Principal clients: the government, large business, wealthy individuals.

Loans are only given to businesses and individuals with enough collaterals and credibility.

Micro-finance

Minimum deposit for a deposit account: 20 USD

Number of MF Number of

branches

Rate of creation

since 1990

Total Number

of employees

26 65 2.6/year 232

CONTENT OF THE POLICY

It consist of a number of stipulated measures aim at fostering the growth of micro-finance institutions. The most outstanding of these measures included:

Tax exemptions on Micro-finance Institutions

License tax (5% of annual turnover ),with a minimum turnover of 30 000 USD

Corporate tax ( 38.5% annual profit and 1.1% of annual turnover in case of a deficit)

Value Added tax (19.25% of the added value)

Landed property tax ( 0.1% yearly of the property value), if the land is the MF’s assets

Income tax on interest generated from deposit of less than 20 000 USD (10% of the interest)

Other Measures

Softening the accounting obligations of Micro-finance Institutions

Business or enterprise creation: simplification of procedures (creation of a one-stop shop for business creation). With this, a company is created in 72 hours

Assistance and auditing by the administration (Ministry of Finance)

Technical and managerial assistance

Periodic auditing by the administration (MOF)

Security assistance

Elaboration of a text regulating the creation, the functioning and dissolution of Microfinances in Cameroon

This was a decision of the PM that stipulated a number of prerequisites for the creation of MFI and some outstanding obligations with regards to their functioning.

COST OF THE POLICY

Financial cost: It was difficult to have and exact

financial cost of the policy, considering the existence of

many indirect charges. But, the direct cost was

evaluated at budgetary lost worth about 10 billion

franc CFA, that is 2 million USD/year, thus about 20

millions USD in 10 years

Social cost: no direct social cost was pointed out.

Possible risk related to this policy

Negative competition of those micro finances against

commercial banks

Risk of poor management leading to insolvency

Insecurity of such micro finances institutions,

especially in rural areas

REMARK

A prior examination of any policy is not only necessary

but must be thoroughly carried out because it enable

to have a mastery of all the realities surrounding the

the problem at stakes

In addition it is the result of the ex-ante evaluation that

determines whether the policy worth implementation

or not, since some how it includes a cost-benefit

analysis.

In the case of the policy examined now, the result of

the prior evaluation gat a “go ahead” to the policy.

ELABORATION OF THE POLICY Following a few inter-ministerial meetings held at the

Prime Ministry and their resolutions;

The Ministry of finance, more precisely the department of Tax Policies elaborated a “proposed Bill of law”, containing all the above mentioned tax facilities to micro-finance;

After validation of the document by the Minister, the Prime minister and finally by the President of the republic, the bill was deposited at the national Assembly on November 7th 2000;

voted as the “Finance law for the Republic of Cameroon for the year 2001 three weeks latter, it was enacted by the President of the republic on December 31st 2001.

IMPLEMENTATION Elaboration of an explanatory circular of the finance

law by the ministry of finance.

From the 1st of January 2001, the tax administration abstained from collecting tax from micro-finance institutions, except income tax of its workers.

Simplification of procedure for license attribution to MFs

The Ministry of Small and Medium Size Enterprises in collaboration with the ministry of finance put in place a one stop shop for the creation of enterprises.

For any micro-finance created, one policeman is being attributed to assure security

Periodic auditing of the micro-finance by the ministry of finance.

EX-POST EVALUATION (AUGUST 2010)

Following the implementation of the policy and

the expiration of the 10 years period for which

the policy was designed,

A committee, highly dominated by the ministry of

finance and the ministry of SMSE, carried out an

evaluation,

Which aims at getting the extent to which the

intended objectives have been achieved, so as to

determine a way forward.

OUTCOME.

SITUATION OF BANKING INSTITUTIONS BY DECEMBER

31ST 2010

Commercial Banks: From 10 to 13, 6 of which are

locally owned. This increase was as a result of the fact

that some microfinances saw their capital and

turnover increased, and consequently, moved from the

statute of a microfinance to a bank.

Micro-Finance institutions

The number moved from 26 in 2000 to 497 in 2010,

With and Average number of branches of 8 per micro-

finance, thus a total number of 3976 branches.

OUTCOME CONT..

Financing of SMSe: Following the statistics of the various one stop shop for business creation, 7000 new small scale business were established (though other factors might have contributed to these improvement, it was held that the policy was very determinant)

Employment.

The MFI employed an average of 10 person per branch and 13 at the headquarters. Thus, a total number of 46,017 persons

With and average monthly salary of 450 USD

Many other thousands of people employed in the newly created enterprises

OUTCOME CONT.

Considerable reduction of the informal sector

Many financial transactions are carried out through

banks or micro finances e.g. settlement of bills, payment

of salaries etc, since MFs have become unavoidable

business partner for SMSe

Other outcomes

Drastic increase in government revenue (income tax),

since the newly employed workers both in the

microfinances and the newly established businesses

were subject to income tax

Reduction in “house rubbing” since almost all the

citizens, no matter the level of income have access in

micro-finance where he/she can keep his money

OUTCOME CONT.

Considerable decrease in poverty

Since citizen of any income level can at any given

moment g easily a loan from the MF either for the sake

of his children education, health and even business.

In addition, workers enrolled in these MF have the

possibility to get “a salary advance “ within the month,

pending the end of the month

Influence on university studies in Cameroon.

With regards to all the above outcome, the evaluation

report pointed out a success of the policy.

POST EVALUATION MEASURES AND THE WAY

FORWARD Post evaluation measures (contained in the 2011

finance law)

Subjection of all micro finance institution to license and

corporate tax (Section 3 of the 2011 financial law);

Obligation for all financial transactions worth 1000000

Francs (2000 USD) to be carried out through the bank

or micro finance

Obligation for all salary payments worth more than

62000 (124 USD) to be paid trough a bank or financial

institution

Instruction of a number micro-finances institutions to

be transformed into a full bank.

POST EVALUATION MEASURE CONT.

Future perspective

Complete subjection of all micro finance to the

payment of all taxes and other dues (VAT, LPT,

etc.)

Oblige the computerization of all financial

institutions.

SOME REASONS FOR SUCCESS

National consensus on the importance of the policy (absence of a controversy of any sort)

The outcome of the policy is that which affects all the citizens in the same way, thus no conflict of interest

Few innerving actors.

In general, well elaborated macroeconomic policies are likely to success than “Physical or project policies”, since the former do not involve any direct expenditure, neither does it necessitates the passing of public contract, which often takes much time and corruption.

PROBLEMS FACED BY THE POLICY

Absence of electricity in some areas of the country,

especially rural areas makes it difficult for this policy

to affect all the parts of the country.

Within the 10 years period, 4 MFs went bankrupted

and closed, as a result of poor management.

Insecurity: e.g., a few of the macro finance have been

attacked by thieves, going away with a lot of money.

REFERENCES

Terms of reference of the “micro-finance promotion initiative”

(October 2000)

Cameroon General Tax Code ( 2001 and 2011)

Report on the situation and the economic, social and financial

perspectives of Cameroon (2011)

Strategic paper for growth and development.

Finances Laws of the Republic of Cameroon (2000 -2011)

END THANKS FOR YOUR

ATTENTION