Microfinance in West Africa Faces Challenges Despite Growth in 2024
(Ecofin Agency) - Microfinance has become essential for giving unbanked people access to financial services. However, the rise in unpaid loans is threatening the stability of many institutions, especially in fragile economic environments.
The West African microfinance sector has shown both promise and vulnerability this year. According to new data from the Central Bank of West African States (BCEAO), unpaid loans in the microfinance sector jumped by 6.2% in the second quarter of 2024. This increase highlights the challenges borrowers face in repaying their loans, which has weakened the sector’s credit portfolio.
As of June 30, the gross portfolio deterioration rate—a key measure of financial health for decentralized financial systems (SFDs)—rose to 7.9%, up from 7.6% in the previous quarter. This figure significantly exceeds the maximum threshold of 3% recommended across the West African Monetary Union (WAMU). Experts warn that this trend could strain microfinance institutions as they juggle growth, risk management, and governance challenges.
Mixed Growth Across the Region
Despite these issues, microfinance activity in the WAMU region grew modestly last quarter. Outstanding loans increased by 1.7%, reaching CFA2.56 trillion, while annual growth surged by 14% as institutions met the financing needs of people excluded from traditional banking. Deposits also climbed by 2.8%, totaling CFA2.42 trillion.
The sector serves nearly 19 million clients through 539 institutions and over 4,900 regional service points, reflecting its crucial role in financial inclusion. However, growth remains uneven across countries. Senegal led with loan growth of 5.9% and deposit growth of 3.1%. Côte d’Ivoire saw modest gains, with loans up 0.5% and deposits up 2.6%. Burkina Faso experienced a 0.6% decline in loans despite a 3.8% increase in deposits. Mali recorded the steepest decline, with loans falling by 2.1%. Benin and Togo posted steady growth, while Niger and Guinea-Bissau struggled to balance loan and deposit growth...Read more on Ecofin Agency
Source: Ecofin Agency