A. Overview

30. The financial sector of the Central African Republic (C.A.R.) comprises the national branch of the Banque des Etats de 1’Afrique Centrale (BEAC)—the regional central bank that also covers five other CEMAC countries—three commercial banks, a microfinance institution, two postal financial institutions (a postal savings bank and postal checking center), two insurance companies, two general insurance agents, a mutual insurance association, and a social security institution. There are no active organized financial markets, and no securities are traded. There are neither leasing companies nor term lenders. The regional supervisor of the banks and microfinance institutions is the Banking Commission of Central Africa (COBAC).⁹

31. The sector is still largely underdeveloped. Besides the illiquid claims arising from the various types of arrears of the state, the single most important domestic financial asset held by the public is currency, with deposits in commercial banks a distant second, implying that the central bank, not the commercially driven deposit banks, is the dominant financial intermediary in the C.A.R. (Table II. 1). The financial sector mobilizes little savings, allocates little capital, and provides only the most elementary payment and risk management services. This state of affairs points toward the weakness in the institutional underpinnings of financial sector activity, and specifically in the mechanisms for the enforcement of contracts and the monitoring of borrowers’ performance. According to bankers, slow and unpredictable judiciary processes in the C.A.R. hinder the collection of claims and increase the cost of financial intermediation. A comparison with the countries of the West African Economic and Monetary Union (UEMOA) and the Central African Economic and Monetary Community (CEMAC) indicates that, within the two CFA franc zones, the C.A.R. has the lowest ratio of deposits to GDP, as well as the highest share of currency in M2 (Table II.2).

Table II.1:

Domestic Financial Assets Held by the Public, End 2003 Estimates

^1/The liquidity held by the CMCA in currency (CFAF 0.1 billion) or in deposit with the banks (CFAF 0.9 billion) is already included in the money stock, so that the net contribution of the CMCA to the claims of the public on the financial intermediaires is CFAF 1.2 billion.

Table II.1:

Domestic Financial Assets Held by the Public, End 2003 Estimates

Nature of asset				Billions of CFAF (except if indicated otherwise)
Claims on Financial Intermediaries
	Currency outside banks			71.4
	Deposits in commercial banks (including			33.5
		deposits of public institutions)
			Of which: terms and savings deposits	10.9
	Technical reserves of insurance companies (2001)			4.5
	Members accounts, CMCA 1/			2.2
			Pour mémoire: Liquidity held by CMCA	1.0
	Deposits at the Savings Postal Bank			0.5
Deposits of the public at the Postal Checking Center				0.1
Arrears of the State
	Suppliers			93.2
	Salaries			61.1
	Pensions			11.5
	Scholarships			2.2
Arrears of the Social Security Office				8.7
Outstanding fiscal advances				1.1

^1/The liquidity held by the CMCA in currency (CFAF 0.1 billion) or in deposit with the banks (CFAF 0.9 billion) is already included in the money stock, so that the net contribution of the CMCA to the claims of the public on the financial intermediaires is CFAF 1.2 billion.

View Table

Table II.1:

Domestic Financial Assets Held by the Public, End 2003 Estimates

Nature of asset				Billions of CFAF (except if indicated otherwise)
Claims on Financial Intermediaries
	Currency outside banks			71.4
	Deposits in commercial banks (including			33.5
		deposits of public institutions)
			Of which: terms and savings deposits	10.9
	Technical reserves of insurance companies (2001)			4.5
	Members accounts, CMCA 1/			2.2
			Pour mémoire: Liquidity held by CMCA	1.0
	Deposits at the Savings Postal Bank			0.5
Deposits of the public at the Postal Checking Center				0.1
Arrears of the State
	Suppliers			93.2
	Salaries			61.1
	Pensions			11.5
	Scholarships			2.2
Arrears of the Social Security Office				8.7
Outstanding fiscal advances				1.1

^1/The liquidity held by the CMCA in currency (CFAF 0.1 billion) or in deposit with the banks (CFAF 0.9 billion) is already included in the money stock, so that the net contribution of the CMCA to the claims of the public on the financial intermediaires is CFAF 1.2 billion.

Table II.2.

Financial Intermediation in the Countries of the Two CFA Franc Zones, 2002

(In percent)

Table II.2.

Financial Intermediation in the Countries of the Two CFA Franc Zones, 2002

(In percent)

	Deposits/GDP	Currency outside banks/M2
Benin	16.6	33.5
Burkina Faso	16.7	21.0
Cameroon	13.1	24.9
Central African Republic	3.8	73.8
Chad	5.1	62.1
Congo	6.8	44.2
Côte d’Ivoire	14.8	47.9
Equatorial Guinea	4.7	26.2
Gabon	14.0	22.0
Mali	15.9	39.7
Niger	7.0	28.8
Senegal	21.7	19.8
Togo	16.5	27.3

View Table

Table II.2.

Financial Intermediation in the Countries of the Two CFA Franc Zones, 2002

(In percent)

	Deposits/GDP	Currency outside banks/M2
Benin	16.6	33.5
Burkina Faso	16.7	21.0
Cameroon	13.1	24.9
Central African Republic	3.8	73.8
Chad	5.1	62.1
Congo	6.8	44.2
Côte d’Ivoire	14.8	47.9
Equatorial Guinea	4.7	26.2
Gabon	14.0	22.0
Mali	15.9	39.7
Niger	7.0	28.8
Senegal	21.7	19.8
Togo	16.5	27.3

32. Financial deepening is not occurring in C.A.R. From 1996 onwards, the year during which the nominal money stock reached a historical peak, to 2003, the money stock fell by 21, percent while nominal GDP rose by 35 percent. Money as a percentage of GDP, a crude indicator of financial deepening, fell from 24 percent in 1996 to 14 percent in 2003, in spite of the return to price stability after the devaluation of the CFA franc in 1994. Over the same period, deposits in the commercial banks as a percentage of GDP fell steadily from 4.3 percent to 3.3 percent in 2000, but recovered to about 4 percent thereafter (Table II.3). The capacity of the banks to mobilize additional deposits over the past three years, in very difficult circumstances, may have been due in part to the completion of the restructuring and privatization of 2 of the three banks in 1999, which included recapitalization.

Table II.3.

Financial Deepening Indicators, 1996–2003

(In percent)

^1/Excluding deposits of the state.

Table II.3.

Financial Deepening Indicators, 1996–2003

(In percent)

		1996	1997	1998	1999	2000	2001	2002	2003 Estimates
	M2/GDP	24.4	20.6	16.1	16.5	16.2	15.5	14.4	14.3
Deposits*/GDP 1/		4.3	4.1	3.7	3.8	3.3	3.8	3.8	4.1

^1/Excluding deposits of the state.

View Table

Table II.3.

Financial Deepening Indicators, 1996–2003

(In percent)

		1996	1997	1998	1999	2000	2001	2002	2003 Estimates
	M2/GDP	24.4	20.6	16.1	16.5	16.2	15.5	14.4	14.3
Deposits*/GDP 1/		4.3	4.1	3.7	3.8	3.3	3.8	3.8	4.1

^1/Excluding deposits of the state.

B. The Commercial Banks

33. The three commercial banks operating in the C.A.R. are the Banque Internationale pour la Centrafrique (BICA), the Banque Populaire Maroco-Centrafricaine (BPMC), and the Commercial Bank Centrafrique (CBCA). The government holds a minority participation in each of the three banks.¹⁰ The BICA has the biggest share of deposits (40 percent), while the CBCA has the biggest market share in term of credits (44 percent). The BPMC is the smallest bank, with a 23 percent market share in terms of both deposits and credits.

34. In light of the drying up of external assistance in the last two years, the government has increasingly resorted to financing from the domestic commercial banks, and public institutions have run down their deposits with banks. As a result, the government weighs heavily on those banks (at end-December 2003, credit to the public sector stands at 29 percent of the total domestic credit of commercial banks), and the banking sector is now facing a liquidity crisis. To alleviate this problem, the governor of the BEAC has exempted the banks in the C.A.R. from the reserve requirements since May 22, 2003.¹¹ Although the banking system of the CEMAC as a whole is facing excess liquidity, the de facto fragmentation of the interbank money market and the perceived country risk attached to the C.A.R. inhibit a reallocation of liquidity to the C.A.R. banks.¹²

35. The banking sector is presently under considerable strain. Globally, for the two largest banks, the ratio of doubtful loans to gross credits stood at about 34 percent at end-2003. According to the banks, provisions cover on average 90 percent of the doubtful loans.¹³ Of the three commercial banks, BICA is classified by the COB AC as being in a very critical financial situation, with none of the prudential ratios based on net worth being met. BICA urgently needs to be recapitalized. To increase the equity eligible to meet the solvability ratio, it needs also to recover from major shareholder credits far in excess of what the regulations allow.¹⁴ CBCA is in a moderately fragile financial situation and does not meet the required liquidity ratio.¹⁵ BPMC is classified as being in a sound financial situation.

C. Microfinance

36. The microfinance sector in the C.A.R. comprises three types of organizations: savings and credit cooperatives; non governmental organizations (NGOs) engaged in microfinance in conjunction with other services; and donor projects with a credit component. The sector has been adversely affected by the political and military disturbances of the recent past. Of a total of 60 primary units known to exist in 1999, only 44 are still in existence.

37. The single most important organization active in the sector is the Credit Mutuel de Centrafrique (CMCA), a federation of 18 primary caisses, which account for 41 percent of the primary units of the sector, between 95 to 98 percent of the savings and credit transactions, and 80 percent of the members (Table II.4 summarizes the business profile of the CMC A). The CMCA was created in 1994, and grew rapidly up to 2000, when the membership’s deposits reached CFAF 2.2 billion, a level close to that observed at the end of 2003. Credits also increased rapidly to reach a stock of CFAF 600 million in 2000. After a sharp reduction in 2001 and 2002, the lending activity recovered in 2003. With doubtful credits representing 8.5 percent of the total outstanding, the CMCA appears better managed than most other microfinance institutions.¹⁶ In addition to savings and credit products, the CMCA offers some basic payment services for the payment of wages for the workers of 17 private enterprises.

Table II.4.

Crédit Mutuel de Centrafrique

(end-December 2003)

Table II.4.

Crédit Mutuel de Centrafrique

(end-December 2003)

Number of primary branches					18
	Of which, in Bangui				10
Membership (persons)					48,424
Deposits (CFAF millions)					2,247
	Average balance (CFA francs)				39,303
		In US dollars			73.6
Credit outstanding (CFAF billions)					0.722
	Number of credit files				1.874
			Average (CFA francs)		385,272
			In US dollars		722
Doubtful credits (CFAF millions)					61
				In percent age of total outstanding	8.45
Subsidies (CFAF millions)					56
Net results (CFAF millions)					-47

View Table

Table II.4.

Crédit Mutuel de Centrafrique

(end-December 2003)

Number of primary branches					18
	Of which, in Bangui				10
Membership (persons)					48,424
Deposits (CFAF millions)					2,247
	Average balance (CFA francs)				39,303
		In US dollars			73.6
Credit outstanding (CFAF billions)					0.722
	Number of credit files				1.874
			Average (CFA francs)		385,272
			In US dollars		722
Doubtful credits (CFAF millions)					61
				In percent age of total outstanding	8.45
Subsidies (CFAF millions)					56
Net results (CFAF millions)					-47

38. The CMCA is not yet self-sustained, as it still receives subsidies and does not break even.¹⁷ It also suffered from destruction and looting during the recent conflict. It estimates the cost of reconstruction at CFAF 70 million (16 percent of 2002 gross revenue).

39. In April 2002, the COBAC issued a prudential framework applicable to the microfinance sector, and the new regulations are being put in place. According to this framework, all microfinance institutions will be required to obtain a license (agrément) from the Ministry of Finance, subject to the clearance of the COBAC which retains responsibility for prudential supervision.¹⁸ The Ministry of Finance established in December 2002 a special unit to fulfill its new responsibility of granting licenses. A professional association of microfinance institutions is to be established. The various organizations have two years to meet the new institutional requirements and prudential ratios.

D. Insurance

40. The insurance sector comprises two insurance companies and two general agents.¹⁹ The two companies are the Union Centrafricaine d’Assurance et de Réassurance (UCAR), which is the largest of the two (63 percent market share in 2001), and the Union des Assurances Centrafricaines (UAC). Coverage for automobile, fire, transport and other risks is available, but no term life insurance is offered.²⁰ While these insurers suffered from the unfavorable environment in 2001 and 2002, they were still registering profits (Table II.5).

Table II.5.

Insurance Companies

(Millions of CFA francs, 2001)

Source: Unpublished World Bank report on the financial sector of the C.A.R., 2003.

Table II.5.

Insurance Companies

(Millions of CFA francs, 2001)

Net worth	1,088
Technical provisions	4,491
Premium received	1,433
Operating profits	162

Source: Unpublished World Bank report on the financial sector of the C.A.R., 2003.

View Table

Table II.5.

Insurance Companies

(Millions of CFA francs, 2001)

Net worth	1,088
Technical provisions	4,491
Premium received	1,433
Operating profits	162

Source: Unpublished World Bank report on the financial sector of the C.A.R., 2003.

41. The prudential supervision of the insurance sector is the responsibility of the Conférence Interafricaine du Marché de 1’Assurance (CIMA). This regional regulator has not conducted an on-site inspection of the insurance companies in the C.A.R. in the last six years, an issue requiring immediate attention.

E. Social Security Agency

42. The social security agency, Office Centrafricain de Sécurité Sociale (OCSS), provides social security protection to private sector and public enterprise workers as well as workers employed by the state outside the civil service. Contributions amount to 20 percent of wages (18 percent paid by the employer and 2 percent paid by the worker). The three branches of responsibility of the OCSS are the family allowances, the workmen’s compensation scheme, and pensions. As of the end of 2003, the OCSS covers 3,551 employers with 27,034 employees. Benefits accrue to 11,234 beneficiaries. Quarterly benefits (of which almost three-fourths are pensions) amount to CFAF 432 million, an amount roughly in line with contributions due.²¹

43. The financial situation of the OCCS is in dire straits. The disastrous state of the finances of the public sector (and some private sector enterprises as well) led to the nonpayment of contributions, and the OCCS itself has large arrears to beneficiaries, and further arrears accumulation is likely (Table II.6). At end-December 2003, arrears in benefit payments amounted to CFAF 8.7 billion (of which CFAF 5 billion correspond to unpaid pensions). Contributions arrears amounted to CFAF 31.0 billion and other frozen claims on the public sector amounted to CFAF 5.5 billion. The looting and destruction due to the recent conflict—estimated, provisionally, at CFAF 610 million—further undermined the work of OCCS.

Table II.6.

Social Security: Office Centrafricain de Sécurité Sociale

(Millions of CFA francs)

Table II.6.

Social Security: Office Centrafricain de Sécurité Sociale

(Millions of CFA francs)

Branch	Quarterly benefits as of January 2004 (CFAF millions)	Arrears as of Dec. 31, 2003 (CFAF millions)	Arrears (in multiple of quarterly benefits)
Family allowances	95.2	3,672.6	38.6
Workmen’s comnpensation	20.7	12.1	0.6
Pensions	316.3	5,033.4	15.9
Total	432.2	8,718.1	20.2

View Table

Table II.6.

Social Security: Office Centrafricain de Sécurité Sociale

(Millions of CFA francs)

Branch	Quarterly benefits as of January 2004 (CFAF millions)	Arrears as of Dec. 31, 2003 (CFAF millions)	Arrears (in multiple of quarterly benefits)
Family allowances	95.2	3,672.6	38.6
Workmen’s comnpensation	20.7	12.1	0.6
Pensions	316.3	5,033.4	15.9
Total	432.2	8,718.1	20.2

F. The Financial Services of the Post Office

44. The post office is responsible for the postal savings bank (the Caisse Nationale d’Epargne, CNE), whose liabilities are savings deposits recorded in passbooks, and a postal checking center (the Centre des Cheques Postaux, CCP), whose liabilities are current account deposits. The resources mobilized by these two units are channeled to the Treasury to finance general expenditures. The CNE, with liabilities to depositors amounting to CFAF 500 million, is currently inactive. The CCP has a little over 3,000 accounts, mainly held by individual depositors (but also by the Treasury and public enterprises). The deposits of the public with the CCP amount to CFAF 118 million at end 2003. The main function of the CCP is the payment of the salaries of about 3,000 civil servants through the post office network. The civil servants typically withdraw the totality of their salary and do not keep the funds on deposit in their account. Thus the CCP, although providing a useful payment service, is not important as a financial intermediary.

G. Summary and Conclusions

45. The financial system of the C.A.R. is very underdeveloped. Most of the resources mobilized by the system are mobilized by the central bank in the form of currency in circulation. The counterpart of these resources is the accumulation of net foreign assets or claims on the government, as very little refinancing of the banks occur. The system thus does not yet play a large role in the efficient allocation of savings through the pooling of risks and the search for higher return by market-oriented financial intermediaries. The efficiency gains from financial deepening remain largely untapped.

46. In the short term, the single most important obstacle to a better functioning of the financial system is the inability of the state to meet its financial obligations, which undermines both the liquidity of the banking system and the solvency of some financial intermediaries. The first step of a strategy to develop the financial sector needs to be the resolution of the current fiscal imbalances. Other elements of such a strategy should be the reduction of the cost and risk of intermediation through improvement in the judicial system and other mechanisms for the enforcement of contracts, and a strengthening of the prudential regulation and supervision of the various components of the financial sector. One positive aspect of the current situation is that, because of the regional character of the institutional framework covering banks and microfinance institutions, the prudential supervision function has not been compromised by the debilitating effects of the recent military conflict or the public finance crisis that is undermining the effectiveness of the state.