Performance and Financial Condition of the Microfinance Sector in Togo

Performance and Financial Condition of the Microfinance Sector in Togo

116. 
     Of all the licensed MFIs in Togo, only five have reached a somewhat significant scale with more than CFAF 550 million (US$1 million) in loans outstanding at the end of December 2004 or serving more than 1,000 clients (Table 3.2). The five most active MFIs had 73 outlets over 238, which represented 31 percent of official microfinance outlets. Their membership reached 213,404 people representing 81 percent of the overall microfinance beneficiaries in the country. The “big five” provided 84 percent of the outstanding loans in the amount of CFAF 17,922 million and 86 percent of the outstanding deposits which amounted to CFAF 22,641 million. FUCEC remains a dominant player in the microfinance sector in Togo not only as a predominant network and an important refinancing entity to other MFIs.
     

117. 
     Created in 1969, FUCEC-Togo is the largest MFI in the country with more than 173 000 members and close to CFAF 14 billion (US$25 million) in loans outstanding at the end of December 2004 (Table 3.3). Management at FUCEC is keenly aware that to achieve financial sustainability, the institution still has significant work is do to (i) enhance institutional capacities and (ii) strengthen financial performance. In the area of institutional capacity enhancement, a five-year restructuring program has been underway following the recommendations of a study conducted in 2001 which found that 80 percent of the network’s revenues are realized by only 15 of the 152 member-MFIs. The restructuring program calls for a reduction in the number of MFIs in the network to 50 between 2001 and 2006, by merging and/or closing institutions. Thus far, however, implementation of the program resulted in cutting the number of MFIs remaining in the network down to 62 MFIs in 2004 and 58 MFIs at end 2005. Despite this reduction, FUCEC membership still grew 31 percent, reaching 173,323 members in 2004 against 132,278 members in 2001.
     

118. 
     In order to increase the management responsiveness in making appropriate and timely managing decisions, an internal audit department staffed with 12 professional auditors was created to complement the existing internal control unit. The department plans to perform the audit of each retail organization member of FUCEC at least once a year. In addition, FUCEC is also seeking donor support to help the institution update its information technology (IT) system as well as train its personnel training in using the new technology.
     

119. 
     In terms of financial performance, at the end December 2004, FUCEC mobilized 76 percent (CFAF 20,012 million or US$36 million) of the sector’s total deposits and provided 65 percent of total outstanding loans (CFAF 13,779 million / US$ 25 million).
     

120. 
     At the same time, its net worth amounted to CFAF 788 million (US$1.4 million) while the net profit reached CFAF 359 million or US$653,000 (Table 3.3).
     

121. 
     Analysis of the financial performance of the microfinance sector will focus on the five most active MFIs in Togo which represent 84 percent of the microfinance market in loans and 86 percent in deposits, and therefore, provide a very accurate picture of the entire sector.
     

122. 
     Non performing loans measured in microfinance as the 90 days portfolio at risk (PAR) was within the international norms of 5 percent for at least three of the five most important MFIs (FUCEC, wages and Timpac). Significant progress was achieved in particular by FUCEC in trying to halt its deteriorating portfolio quality. Over a five-year period, from 2000 to 2004, FUCEC reduced significantly its portfolio at risk from 22.2 percent to 3.9 percent, which is below the generally accepted level of 5 percent for mature well performing MFIs.
     

123. 
     Available data show that three out of the five MFIs have achieved operational sustainability and are profitable as well (Table 3.3). Although, FUCEC has been able to achieve operational sustainability, the institution is not yet financially sustainable and has to rely on lines of credit at concessional rates to achieve its results as well as refinance other MFIs.
     

124. 
     Most licensed MFIs in Togo are in compliance with the prudential rules of the PARMEC law, except for the reserves requirement ratio and the liquidity adequacy ratio. According to PARMEC, a general reserve requirement of 15 percent of the MFI’s annual net income is to be set by MFIs. However, most MFIs registered a negative profit at the end 2004. For the liquidity adequacy ratio, only three licensed MFIs including FUCEC complied with the ratio stating that current assets of the MFI has to cover at least 80 percent of its liability.
     

125. 
     It is worth noting that in general, the prudential rules of the PARMEC law fall short of the international standards in microfinance. There are no minimum capitalization requirements, no capital adequacy ratios, and the provisioning guidelines for delinquent loans appear significantly less stringent than those recommended by microfinance best practices such as PEARLS³⁶.
     

126. 
     After a decade of implementation and recognizing the shortcomings, BCEAO is planning, in cooperation with CGAP³⁷, the donor community, and leading microfinance institutions and professional associations in the WAMU region, to make adjustments to the law and prudential regulation to make them more compatible with international best practices. The revised package will address among other issues, those related to: (i) the conformity of prudential rules with international standards, (ii) the expansion of the regulation and prudential norms to all MFIs not just financial cooperatives, (iii) the adjustment of the OHADA Uniform Act to the regional microfinance regulation frame in order to strengthen it, especially regarding credit guarantees and specifically non-traditional collateral used by MFIs and their execution, and (iv) the strengthening of internal and external control requirements.
     

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