Financial Inclusion in Cameroon1
Author: International Monetary Fund. African Dept.
Publication Date:
13 Aug 2018
eISBN:
9781484373378
Language:
English
Keywords:
ISCR; CR; Cameroon; bank; IMF staff calculation; GDP; capital expenditure; education gender gap; gender inequality index; poverty impact; IMF staff; poverty reduction goal; Women; Income inequality; Gender inequality; Personal income; Sub-Saharan Africa; Global; West Africa; MFI sector; bank assets; MFI branch; account ownership ratio; transaction amount; Mobile banking; Commercial banks; Financial sector
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1. Access to finance in Cameroon is low, unevenly distributed, and represents a key impediment to private sector development. Cameroon’s financial system is the largest in the CEMAC, but bank account ownership is only 12.2 percent compared to 29 percent on average in Sub-Saharan Africa (SSA) (FINDEX survey, 2014)2. Access to finance is reported as the second most problematic factor to doing business after corruption (2017 Africa Competitiveness Report). In addition, the poorest regions are the least well-served by formal financial institutions (Figure 1).

Abstract

1. Access to finance in Cameroon is low, unevenly distributed, and represents a key impediment to private sector development. Cameroon’s financial system is the largest in the CEMAC, but bank account ownership is only 12.2 percent compared to 29 percent on average in Sub-Saharan Africa (SSA) (FINDEX survey, 2014)2. Access to finance is reported as the second most problematic factor to doing business after corruption (2017 Africa Competitiveness Report). In addition, the poorest regions are the least well-served by formal financial institutions (Figure 1).

A. Introduction

1. Access to finance in Cameroon is low, unevenly distributed, and represents a key impediment to private sector development. Cameroon’s financial system is the largest in the CEMAC, but bank account ownership is only 12.2 percent compared to 29 percent on average in Sub-Saharan Africa (SSA) (FINDEX survey, 2014)2. Access to finance is reported as the second most problematic factor to doing business after corruption (2017 Africa Competitiveness Report). In addition, the poorest regions are the least well-served by formal financial institutions (Figure 1).

Figure 1.
Figure 1.

Cameroon: Macro-criticality of Financial Inclusion, 2014, 2016

Citation: IMF Staff Country Reports 2018, 256; 10.5089/9781484373378.002.A005

Sources: Cameroonian authorities; World Economic Forum; 2014 Global FINDEX; and IMF staff calculations.

2. Financial inclusion is a key government priority. The government’s 5-year National Strategy for Financial Inclusion (NSFI), expiring at end-2018, focused on increasing access to finance for youth, women, and small and medium enterprises (SMEs) through targeted programs that promote job creation and SMEs financing. The NSFI resulted in the creation of a credit registry platform (CIP-FIBANE-CASEMF)3, a new regulation for the MFIs and noteworthy progress in mobile money penetration. The government is in the process of updating the strategy, and launched in late 2017 a FINSCOPE4 financial sector survey to inform the revised NSFI. Preliminary results of the survey show improved access to financial services; however, Cameroon continue to trail peer countries in access to bank account.

3. This chapter benchmarks financial inclusion in Cameroon compared with peer countries, looks into the determinants of financial access and proposes some policy recommendations to boost financial inclusion.

B. Financial Sector Development and Access

Financial Sector Overview

4. Cameroon’s bank-dominated financial system is the largest in the Economic Community of Central African States (CEMAC). As of end-December 2016, the financial sector in Cameroon comprised 14 banks (3 wholesale banks, 10 retail banks, and one specialized in SMEs finance) with a network of 281 branches, 409 microfinance institutions (MFIs) (1595 branches), a postal saving network (CAMPOST) with 250 branches, a pension fund, a mortgage finance institution, 6 quasi-banking institutions,5 and 26 life and non-life insurance companies (Table 1). Total financial sector assets were estimated at 40 percent of GDP, with two-thirds held by banks.

Table 1.

Cameroon: Financial Sector Overview, 2016

article image
Sources: Cameroonian authorities; BEAC; and IMF staff calculation.

5. The banking system is expanding but remains shallow and highly concentrated. Banks’ balance sheets expanded by almost two-third since 2010. The number of banks is also rising, with two new licenses recently granted, including for the largest MFI6 that will consolidate the position of the banking system. However, compared to peer countries, the banking system remains shallow, private sector credit to GDP was 15.3 percent at end-2016, compared to 28.5 percent for the average SSA and 33 percent for Kenya. Bank assets are concentrated, with the 3 largest banks accounting for 50 percent of the total (70 percent for the 5 largest banks). In addition, Yaoundé and Douala, the country’s two largest cities, generate about 90 percent of total banking system credits and deposits.

6. The microfinance sector and mobile banking are expanding. MFIs are more spread-out than banks, with a stronger presence in rural areas. MFIs suffers from poor governance, weak asset quality, and split supervision responsibilities between the government and the COBAC (Commission bancaire de I’Afrique centrale, the regional regulatory body). Mobile banking, with new licenses granted in 2018, is growing fast offering a wide range of services. The insurance sector remains underdeveloped but with good growth prospects. It is fragmented and quite concentrated dominated by health, vehicles and transport insurance (75 percent of total sales). The insurance penetration rate for life insurance is low around 2 percent at end-2016.

7. Other financial sector entities suffer from operating losses and weak governance and oversight. It includes: (i) the Cameroonian Postal Service (CAMPOST) mostly operating in the hinterland, it offers postal banking services, money orders and transfers, and IT solutions (data center, interconnectivity, voice on IP, tele-conferencing, and video surveillance) mainly offered to MFIs; (ii) the Crédit Foncier du Cameroun (CFC) a state-owned mortgage institution promoting real estate. It is funded by 2.5 percent withholding tax on public and private sector salaries and deposits from clients. Its NPLs amount to 26 percent of total assets; and (iii) the state-owned pension fund Caisse Nationale de Prévoyance Sociale—CNPS, providing pension services to private sector and the state-owned enterprise (SOE) employees covering about 1 million individuals.

8. The remaining actors include other quasi-banking institutions, the stock exchange and forex bureaus, which are quite marginal. The Douala Stock Exchange has only three listed companies, all public, since its inception in 2006, with limited trading and capitalization, below 1 percent of GDP. The recent merger with the Libreville stock exchange could bring more private companies. At end-2016, the Ministry of finance reported 25 licensed forex bureaus, operating mostly in Douala and Yaoundé.

Access to Financial Services

9. Overall access to financial services in Cameroon is low with high recourse to informal services. The 2014 Findex survey shows that only 12.2 percent of the population has an account at a financial institution, the lowest in the combined CFAF Zone excluding Niger. The access ratio drops to 7.7 percent when measured by saving in a financial institution and to 1.9 percent for borrowing from a financial institution. Low access to formal finance is offset by a large recourse to informal finance (more than half of the adult population) mostly using “Tontines” (Box 1). However, informal finance being often associated with elevated costs (36–60 percent annualized interest rate), small credit’s size, and high risks due to lack of regulation.

10. The degree of financial inclusion depends on socio-economic conditions. Access to finance varies across gender, income level, education level, and the nature of employment. The population at the 3-upper income quintile has a ratio of account ownership of 18 percent, about 9 times higher than the ratio held by the bottom two quintiles (about 2 percent). The adult population with primary or lower education has an account ownership ratio of 5.4 percent compared with a ratio of 20 percent for the population having a secondary and higher education. Large disparities also exist between salaried and non-salaried workers, underscoring the importance of reducing poverty through the provision of quality education and jobs in boosting financial inclusion in Cameroon (Figure 2).

Figure 2.
Figure 2.

Cameroon: Financial Inclusion, 2014

Citation: IMF Staff Country Reports 2018, 256; 10.5089/9781484373378.002.A005

Sources: 2014 Global FINDEX; and IMF staff calculations.

“Tontines” and Financial Inclusion

Also known as Njangui in the Anglo-Saxon culture, the “tontines” broadly refers to a group of persons sharing common ties—region, tribe, friendship, colleagues—who decide to meet on a regular basis to put together their savings to provide financial solutions to their members or community. Originally, it was intended to provide in-kind support to a member such as collective work in farming, building a house or during celebrations. It expanded in the wake of the 1990’s CEMAC banking crisis. the “tontines” offer three types of instruments: periodic contributions, saving and loans, and solidarity funds.

First, periodic contributions consist in channeling members’ contributions to a different beneficiary until a round is closed1. Second, tontines offer an opportunity to save and access to credit. Usually, interest rates hover around 3–5 percent per month equivalent 36–60 percent annually, and maturities do not exceed 3 months. Third, solidarity funds are form of an insurance policy that cover a range of issues including health, and family events experienced by members and predefined relatives, provided that the member is contributing regularly.

The authorities recognize the tontines’ prevalence and complementarities with the financial sector, which they intend to leverage in their revised NSFI. Tontines’ funds mostly transit through Tontines’ dedicated accounts in banks and MFIs held by the group leader. Mobile money is also facilitating Tontines’ transactions and could help bringing more Tontines’ users to the formal financial sector with the creation of i-Djangui platform since 2016. Belonging to a Njangui also offer loan opportunities from banks and MFIs via collective and moral guarantees. Finally, some Tontines will move to MFI (category 1—collecting saving and extending loan to members only) as they gain sound financial base.

1 For example, a Njangui of 12 participants with a monthly stake of $5 per person will distribute $60 (=$5*12 persons) every month to a beneficiary drawn in advance. The total turnover of the round is $720 ($60*12 months).

Role of Microfinance and Mobile Money in Improving Access to Finance

11. The MFI sector in Cameroon plays a significant role in financial access especially in the poorest regions, however it faces challenges. MFIs represented 15 percent of total bank assets and was serving about 11 percent of the adult population at end-2016. Although MFIs are present in rural and poverty-stricken areas and are often the only alternative for gaining access to financial services, they remain, like banks, concentrated in Yaoundé and Douala with also a strong presence in the western regions including in the two Anglophone regions. MFIs suffer from poor governance, heavy owners’ interventions,7 elevated connected party lending, weak credit risk assessment (loans in arears remains around ¼ of total loans), and poor capitalization.

12. Recently implemented reforms at the national and regional levels could reinforce stability and promote the development of the sector. The approval of a new regional MFIs’ regulation in 2017 could reinforce the oversight and credibility of the sector. The 2017 regulation clearly divides roles between stakeholders especially MFIs’ owners in charge of organizing internal and external controls, the ministry of finance operating administrative control, and the COBAC solely in charge of supervision. The regulation caps credit to individual clients, increases minimum capital required, frames conditions for granting loans to related parties and requires category-1 MFIs to regroup under umbrella bodies (comprising a minimum of 5 MFIs) within a 24 months period. Nevertheless, specific regulations framing these requirements are yet to be enacted by COBAC.

13. The mobile money market is growing fast and contributing to increasing financial inclusion. Initiated in 2012, mobile money has been growing fast: the number of mobile money accounts penetration has increased from 9 percent of adults in 2012 to about 28 percent in 2016 (figure 3) and it continued to grow in 2017 benefiting the poor regions. The FINSCOPE survey shows that the Far North, the poorest region in Cameroon, have the highest access to mobile money after Douala and Yaoundé. In addition, whereas mobile money transaction amounts have regulatory caps and are restricted within the CEMAC region.8 they are estimated to have reached CFAF 3.5 trillion (17.5 of GDP) in 2017 up from 0.3 trillion in 2016 due the large array of services that they cover (bill pay, money transfer, tax payments, etc.) Mobile money’s growth potential remains high since less than a quarter of cellphone subscribers were using mobile money as of 2016.9 The sector will also benefit from the government approval of two mobile money licenses in early-2018, bringing the third mobile operator to the market and extending the service to two additional banks. Only 5 out of 14 banks are using mobile banking and the MFIs are not yet authorized to use it.

Figure 3.
Figure 3.

Cameroon: Mobile Accounts’ Penetration, 2014

(percent of total population)

Citation: IMF Staff Country Reports 2018, 256; 10.5089/9781484373378.002.A005

Sources: 2014 Global FINDEX; and IMF staff calculations.

C. Determinants of Financial Inclusion in Cameroon

14. The 2014 Findex survey identified several barriers to account ownership in Cameroon. (Figure 4). These barriers are dominated by lack of money with 47 percent of respondent which is well below the SSA average of 71 percent and CEMAC average 61 percent. This is followed by the inability to get an account (36 percent), cost (30 percent), and religion (28 percent). Obstacles to account ownership such as religion, lack of trust, and no need of financial services, which dominate in Cameroon compared to the average for SSA, can only be addressed progressively, through schooling and enhanced financial literacy. Distance to financial institutions and lack of documentation and money are less problematic to account ownership in Cameroon compared to peer countries, however, the situation is very different across regions in Cameroon—The Far North region with 74 percent poverty rate has only 2.6 bank per 100,000 people and MFI branches compared with the Coastal region, 13.4 percent poverty rate and 17.6 bank and MFI branches per 100,000 people.

Figure 4.
Figure 4.

Cameroon: Barriers to Account Ownership, 2014

(in percent)

Citation: IMF Staff Country Reports 2018, 256; 10.5089/9781484373378.002.A005

Sources: 2014 Global FINDEX; and IMF staff calculations.

15. An empirical estimation confirms that low financial inclusion in Cameroon is strongly influenced by country-specific characteristics. Using a probabilistic model similar to the one used by Deléchat et al., 2018 (Annex 1), we found that individual characteristics such as education, wage employment, high income, as well as institutions that favor financial deepening and guarantee equal rights to both women and men captured by the OECD’s index of social institutions and gender inequality (SIGI) contribute to high financial inclusion. The indicator variable for Cameroon is strongly negative and significant in both the world and the SSA samples. A low level of education has a stronger negative effect in Cameroon, almost the double of its effect in the world sample. Despite lower overall access to finance women seem not to be financially constrained in Cameroon. The gender gaps in access to finance seem to hinge on gaps that exists outside the financial sector (see Chapter III). Women with tertiary education and wage employment in fact tend to be more financially included than men.

D. Conclusions and Policy Recommendations

16. Low and unevenly distributed access to finance in Cameroon with high recourse to informal services continues to hamper private sector-led growth. To foster greater financial inclusion, the authorities’ revised national strategy could usefully consider the following:

  • Promoting education and enhancing financial literacy. As also confirmed by the FINSCOPE survey results, the large recourse to the costly informal financial sector is supported by the lack of information about opportunities in the formal sector.

  • Improving financial infrastructure could help address some obstacles to financial access. In this regard, it would be important to accelerate the reform towards (i) expanding access to client databases to all financial institutions, (ii) enhancing the use of collateral by computerizing the movable collateral registry and the cadaster, and (iii) training judges in the resolution of banking conflicts while working toward the creation of commercial courts.

  • Accelerating the resolution of ailing banks and distressed MFIs, and addressing the high level of NPLs could restore confidence and boots credit provision. The resolution of the ailing banks and improving governance in the MFIs will reinforce the stability in the financial sector along with reduced NPLs could lower cost of financing.

  • Enhancing the regulatory environment for MFIs and mobile money. In the MFI sector, accelerating the implementation of the 2017 regional regulation requiring first category MFIs to regroup under umbrella bodies would help facilitating control and supervision. Finally, it is important to ensure that a regulatory framework for mobile money is put in place that guarantees both stability and innovation while protecting the consumers.

Annex I. Empirical Strategy and Results

1. We used the model specification used by Deléchat et al. (2018) and apply it to the detailed information on individuals from the Findex database combined with macroeconomic data. We estimate the following relationship across countries (j) and individuals (i) with a Probit regression:

Financial mclusionij= β′(Individuals-characteristics) ij+γ′(Country-characteristics) j + ρ′(policies and Institutions)j +τ′(others)j + εij.

In this specification, the variables are defined as follows:

  • Financial mclusion, differently defined from Delechat and al 2018, is an indicator variable that access to formal financial service is defined as having an account in a financial institution, saving in a financial institution, borrowing from a financial institution, or using a mobile account.

  • Individual-characteristics capture the individual’s socio-economic characteristics, such as gender, education, age, nature of employment and income level.

  • Country-characteristics are structural country characteristics, including the level of development (GDP per capita), the structure of the economy (captured by oil-exporter status), and population density.

  • Policies and Institutions represent policies at the country level, comprising both general policies and those which affect financial inclusion.

  • Othersare dummy variables that captures commonalities of SSA and Cameroon individuals.

2. The main findings, summarized in Annex Table 1, are the following:

  • Globally, individual characteristics such as having a tertiary and higher education, being formally employed, and belonging to the top income quintile significantly contribute to improving the probability of being financially included, while being a woman and, poor and less educated lead to lower access to finance. In addition, financial inclusion seems to benefit from higher population density, high income level, and being a non-oil exporter.

  • The SSA indicator variable was positive after controlling for the individual characteristics which have stronger effects when the model is restricted to SSA countries only. The success of mobile money in providing access to finance to a wide range of individuals could explain this result. This phenomenon seems to be taking place across all SSA countries as shown by the coefficient of country specificities and policy variables that came all insignificant in explaining differences in financial inclusion across SSA countries, Model (5) and (6).

  • The Cameroon indicator variable came strongly negative and significant in both the world and the SSA samples reinforcing previous point made of poor financial access in Cameroon. Despite lower overall access to finance women in Cameroon seem not to be financially constrained. An interaction variable between female and Cameroon came positive but insignificant. Also, restricting the sample to Cameroon, model (7–9), the female indicator variable remains insignificant when additional controls are added to the model. This suggests that differences in access to finance between men and women hinge on gaps that exists outside the financial sector.

  • A low level of education has a stronger negative effect in Cameroon, almost the double of its size in the world sample. Tertiary education and wage employment are strongly associated with women’s financial access. Income appears not significantly related to women’s financial access but being in the top income quintile significantly and positively contributes to men’s access to finance.

Annex Table 1.

Determinants of Financial Access

article image
Standard errors in parentheses* p<0.10 ** p<0.05 *** p<0.01Sources: FINDEX 2014; OECD; The PRS Group; World Bank; and IMF staff calculations.

ICRG: International Country Risk guide rating from the PRS group

SIGI: Social Institutions and Gender Index, from OECD

References

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1

Prepared by Mamadou Barry and Du Prince Tchakote. This chapter uses third party indicators that are subject to uncertainty around the point estimate. Rankings may reflect the relative, not the absolute, performance of the country.

2

The FINDEX 2018 was only recently released and couldn’t be used for the preparation of this paper.

3

CIP=Centrale des Incidences de Paiements; FIBANE=Fichier Bancaire Nationale des Entreprises; and CASEMF=Cadre de Suivi de I’Activité des Etablissements de Microfinance.

4

The FINSCOPE is survey developed by FINMARK trust with the main objective to measure and profile the levels of access to and uptake of financial products/services (both formal and informal) in a particular country, across income ranges and other demographics.

5

The National Investment Company (SNI), African Leasing Company, Alios Finance, Société de Recouvrement des Créances du Cameroun (SRC), Socilte Camerounaise dEquipement (SCE), and Pro-PME.

6

Crédit Communautaire d’Afrique CCA, a second-category MFI, holding about 25 percent market share, has been granted a bank license by the COBAC in March 2016, and is awaiting the government’s final approval. The second license was granted to Bank of Africa, a Moroccan bank.

7

Some first category MFIs (which receive deposits from and lend to members only) originate from graduating unregulated tontines making it difficult for the owners to adjust and embrace good management and governance practices.

8

Mobile money transactions are capped at CFAF 3 million per day; CFAF 5 million a week, and CFAF 10 million a month; transaction costs across operators could increase up by 5–10 times.

9

The Telecom regulatory agency has identified 19.5 million mobile phone subscriptions with the three mobile operators in 2016 with 3.8 million mobile accounts created. The number of accounts reached 6.4 million, with only half operational in 2017.

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Cover IMF Staff Country Reports
Cameroon: Selected Issues
Author: International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 256
Publisher:
International Monetary Fund
ISBN:
9781484373378
ISSN:
1934-7685
Pages:
63
DOI:
https://doi.org/10.5089/9781484373378.002

Cameroon: Macro-criticality of Financial Inclusion, 2014, 2016

Cameroon: Financial Inclusion, 2014

Cameroon: Mobile Accounts’ Penetration, 2014

(percent of total population)

Cameroon: Barriers to Account Ownership, 2014

(in percent)