XS banking law boosts CEMAC microfinance regulation

• Microfinance development in CEMAC member states remained slow until the 1990s.
• Three factors contributed to rapid growth: economic crisis, bank failures, and under-banking.
• Regulatory framework is characterized by gaps and inconsistencies, particularly for licensing and supervision.
• Cameroon's microfinance sector is now primarily governed by the COBAC Regulation No. 01/17/CEMAC/UMAC/COBAC of September 27, 2017, and the Minister of Finance oversees microfinance in conjunction with COBAC.
• CEMAC member states lack robust legal frameworks to regulate microfinance effectively.

The regulatory framework for microfinance in CEMAC member states is characterized by significant gaps and inconsistencies, particularly with regards to licensing and supervision.

The development of microfinance in the Central African Economic and Monetary Community (CEMAC) member states remained embryonic until 1990, despite some early experiments in Cameroon, Congo, Chad, and Central Africa. However, from the 1990s onwards, three key factors contributed to the rapid growth and expansion of the sector. Firstly, the severe economic crisis of the 1980s led to deep restructuring efforts by governments across all sectors, including banking. This resulted in widespread bank failures, which further eroded trust among low-income populations and led to mass layoffs of experienced bankers who then turned to creating unregulated microfinance entities. Additionally, post-restructuring, traditional banks tightened access to their services and scaled back their networks, exacerbating under-banking, particularly in rural areas. As a result, microfinance structures became increasingly attractive due to their proximity, simple business approach, and presumed adaptability.

The regulatory framework for microfinance in CEMAC member states is characterized by significant gaps and inconsistencies, particularly with regards to licensing and supervision. In Cameroon, while the 1992 law relating to cooperative societies and common initiative groups is still applicable to savings and credit cooperatives, the microfinance sector is now primarily governed by the COBAC Regulation No. 01/17/CEMAC/UMAC/COBAC of September 27, 2017, which sets the conditions for the exercise and control of microfinance activities in the CEMAC zone, alongside other national laws like Law No. 2019/021 of 24 December 2019. Furthermore, the monetary authority responsible for overseeing microfinance in Cameroon is the Minister of Finance, who works in conjunction with the Banking Commission of Central Africa (COBAC) for licensing and supervision. Moreover, there is no provision for a controlling authority in this area. In the other five member states, microfinance entities have relied on existing laws related to associations or cooperatives, which were not specifically designed for savings and credit activities. While the 1992 COBAC Text harmonized banking regulations, the regulation of microfinance in CEMAC member states has since been significantly updated and is now primarily governed by specific COBAC regulations, notably Regulation No. 01/17/CEMAC/UMAC/COBAC of September 27, 2017, which addresses the conditions for the exercise and control of microfinance activities.

The regulatory gaps and inconsistencies surrounding microfinance in CEMAC member states pose significant challenges for lawyers advising clients on microfinance activities. The lack of clear licensing and supervision frameworks exposes clients to compliance risks, highlighting the need for more robust legal frameworks that can effectively regulate this sector. As microfinance continues to grow as a key tool against poverty, it is crucial that governments in these regions address these regulatory shortcomings to ensure the sector operates safely and efficiently.

Lawyers advising clients on microfinance activities in CEMAC member states should be aware of the regulatory gaps and inconsistencies, particularly with regards to licensing and supervision, which may expose their clients to compliance risks.

Source: Original reporting via Le développement de la micro-finance dans les Etats membres de la Communauté Economique et Monétaire de l’Afrique Centrale (CEMAC)