Mali: Selected Issues

Selected Issues

Abstract

Selected Issues

Financial Stability, Development and Inclusion in Mali 1

The Malian financial system is segmented and dominated by foreign-owned commercial banks. Six banks out of 13 account for 77.5 percent of the sector in terms of total assets. Banks have been very active in the regional sovereign bond primary market since 2009. Credit growth remains steady and consists of mainly short-term and medium-term loans. The microfinance sector is recovering from its 2009 crisis but immense challenges remain in terms of household confidence, access to financing, supervision, asset quality, and resolution. Financial inclusion is lagging, but the acceleration of the development of mobile banking, while carrying regulatory and supervisory challenges, is an opportunity to deepen the financial system, increase the formal sector, and promote long-term economic growth. This paper takes stock of the profile of financial system and discusses its contribution to the economy amid severe security challenges.

A. Profile of The Financial System

1. International and regional banks largely dominate the financial sector. In 2016, the banking sector comprised 13 commercial banks of which six banks accounted for about 77.5 percent of both total assets and deposits. There are seven international banks and five regional banks, accounting for nearly 86 percent of both total assets and deposits. The banking sector’s balance sheets increased by 14.2 percent in 2016 to reach CFAF 4,336.2 billion at end-2016. Banks’ net income amounted to CFAF 45.6 billion at end-2016. Credits to the private sector increased by 16.7 percent in 2016 to reach 2,195 CFAF billion, while customer deposits increased moderately by 6.4 percent to reach CFAF 2,528 billion at end-2016. Balance sheets from other financial institutions increased by 26.5 percent in 2016, to reach CFAF 33.9 billion at end-2016. The share of Malian banks’ total assets in the WAEMU is estimated at 13.3 percent.

Text Table: Financial Sector Structure, 2016

article image

excluding insurance companies

excluding MFIs that are not subject to the Article 44 of the law 007–06-2010.

Source: BCEAO.

2. The microfinance sector plays a significant role in financial inclusion (Figure 1). There are 101 licensed microfinance institutions (MFIs), of which 33 are considered in operation.2 Individual MFIs are considerably smaller than commercial banks in terms of assets but have the same number of deposit accounts. Ten of these 33 operating MFIs are subject to the Article 443 and account for about 3 percent of total assets in the financial sector. Credits to the private sector from MFIs amounted to about CFAF 93.7 billion at end-2016, a 14.5 percent increase from end-2015. Non-performing loans are slowly declining and are estimated at about 6.1 percent of total loans. Nearly 50 percent of MFIs loans have been contracted for agricultural purposes. Customer deposits increased to CFAF 68.5 billion, a 9.4 percent increase from end-2015.

Figure 1.
Figure 1.

Mali: Comparison Between Banks and Microfinance Institutions

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO; CSS/SFD

B. Financing the economy

Banking Sector

3. Mali’s private credits to GDP ratio has been growing steadily since the 2008 financial crisis to converge to the regional average, amid an unfavorable geopolitical context and a subdued rule of law environment. Mali’s ratio of domestic credits to the private sector as a percentage of GDP is about 25 percent at end-2016 (Figure 2). The WAEMU and Sub-Sahara Africa (SSA) averages are estimated at 29 percent of GDP and 23.5 percent of GDP respectively. The ratio of domestic credits to the private sector as a percentage of GDP is often used as a proxy for measuring financial depth. The development of the formal private sector depends on better and broader access to bank credits as well as an improved business environment.4

Figure 2.
Figure 2.

Mali: Private Credits to GDP

(percent of GDP)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO; FinStats

4. Credit to the private sector has expanded significantly along with strong economic performance and outlook (Figure 3). Data from 2000 to 2017 show a correlation between the GDP and credit cycles with a lag of one to two years. A Granger causality test indicates that the GDP cycle leads to credit cycle. The credit cycle tends to spike as the GDP cycle has already started to decline. Typically, a declining phase of the credit cycle is associated with increasing NPLs, which linger on banks’ balance sheet.

Figure 3.
Figure 3.

Mali: Credit and GDP Cycles

(Hodrick-Prescott Decomposition, percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO; IMF staff estimates

5. Access to finance remains low compared to benchmarked countries. Credits to the private sector per capita remain well below SSA average (Figure 4). Only 3 percent of Mali’s population contracted a loan from a financial institution in 2014 while nearly 33 percent borrowed from friends and family. Overall, about 40 percent of Mali’s population borrowed any money in 2014. These results are in line with the number of bank accounts per capita, which is often used as a proxy for financial inclusion, and remains well below the SSA average. The percentage of firms with a line of credit is estimated at 26.3 percent in 2016, which is above the regional average of 22.6 percent. However, the same indicator for small firms drops to about 13.8 percent, in line with the regional average.

Figure 4.
Figure 4.

Mali: Financial Inclusion, 2014

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: World Bank, World Development Indicators.

6. Banks’ credits to the economy are concentrated in trade and other services sectors (Figure 5). The sectorial composition of credits remained broadly stable over the last five years and is similar to the WAEMU composition with the exception of the hotels, restaurants, wholesale and retail trade sector. In Mali, this sector captures 43.2 percent of total credits as of June 2017 compared to 31.4 percent at the regional level. Overall, the tertiary sector accounts for nearly 73 percent of total credits to the economy while contributing to slightly more than a 1/3 of GDP. On the other end, the primary and secondary sectors capture around 27 percent of total credits while contributing to nearly 2/3 of GDP. Most notably, the agriculture sector, which accounts for about 43 percent of GDP and employ directly and indirectly millions of workers, capture around 4 percent of total credits. Farmers typically rely on cash transactions outside the formal banking system and do not have a bank account. Their financial needs are usually addressed by other farms, family, and microfinance institutions.

Figure 5.
Figure 5.

Mali: Credits to the Economy by Sector Credits by Sector, June 2017

(percent of total credits)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO
Figure 6.
Figure 6.

Mali: Credits to the Economy and Nominal GDP

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO, staff estimate.

7. Cost of lending is higher than in peer countries. The average bank lending rate in Mali is estimated at 8.3 percent in 2016, which is above the regional average of 7.0 percent (Figure 7). The average interest has been overall declining since 2010, reflecting to some extent favorable monetary policy from the BCEAO and improved macroeconomic condition. Bank deposit rate is estimated at 4.8 percent compared to a regional average of 5.4 percent. The spread between lending and deposit rates in the Malian banking sector is among the highest in the WAEMU zone, reflecting relatively high credit risk and risk transformation.

Figure 7.
Figure 7.

Mali: Bank Lending and Deposit Rates, 2016

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO.

8. Short-term credits largely dominate total credits to the private sector. Short-term credits to the private sector account for about 76 percent of total credits (Figure 8). It is significantly higher than the WAEMU average which is estimated at about 46 percent to total credits as of end-2016. Sectoral shares in short-term credits remain stable overtime, reflecting to some extent credit rollover over a long period. The share of agriculture nonetheless shows some volatility because it is highly sensitive to the production of cash crops. The agriculture sector captures around 2 percent of all long-term credits while the hotels, restaurants, warehouse and retail trade sector captures nearly 33 percent.

Figure 8.
Figure 8.

Mali: Share of Short-Term and Long-Term Credits to the Economy by Sector

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO.

9. To cope with a scarcity of long-term financing, Malian firms tend to use short-term loans to finance investments with longer maturities. The uncertainty about contracting full financing for long-term projects increases risk and de-incentivizes appetite for long-term investments. Long-term bank financing has a greater impact on economic growth than short-term financing because long-term projects tend to have higher returns adjusted for risks. Shorter-term credit allows firms to finance working capital and other short-term investments, whereas firms need long-term loans to insure themselves against liquidity risks and afford longer-term investments that contribute to long-term productivity growth.

10. The lowering of the transformation ratio in 2015 has been associated with a slight surge in short-term credits with longer maturities. The transformation ratio imposes a limit on long-term assets to long-term liabilities. It was reduced to 50 percent in 2015 from 75 percent. The share of medium-term credits to total credits has increased from 33 percent in 2014 to 35 percent in 2016. The decline in the maximum transformation enabled a surge in credits with longer maturities, financed with short-term resources. As a result, the possibility of an asset-liability mismatch has increased.

11. The financial environment constrains the supply of long-term loans. Liquidity risk tied to long-term projects, difficulties in enforcing contracts, information asymmetry, and macroeconomic and political instability are major factors that make banks reluctant to provide firms with long-term credits. Stronger rule of law, infrastructure, and credit information collection and dissemination tend to lead to higher bank lending to the private sector.

  • Malian’s banks often lack long-term resources, and because they must comply with prudential liquidity ratios, they have less capacity to extend long-term financing. The share of short-term credits in Mali’s banking sector is comparable to the share of demand deposits. Foreign participation to provide long-term resources remains marginal and banks lack access to international markets for mobilizing long-term capital. The current regulation on liquidity ratios requires that at least 75 percent of a bank’s short-term liabilities be covered by short-term assets, and the regulation on the transformation ratio similarly requires that at least 50 percent of medium-and-long-term bank assets be financed by resources of comparable maturity. In June 2017, 10 banks out of 13 complied with the liquidity ratio, and 11 banks out of 13 complied with the transformation ratio. Excess liquidity among some large banks de-incentivizes the need for securing long-term resources, which in turn could limit the supply of long-term credits.

  • The long-term government bond market remains shallow and only provides limited yield curve information that in turn complicates the pricing of long-term credits to the private sector.

  • Mali’s legal uncertainty and judicial processes undermine both creditors and investors rights and raise perception of risk associated with investment. A weak legal environment, coupled with strong perceived corruption from market participants, prevents creditors from gaining possession of collateral or liquidating firms to meet obligations. In addition, Mali’s business environment is hampered by inadequate investors protection. To encourage bank lending, the rule of law needs to be clear and its enforcement effective. This is even more important for long-term credits that carry higher risk for creditors and increase uncertainty about the capacity of the borrower to repay.

12. Long-term lending is hampered by lack of information on the solvency and quality of borrowers. The public credit registry at the BCEAO is incomplete and only focuses on delinquent loans. In addition, banks lack the tools and knowledge to assess projects properly. This increases reliance on collateralization which can limit or drive up the cost of access to credit. On the demand side, low-skilled entrepreneurs may not be able to design bankable projects and provide reliable and comprehensive financial information about projects.

13. Credit to the private sector is correlated with public investment (Figure 9). Public projects create business opportunities to contractors in different sectors. Banks provide short-term loans to suppliers based on public sector invoices, thus creating a link between public investments and private sector credits. A Granger causality test indicates that public investments tend to lead credit growth. Consequently, official payment delays and arrears may have a significant impact on banks’ solvency. This link between public investment and private sector credit is supported empirically. The IMF’s SSA Regional Economic Outlook5 provides estimates of the drivers of private sector credit in Africa.

Figure 9.
Figure 9.

Mali: Public Investment Growth and Credit Growth

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: Authorities; BCEAO; IMF staff estimates.

14. While bank assets are still dominated by short-term credits to the private sector, the share of government bonds has increased steadily since 2012 (Figure 10, Figure 11). Short-term credits to the private sector accounted for 48.6 percent of total assets at end-2015, a reduction of about six percentage points compared to end-2012. In the meantime, the share of government bonds increased from 15.3 percent of total assets at end-2012 to nearly 25 percent at end-2015. This shift in the composition of bank assets was driven by a large expansion of banks’ balance sheet thanks to a favorable regulatory framework and profitable refinancing opportunities. The balance sheet of the banking sector increased by 75 percent between 2012 and 2015. Credit growth remains broadly in line with deposit growth.

Figure 10.
Figure 10.

Mali: total assets, credits, bonds, and deposits in the banking sector

(End of year, CFAF billion)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO
Figure 11.
Figure 11.

Mali: asset composition in the banking sector

(End of year, percent of total assets)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO

The Sovereign-Bank Nexus

15. Mali’s public sector plays a sizeable role in the real economy. For instance, large capital expenditures are usually carried by the public sector rather than by private companies. They can enable a more favorable environment for businesses to develop. Expansion of basic infrastructures, such as power, fuel, transport, and telecommunication, can foster higher growth and shift potential GDP upward. In Mali, most large infrastructure projects are externally financed.

16. Malian banks hold a substantial amount of public debt. Banks hold sovereign debt for several reasons. The relative safe status of sovereign exposures gives them a key role in the operation of financial systems, transforming sovereign debt into a source of liquidity, a safe haven during financial stress, and a reference for market pricing. These characteristics make sovereign instruments widely accepted collateral to financial transactions and important assets for the operation of the banking system.

17. The link between banks and sovereign is a growing concern. Government securities from Mali account for about 26 percent of total assets in Mali banking sector in 2016, compared to 7.5 percent in 2009. The share of government securities to total assets has increased steadily since 2009, thanks to favorable refinancing opportunities from the BCEAO (Figure 12). Sovereign distress would have an immediate and direct impact on bank balance sheets and on profitability. Since banks absorb a sizable portion of bond issuances, their distress may lead to problems in the sovereign bond market. About 85 percent of Mali government bonds are issued via the UMOA-Titres agency. The other debt instruments are government bonds through syndication (2016, 2017) and Sukuk (2018). WAEMU banks are the main investors on the market as only 4 percent of Mali government bonds are held by banks on behalf of their customers. The secondary market for bills and bonds remains underdeveloped. Market interventions by non-sovereign issuers—including nonbank financial institutions, private companies, and regional and international institutions remain scarce.

Figure 12.
Figure 12.

Mali: Share of Government bonds in the Domestic Banking Sector

(End of year, percent of total assets)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: BCEAO; Staff estimate.

18. Half of Malian government securities issued via the UMOA-Titres agency are held by Malian banks. Similarly, 53.4 percent of WAEMU’s government securities held by Malian banks were Mali’s government securities (Figure 13, Figure 14). Some linkages can also be observed between Mali and Côte d’Ivoire. Government bonds from Côte d’Ivoire account for 16.1 percent of Malian banks government bonds portfolio, while banks from Côte d’Ivoire holds 11.1 percent of Mali’s government bonds. Also, banks from Burkina Faso hold 14.1 percent of Mali’s government bonds while Banks from Mali hold 3.2 percent of Burkina Faso’s government bonds.

Figure 13.
Figure 13.

Share of WAEMU’s government securities held by Malian banks, Oct. 2017

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: UMOA-Titres
Figure 14.
Figure 14.

Share of Mali’s government securities held by WAEMU’s banks, Oct. 2017

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: UMOA-Titres

19. The maturity of government securities is progressively expanding, thus adding pressure on the long-term credits to the private sector market. In addition to a sharp increase in banks’ holding of government securities, banks tend to hold more bonds with longer maturity. At end-2017, Mali’s domestic debt, which is mostly held by Malian banks,6 was composed of 9 percent of short-term securities7 and 91 percent of medium and long-term securities (Figure 15). While there is no direct evidence of crowding out of the private sector, this higher ratio of medium and long-term bonds could put some pressure on the issuance of long-term loans to the private sector as banks must comply with the transformation ratio.8 It is typically deemed safer and easier for commercial banks to hold long-term government bonds than long-term credits to the private sector. Sovereign debt instruments benefit from more favorable regulatory rules, rarely become nonperforming assets, can be used as collateral to obtain liquidity, and do not require due diligence to assess the credit worthiness and viability of the long-term project associated with the loan.

Figure 15.
Figure 15.

Mali: Public Domestic Debt

(Percent of Total Domestic Debt)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: Authorities.

20. Favorable regulations create incentives for banks to invest in government securities. WAEMU-regulation applies a zero-risk weight for sovereign, irrespective of their rating. WAEMU-debt typically has a rating around the “highly speculative” B category, to which the standardized approach in the Basel II framework assigns a risk weight of 100 percent. However, under this framework, supervisors can exercise discretion and set a lower risk weight for sovereigns provided that the exposures are denominated and funded in national currency.9

21. Government securities are currently exempted from exposure requirements. While banks may face some challenges to comply with the new capital requirements10 due, in part, to their high exposure to non-sovereign-single-name borrowers, the new regulation could enable the BCEAO to specify a ceiling for sovereign exposure. This could in turn could put pressure on the WAEMU-debt market while providing an incentive to diversify the pool of investors.

Microfinance

22. Microfinance institutions operating in rural areas lack financial resources. Credit-to-deposit ratio is much higher in rural than in urban area, underlying the need for greater efforts to mobilizing financial resources, including domestic deposits. Credit-to-deposit ratio is estimated at about 217 percent in rural areas compared to 119 percent for MFIs operating in urban areas at end-2016. MFIs must comply with a coverage ratio of medium and long-term assets to medium and long-term liabilities of 100 percent. Only 6 MFIs complied with this regulatory rule in Mali at end-2016. Accordingly, further credit growth should be supported by greater efforts to mobilize domestic deposits. Non-performing loans ratios are similar in both rural and urban areas. The total amount of credits in the MFI sector is estimated at CFAF 93 billion (4.2 percent of the financial system) at end-2016, of which CFAF 27.9 billion in rural area (30 percent of loans in the MFI sector and 1.3 percent of the financial system). Most of the loans are contracted for agricultural purposes. Deposits accounted for CFAF 68.5 billion (2.7 percent of the financial system), of which CFAF 12.3 billion in rural area (0.5 percent of the financial system; Figure 16). In urban area, the value of credits per customer is estimated at CFAF 146 thousand and the value of deposits per customer is CFAF 124 thousand. In rural area, on the other hand, the value of credits per customer is slightly lower than the one in urban areas with CFAF 107 thousand, but the value of deposits per customer is significantly lower with CFAF 47 thousand (Figure 17).

Figure 16.
Figure 16.

Mali: Microfinance Institutions Under Article 44, 2016

(CFAF Million)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: CSS/SFD
Figure 17.
Figure 17.

Mali: Credits and Deposits per Customer

(CFAF Thousand)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: CSS/SFD

23. Financial access to savings, credits, and insurance products by households, micro-entrepreneurs, and poor farmers is seriously affected by a confidence crisis in the microfinance sector. The financial distress of major MFIs11 in 2009, coupled with the aftermath of the 2012 coup d’état, started a crisis in the sector. It has negatively impacted the system in terms of bank refinancing, client deposits, and overall confidence in MFIs. Many low-income depositors have lost their savings and lost faith in the integrity of the system. Total assets and deposits growth are slowly recovering, thanks in part to Microcred which started its operations in 2014, but refinancing by banks and other financial institutions remain challenging. While the sector does not appear to pose a major risk to financial stability, its weakness undermines confidence by the population in financial institutions and may be a hurdle to raising financial inclusion, and ultimately economic growth. There are close to 1 million microfinance clients and about 1.4 million beneficiaries.12

24. Progress on implementing the National Emergency Plan for Microfinance is underway. The Minister of Economy and Finance has issued ministerial orders withdrawing the licenses of MFIs that have been audited and needed to be liquidated. The supervision program and the capacity of the CCS/SFD is being strengthened. The National Emergency Plan for Microfinance was adopted by the council of Ministers in March 2015, in line with the regional plan adopted by the WAEMU council in 2012. The Emergency Plan is under the responsibility of the CCS/SFD. It comprises the following measures: i) restructuring of the sector (including depositor compensation mechanism), ii) implementation of the legal framework, iii) capacity building for supervisory body (CCS-/SFD) and promoting body (AP/SFD), iv) support for viable MFIs, v) improved support to develop the infrastructure of the sector, and vi) expansion of microfinance services.

25. The Malian supervisory body CCS/SFD lacks capacity and resources. The WAMU Banking Commission is responsible of the supervision for large MFIs13 and the Malian supervisory body (CCS/SFD) remains responsible for smaller MFIs. The CCS/SFD provides regular supervision reports to the BCEAO and the Banking Commission is involved in one or two missions per year. Supervision of the MFIs involves on-site and off-site inspections. However, it remains challenging due to insufficient resources, too few inspections, and limited follow-up or monitoring.14 In 2013–2014, the Banking Commission carried out 2 on-site supervision missions for large MFIs.

26. Off-site supervision remains weak. The annual statistical and financial reports of the MFIs must be sent six months after the end of the financial year. In 2014, only 22 institutions submitted their annual report on time and in compliance with the requirement. Financial penalties were decided for the MFIs that did not respect the submission deadline, but the decision to apply them was not taken by the Ministry.

Leasing

27. Mali’s leasing market is shallow and underdeveloped. There is one leasing institution15 in Mali, which specialized in leasing truck and commercial transport vehicles, and one lessor,16 which is a division of a commercial bank. Leases account for less than one percent of banks and non-bank financial institutions assets at end-2016. The share of leases has been declining in relative and absolute terms.

28. Specific legislation needs to be enacted to provide a sound legal basis and ensure an appropriate fiscal and recovery regime for leasing. New legislation on leasing has not yet been adopted in Mali. For the moment, the regional WAEMU financial regulation allows both banks and non-banks financial institutions to offer leasing products, but they are treated as credit product. Consequently, the current legal framework is inefficient and inappropriate. Procedures for recovery of leased property in the event of default by the lessee are cumbersome. Lessors are not treated as owners of the leased property and thus must go through the same time-consuming and costly recovery procedures as other creditors. Leasing can only develop and achieve its development role on the SME sector as a secured term financing product if leasing institutions can easily repossess and sell the leased equipment in case default. Developing the leasing industry could also help deepen Mali’s capital markets. Leasing institutions book medium term assets that provide other financial institutions with a diversification of investment opportunities.

Leasing: Bridging the Financing Gap

Lease financing can contribute to bridge the financing gap experienced by Small and Medium Enterprises (SMEs) in Mali. Banks in developing countries have little appetite and incentive to outreach to SMEs, which they consider riskier and costly to serve due to small transaction sizes. In addition, lease financing can substitute more efficiently to long-term loans. In Mali, SMEs generally lack access to financing, as banks typically tend to focus on top-tier commercial and retail clients, leaving a wide-open “SME Finance gap”. As such, leasing institutions (specialized, bank-owned, or captive of equipment manufacturers) are particularly well-suited to meet the investment needs of SMEs:

  • Secured financing – Leasing companies develop better capabilities than commercial banks in physical asset management, repossession, evaluation and remarketing. In countries where contract enforcement and ownership rights are properly set, lease financing does not require real-estate nor cash collateral.

  • Cash-flow financing – Leasing companies develop a strong understanding of the use of the financed assets, and are better able than banks to assess the adequacy of purchased equipment against client needs; they understand better the cash-flows generated by the financed asset, and can take these into account in their credit underwriting methodology.

  • SMEs business development – Helped by a strong product and client segment focus, leasing companies outreach to SMEs directly and through point-of-sale financing (“vendor programs”), in a much more proactive way than traditional banks, that tend to cater mainly to the walk-in customer.

  • Lower internal processing cost – Leasing institutions are more focused and specialized than banks and generally does not require additional collateral. consequently, lease financing is made available to SMEs more effectively and with lower internal processing costs than term loans.

Mobile Banking

29. The market for mobile financial services is witnessing a significant growth in Mali. Since 2013, most large Malian banks provide mobile access to banking services and some are deploying E-money services. Two mobile operators, Malitel and Orange-Mali offer demand deposit, mobile transfer and payment services through E-money. The value of E-money transactions in the mobile banking sector in Mali increased by 33.6 percent in 2016, reaching 2,193 billion CFAF. Similarly, the volume of transactions increased by 39.3 percent, corresponding to about 140 million operations in 2016. The number of E-money accounts saw a significant increase as well, reaching 6.9 million accounts, but only 1/3 of them are considered active. About 25 percent of the working population has an active E-money account at end-2016.

30. Commercial banks are entering the mobile banking market through partnerships with mobile operators or through their own mobile banking application. In this context, linkages between banks and mobile operators are building up and the operating model is diversifying the scope of mobile financial services. Competition among actors is increasing. On one hand, banks are competing with mobile operators to capture new segments of customers (essentially all smartphone users) and on the other hand, mobile operators are competing with banks to provide a broader menu of financial services. Under the current regulation, mobile operators cannot provide remunerated deposits, such as term deposits, and loans to their customers, such as microcredits. The development of new operating models between banks and mobile operators could help achieve higher financial inclusion, which in turn would reduce the extent of the cash and informal economy.

Text Table: Mali: Mobile banking: selected indicators

article image
Source: BCEAO

31. Mali has become a key player in the WAEMU mobile banking market. Mali accounts for roughly 20 percent of the mobile banking market in the WAEMU. In 2016, Mali ranked third in terms of value (CFAF 2,193 billion) and volume (139.7 million) of transactions (Figure 17). Côte d’Ivoire ranked first (48 percent of total value of transactions and 38 percent of total volume of transaction) and Burkina Faso ranked second (21 percent of total value of transactions and 20 percent of total volume of transaction). In the WAEMU, the total value of transactions is estimated at CFAF 11,500 billion and the total volume of transactions is estimated at CFAF 735 million. Mali, Burkina Faso and Côte d’Ivoire account for around 83 percent of total value of transactions and 76.6 percent of total volume of transactions.

32. Most of mobile banking customers in Mali use their E-money account for cash-in/cash-out transactions and to recharge their mobile phone credits (Text Table).

  • Cash-In/Cash-Out. In 2016, there were around 76 million cash-in/cash-out transactions (51.2 percent of total volume) for an estimated amount of CFAF 1,625 billion in Mali (74.1 percent of total value). This indicates that a strong preference in holding and using cash for payments and saving persist among customers who are often new to banking services. CFAF 868.9 billion were injected as E-money and CFAF 756.7 billion were withdrew as CFAF cash. The net injection of E-money is estimated at about 112.2 billion in 2016.

  • Person-to-person (P2P) transactions. Domestic P2P transactions captured 9.2 percent of total volume or CFAF 415.3 billion in terms of value. P2P transfers between Mali and other WAEMU countries are marginal (0.2 percent of the volume of P2P transactions) but they correspond to 22.2 percent of total value of P2P transactions. New partnerships between banks and mobile operators that have a regional footprint are expected to increase intra-regional P2P transactions.

  • Person-to-business (P2B) transactions. Payments to businesses (P2B) transactions are developing since 2013. The volume of P2B transactions increased from 0.7 million in 2013 to nearly 5 million in 2016. Similarly, the value of transactions increased from CFAF 12.7 billion in 2013 to CFAF 100.8 billion in 2016.

  • Mobile recharge transactions. Most mobile banking customers use their E-money account to refill their mobile phone credits. In 2016, nearly 30 percent of the mobile transactions addressed that purpose, but they corresponded to 1.5 percent of total value of transactions (CFAF 32.9 billion).

  • Government-to-person transactions (G2P). G2P transactions or P2G transactions do not exist in a systematic way in Mali and are at best marginal.

33. Mali has the highest penetration ratio among WAEMU countries. There are 11.1 million of unique mobile subscribers in Mali. This corresponds to a penetration ratio of 60.5 percent, compared to 40 percent in 2014 (Figure 18). When only considering the adult population,17 the coverage ratio is 118.3 percent. Mobile networks cover about 40 percent of the country. In WAEMU, the number of unique subscribers is estimated at 55 million which corresponds to a coverage ratio of about 47 percent. In Mali, 26.5 percent of mobile subscribers were smartphone users at end-2016, which corresponds to about 2.9 million people.

Figure 18.
Figure 18.

WAEMU: Penetration Ratio

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Source: GSMA; BCEAO.

34. The mobile banking market in Mali is not as deep and inclusive as it seems. There are about 6.9 million of E-money accounts in Mali in 2016. This corresponds to 18.9 percent of all E-money accounts in the WAEMU while the population in Mali accounts for about 15 percent of the region. Only 2.2 million are considered active.18 There are only a few hundred accounts opened for businesses. In addition, the gender distribution of E-money account is uneven as only about 1/3 of the users are women. The high percentage of inactive accounts in Mali highlights the strategy and competition among mobile banking providers in Mali which have been keen on opening massively E-money accounts that end up being unused. Also, among the 43,842 Cash-In/Cash-Out agents deployed in Mali, the highest number of agents for a WAEMU country, less than 2/3 are active. In comparison, there are 12,675 agents in Burkina Faso and 93 percent of them are considered active.

35. However, mobile banking has nevertheless outperformed the microfinance and banking sectors in terms of population coverage. With about 2.2 million of E-money accounts, the mobile banking sector has rapidly overtaken both the banking and the microfinance sectors in terms of accounts within the last five years. There are about 1.3 accounts in the microfinance sector and 1.3 accounts in banking sector. Microfinance institutions tend to focus on small businesses and farmers and banks tend to focus on medium to large enterprises and the wealthier segments of the population. The slow recovery of the recent microfinance sector crisis has likely, to some extent, promoted further the fast rise of the mobile banking sector in Mali. Banks are facing competition from mobile operators which offer basic financial services and a fleet of agents covering a greater geographical zone than branches and ATM at a very minimal cost. Consequently, banks are competing to offer attractive mobile financial services, are expending their customer base, and are establishing new partnerships with mobile operators.

36. While the mobile banking sector fosters a higher level of financial inclusion, it does not cover all financial needs necessary to boost growth in the economy. While usage and acceptance by individual have increased very rapidly since 2013, they have been slower for enterprises. E-money account services do not currently offer credit and term deposit which would benefit SME particularly as they do not always have access to banking services. Partnerships between financial institutions and mobile operators to offer these services to holders of E-money accounts in compliance with the current regulatory framework of the BCEAO are lagging compared to other WAEMU countries. There was one partnership between a bank and mobile operator at end-2016, compared to five partnerships in Burkina Faso or in Côte d’Ivoire.

37. In Mali, no businesses accept mobile payments through electronic payment terminals and only a few carry out transactions at end-2016. There were 4.98 million person-to-business (P2B) transactions in 2016, corresponding to about 3.3 percent of total volume. Similarly, the value of P2B transactions is estimated at CFAF 100.8 million (4.6 percent of total value of transactions) in 2016. There are 921 businesses registered to carry out mobile transactions, of which 241 are considered active. In comparison, in Burkina Faso, which accounts for a similar share of the mobile banking market in the WAEMU, there are 5,532 businesses registered that can carry out transactions, of which 1,529 are considered active. In 2016, no businesses accept mobile payments through electronic payment terminals in Mali.

38. Government-to-Person transfers (G2P) could increase mobile banking adoption and in turn improve financial inclusion of both people and businesses. G2P payments programs (wage payment and other transfers to and from SMEs) can target segments of populations that tend to be typically financially excluded. They require appropriate communication from the government about timing of payments, cost for beneficiaries (cash-out cost, transfer cost), and how the system works. A lack of understanding by clients on how the system works and how to use it with confidence could slow and limit adoption. G2P payments programs would also require a robust and developed agent network to ensure that G2P transfers do not generate liquidity stress that could trigger a negative feedback loop in the mobile banking sector and in the overall financial system.

C. Providing Financial Stability

Maintaining Assets Quality

39. Banking sector soundness indicators remained somewhat stable but asset quality continues to be a source of concerns and liquidity ratios have recently deteriorated (Text Table).

  • The average bank capital adequacy ratio remains above the WAEMU norm of 11.5 percent. All banks but one complies with the regulatory rule.

  • The stock of NPLs remains stable at a relatively high level of 17 percent on average. The provisioning rate is on a declining trend. The yearly average in 2017 was 56.9 percent of NPLs compared to 66.1 in 2016, resulting in a 21 percent increase of NPLs net of provision on average.

  • Non-operating assets to capital continues to be an issue. Nearly half the banks do not comply with the WAEMU norm of 15 percent of capital.

  • Most banks comply with the liquidity ratio but the aggregate figure has deteriorated. It fell from 86.9 percent in 2016, above the WAEMU norm of 75 percent, to 67.3 percent in 2017.

Text Table: Financial Stability Indicators, 2017

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Source: BCEAO

40. Asset quality appears to be relatively weak in Mali compered to benchmarked countries (Figure 19, Figure 20). The net NPLs to net total loans ratio has deteriorated in recent years to reach 8.2 percent in June 2017 while it has remained broadly constant in the region. Gross nonperforming loans (NPL) and provisions to gross nonperforming loans were respectively 16.7 percent and 57.9 percent at end-2017. These ratios include a large volume of old claims that should no longer be included in banks’ balance sheets. The write-off of old claims that have been provisioned is virtually non-existent owing to the legalistic justification requirements of the tax authorities. Banks generally cannot produce the certificate required by the tax authorities attesting that all recovery efforts have been exhausted to obtain a deduction of losses. Banks rarely resort to judicial recovery because of persistent dysfunctions of the judiciary authorities. The gross amount that should no longer appear on banks’ balance sheets is estimated to be at least CFAF 50 billion, which corresponds to about 13 percent of nonperforming loans at end-2016. Without these old claims, it is estimated that NPL would be about 4 percentage points less. Moreover, the high concentration of credits, whether sound or impaired, could lead to a high volatility in the ratios as the largest banks typically have the same large borrowers.

Figure 19.
Figure 19.

Mali: Value and Volume of Transactions in Mobile Banking Sector

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Sources: BCEAO; GSMA
Figure 20.
Figure 20.

Mali: E-money accounts and usage

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Sources: BCEAO; GSMA
Figure 21.
Figure 21.

Mali: NPLs to total gross loans

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Sources: BCEAO; FinStat 2018
Figure 22.
Figure 22.

Mali: Net NPLs to total loans

(percent)

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

Sources: BCEAO; FinStat 2018

41. The slow progress in making credit information available undermines asset quality and access to credits. The BCEAO maintains a public credit registry that contains uncomplete and lagged negative information and current outstanding to banks. Not only negative but also positive information enable banks to better predict default probabilities for borrowers, thus reducing portfolio risk and improving access to credits. The adoption of the uniform regional law on credit bureaus by four Member States, including Mali, has been passed and a new private credit information bureau (BIC) is intended to fill the current information gaps in credit reporting. However, its complete implementation is lagging and banks remain reluctant to fully participate.

The Sovereign-Bank Nexus

42. The financial health of banks and sovereigns is intertwined in a “sovereign-bank nexus” that multiplies and accelerates vulnerabilities in each sector, exacerbating risks of adverse feedback loops. Banks and sovereigns are linked by multiple interacting channels: (i) the sovereign-exposure channel (banks hold large amounts of sovereign debt); (ii) the safety net channel (banks are protected by government guarantees) and; (iii) the macroeconomic channel (banks’ and governments’ health affect and are affected by economic activity). Evidence suggests that all three channels are empirically relevant.

43. In Mali, the macroeconomic channel remains the main driver of the sovereign-bank nexus. In Mali’s undiversified formal economy and in the context of severe security challenges and social tensions, any economic shock in the agriculture or mining sector would immediately weaken the sovereign fiscal position as well as banking activities. Since the real sector in Mali is often directly or indirectly related to government expenditure and large public investment programs, large fiscal imbalances would trigger a reduction in public capital expenditure and an increase in accumulated arrears vis-à-vis their suppliers. The soundness of the banking sector would then be negatively impacted, which in turn would slow credit growth and deteriorate assets quality.

Regulatory and Supervisory Frameworks Development

44. A set of ambitious regulatory reforms was adopted by the regional Council of Ministers in June 2016. These new regulations included the adoption of Basel II and III capital standards, the introduction of consolidated supervision (including over WAEMU-based financial holding companies), and the tightening of the large exposure limit. Transitional implementation arrangements were introduced spanning from 2018 until 2022.

  • The Basel II and III regulations introduced capital requirements for operational and market risks. By end-2022, WAEMU banks must meet a minimum common equity Tier 1 capital ratio of 7.5% and a minimum total capital ratio of 11.5%, both inclusive of a 2.5% capital conservation buffer. Additional systemic and countercyclical capital buffers, yet to be defined, will also be required. This implies a significant step-up from the 8% minimum total capital ratio under the existing Basel I-based approach. The denominator in these ratios will also change, due to the move to Basel II risk-weighted assets. The direction and magnitude of change will depend on banks’ risk exposures. The overall impact of the new framework will be higher capital requirements in aggregate. In addition, the single large exposure limit was reduced to 25% of banks’ Tier 1 capital.

  • Other measures include (i) the adoption of a new banking chart of accounts; and (ii) the reorganization of the Banking Commission to integrate the monitoring of crisis resolution processes and supervision of large microfinance institutions and other specialized institutions such as mobile money firms.

Annex I. Microfinance Institution System

Table 1.

Mali: Breakdown of microfinance institutions by legal status, June 2017

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Source: CCS/SFD-Mali

Annex II. Banking System Structure, 2016

Table 2.

Mali: Banking System Structure, 2016

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Source: BCEAO.

Annex III. Selected Financial Inclusion Indicators

Figure 1.
Figure 1.

Mali: Selected Financial Inclusion Indicators

Citation: IMF Staff Country Reports 2018, 142; 10.5089/9781484359068.002.A005

References

  • Cihak M., Demirguc-Kunt A, Feyen E., Levine R. 2012. “Benchmarking Financial Systems around the world”, World bank working paper.

  • GSMA, 2016. State of the industry report on mobile money

  • GSMA, 2017. The mobile economy, West Africa 2017

  • BCEAO, balance sheet and income results of banks and financial institutions, 2011 to 2016.

  • BCEAO, Monthly Bulletin of Monetary and Financial Statistics.

  • BCEAO, 2015. 2014 Annual Report, August 2015.

  • BCEAO, 2017. Banking condition in WAEMU zone in 2016, November 2017.

1

Prepared by Alexandre Nguyen-Duong.

2

In June 2017, 23 MFIs lost their license. 54 MFIs were considered for losing their license, of which 16 are pending the Ministry’s final approval. MFIs that are considered inactive consist essentially of small retail structures, lacking reliable data. Some of them never started their activities.

3

MFIs that have deposits or credits greater than CFAF 2 million are subject to the Article 44 of the law 007-06-2010 Large MFIs. They are supervised and regulated by the banking commission of the BCEAO.

4

Other aspects, such as access to financial services, efficiency, and stability, should be also considered when assessing financial depth (Cihak et al., 2012). Additionally, substantial amounts of credit do not always correspond to broad use of financial services, because credits can be concentrated among the largest firms and wealthiest individuals.

5

International Monetary Fund, Regional Economic Outlook: Sub-Saharan Africa, Washington DC, April 2016.

6

About 2/3 of Mali’s domestic debt is held by Malian bank which corresponds to about 50 percent of all government securities held by Malian banks.

7

Duration lower than one year.

8

The transformation prudential ratio requires that at least 50 percent of medium-and-long-term bank assets be financed by resources of comparable maturity

9

Government bonds and bills from Mali are only denominated in national currency. Mali has not issued EURO bonds.

10

The new regulatory capital requirements are scheduled to be phased in from January 2018 and are expected to be fully applied by end-2022.

11

Two majors MFIs (Union Kondo Jigima and Union Jéméni) have closed in 2009. Their total deposits is estimated to 8.9 billion CFA francs.

12

Clients and beneficiaries’ numbers differ because mutual group are considered as one client that serve a group comprised of 8–15 persons.

13

Total savings or outstanding loans exceeding CFAF 2 billion, under the Article 44 of law 007–06-2010.

14

The CCS carried out about 20 supervision missions per year between 2010 and 2014.

15

Alios Leasing.

16

Equibail, which is a division of Bank of Africa.

17

In this context, the adult population corresponds to people older than 16 years old.

18

An E-money account is considered active if at least one financial transaction occurred within 90 days.

Mali: Selected Issues
Author: International Monetary Fund. African Dept.