New & Noteworthy
Microfinance Struggles in Benin
Boston, MA, April 11, 2008 - We have noted with great concern and disappointment the recent events at PADME, an ACCION partner and leading microfinance institution (MFI) in Cotonou, Benin. In early March, the Benin government, citing operational concerns with the MFI, requested the resignation of PADME’s board and management team. The board and management in turn initiated legal action to prevent the government takeover, and PADME’s staff subsequently undertook supportive industrial action. Since then, an interim director has been appointed, and the staff has returned to work. The prospects for PADME and the future of microfinance in Benin, however, remain unclear.
ACCION has provided technical assistance to PADME since 2001, most recently to help the MFI manage its transition from a private association to a share-capital, non-bank financial institution. Our services have included investment and transformation support, as well as assistance in a variety of other areas. Other technical assistance providers have included Women’s World Banking, Freedom from Hunger and PlaNet Finance; potential investors have included IFC, Stichting Triodos Doen, Ecobank and ACCION Investments.
The circumstances at PADME underscore the delicacy and demands of establishing sustainable microfinance in developing countries, where philosophies and approaches can vary significantly. Throughout, we try to remain focused on what truly matters – those small entrepreneurs for whom financial inclusion offers a dignified way out of poverty. In PADME’s case, they number nearly 30,000.
PADME, like numerous MFIs, has faced growing pains in its recent history, created by rapid expansion and the demands of product development, and compounded by a severe market downturn in 2005-2006. At that time, the microfinance industry in Benin was characterized by increases in portfolio-at-risk, growing write-off ratios, shrinking portfolios, and negative ROE.
The year 2006 was a particularly difficult one for PADME, as it uncovered fraud by some of its staff members that undermined repayment discipline. The institution subsequently took appropriate remedial actions. These issues have been well aired over time, and recent indicators were showing that the institution was making a substantive turnaround. With the help of its partners, PADME was taking appropriate measures to strengthen its systems, policies and procedures. It showed a modest profit in 2007.
During that turnaround, PADME has been transparent with its stakeholders – which include BCEAO (Banque Centrale des Etats de l’Afrique de l’Ouest), the Government of Benin and the World Bank, among others – and open about both the obstacles it has faced and the measures taken to overcome them. Potential investors conducted on-site due-diligence visits in 2007 and were cognizant of the challenges. Yet they remained confident that, with transformation into a regulated financial institution, including a package of technical and management support provided by the investors, PADME would be positioned to set a strong example for Beninese microfinance.
As a result of the government’s intervention, however, PADME’s potential investors concluded that further participation has become impossible. They recently and regrettably informed former managing director René Azokli that they have suspended consideration of their proposed investments.
In the meantime, ACCION continues to coordinate with investors, partners and other institutions and practitioners engaged with both PADME and the Benin government in order to more fully understand the situation and to offer appropriate assistance for a timely and effective resolution aimed at aiding Benin’s working poor.
PADME (Association pour la Promotion et l’Appui au Développement de Micro-Entreprises) was created in 1993 by the Benin government, with funding from the World Bank, and transformed into a private Association in 1997. In 2007, the MFI had 29,732 active borrowers, with an active loan portfolio of slightly more than $U.S. 31 million; the average loan size was $986. In addition to its headquarters in Cotonou, PADME has 39 branches throughout the country and supporting regional agencies in Cotonou , Porto Novo, Parakou, and Abomey-Calavi.