Financial Sector Overview
Recent economic developments
Benin's economy mainly relies on its informal trade in re-export and transit to Nigeria, which accounts for about 20% of GDP, and on agriculture. This informal sector, the main feature of the Beninese economy, generates 90% of the working population. Real GDP increased from 4% in 2016 to about 5.5% in 2017. The improved economic performance in 2016-17 was mainly the result of reforms undertaken under the Government's 2016-21 Action Plan to increase public investment in productive sectors such as infrastructure, agriculture, tourism and basic services. This positive outlook is also due to substantial increases in agricultural production, particularly in the cotton sub-sector (estimated at 450,000 tons in 2016), an increase in electricity production and the economic recovery of Nigeria, which technically emerged from recession in the third quarter of 2017. The country remains vulnerable to exogenous shocks, mainly adverse weather conditions, prices of agricultural and extractive raw materials (cotton and oil) and the situation of its main trading partner, Nigeria.
Benin's financial system includes 16 commercial banks supervised by the Central Bank of West African States (BCEAO). The banking sector is supervised and prudentially controlled by the West African Economic and Monetary Union (WAEMU) Banking Commission, which is responsible for granting and withdrawing authorizations for credit institutions, including taking administrative and disciplinary measures and imposing sanctions on credit institutions.
The Inter-African Conference on Insurance Markets (CIMA) supervises the activities of the players at the regional level. CIMA's role is to assist national authorities in regulating the insurance sector and to ensure compliance with prudential rules.
The Regional Council on Investments and Financial Markets (CREPMF) is the regulatory body of the regional stock exchange (BRVM) to which Benin belongs. The Beninese subsidiary of the Bank of Africa (BOA) banking group is the only company under Beninese law listed on the BRVM.
Banks occupy a dominant position in Benin's financial sector, accounting for more than 90% of its assets. Penetration of the banking sector remains low: The banking rate is 19.1%, for 209 branches and 309 ATMs. Banking customers remain concentrated in urban areas. The top 3 banks hold 60% of banking assets and 55% of deposits.
The financial sector's vulnerability has recently increased, with a non-performing loan rate reaching 20.3%. The gross deterioration rate of the banks' portfolio stood at 21.4%, above the WAMU average, mainly due to the economic slowdown in neighboring Nigeria. While the vast majority of banks comply with 7 of the 8 prudential ratios defined by the central bank, only 6 banks had a minimum share capital to core capital ratio in 2016.
The role of commercial banks in financing the private sector is limited due to the low population density and the informal sector's significant weight.
The financial inclusion rate in Benin has risen from 7% in 2015 to more than 31% between 2010 and 2017. In the West African sub-region of the West African Economic and Monetary Union, this rate has increased from 22% to 55% over the same period.
First-generation products such as domestic transfers between individuals (P2P), cash-ins, cash withdrawals (Cash-outs), telephone credit purchases and bill payments dominate the range of products on the market. The expansion of these digital financial services has led operators to develop autonomous subsidiaries to manage their mobile money activities. The country is about to launch a pilot micro-credit programme.
Benin has a very active microfinance sector and the country's authorities attach particular importance to the use of microfinance as a tool for poverty reduction. With the 2003 central databases indicating a penetration rate of microfinance services of almost 60%, access to microfinance has increased considerably since the launch of the "Microcredit for the Poorest" programme in 2007.
The microfinance sector is also subject to the control of the central bank as well as the supervisory ministry, namely the Ministry of Microfinance, and Youth and Women's Employment. However, a significant increase in the number of unauthorized microfinance institutions in recent years presents significant risks due to the unrealistic rates proposed. The large share of unlicensed microfinance institutions - about 495 out of a total of 721 - represents a significant risk for the Beninese financial system.
In Benin, the insurance sector remains relatively small, with premiums corresponding to 1.2% of GDP in 2015. Eight insurance companies, two of which are predominantly foreign-owned, offer life and property, as well as casualty insurance products. The two largest insurance companies control almost 2/3 of the entire market, reflecting a high degree of concentration. Responsibility for the control of the sector lies with the Insurance Control Directorate, which is accountable to the country's Ministry of Finance and the Regional Insurance Control Commission.
Benin has set up a voluntary Universal Health Insurance Scheme (UHIP) to cover the entire Beninese population, financed by contributions as well as the State and local authorities. Premium amounts varies according to income.
Insurance in Benin accounted for 4.8% of the insurance market share of French-speaking sub-Saharan African countries.
Benin is a member of the Regional Securities Exchange (BRVM), based in Abidjan, Côte d'Ivoire. In December 2016, the capitalization of the regional stock market was higher than Benin's GDP. The market for fixed-rate instruments is integrated with those of other WAEMU member countries. The central bank, governments and regional banks issue bonds and treasury bills to finance public expenditure in order to reduce the number of loans contracted with the central bank, although the BCEAO remains the largest issuing entity in the region.
Markets for regional and national fixed-rate instruments are still in their infancy. Issuance by institutional entities remains limited. Investors can directly access primary markets, and the various brokers and resellers provide indirect access, while foreign investors participate in the market through local banks. Commercial banks still dominate the investor base as buyers of treasury bills and bonds. Access to secondary markets in the WAEMU region remains limited. All transactions are carried out through approved intermediaries, while most investors adopt a buy-and-hold approach.
Social Security System
Two pension funds operate in the country, one for civil servants and the other mainly for private sector employees. Benin's National Pension Fund (FNRB) is the pension scheme for public sector employees. It operates on a pay-as-you-go basis, while the National Social Security Fund (CNSS) manages the general security scheme for employees in sectors subject to the provisions of the Labour Code.