The Future of the Banking Sector and Access to Financial Services in Togo

The Future of the Banking Sector and Access to Financial Services in Togo

95. 
    A successful restructuring of the banking sector of Togo, as per above, is an urgent need for a return to an efficient, viable, and profitable banking sector in the future. Privatization of distressed state-owned banks is ultimately needed to solve bad governance problems created by government interference in the management of banks. Better functioning banks would ultimately allow greater access to financial services to the majority of the population in the long run. Access to bank services would also be facilitated with more accurate assessment of clients’ risks by banks and a better functioning credit bureau. Thus, improved financial statements would increase access to banking services for SMEs. Banks could also develop internal capacity to assess risks of various sectors of economic activity and in particular SMEs. Capacity building aimed at both SMEs and banks would therefore be helpful. In the meantime, poorly performing banks need to be closely monitored by supervisory national and regional authorities to avoid a full fledge banking crisis in Togo.
    

96. 
    Once their good financial health restored, banks in Togo could turn to the regional capital market to fulfill the investment needs of their customers for longer term resources. On-going discussions in the WAMU region with monetary authorities would make it a little easier for banks to be more active on the capital market. For instance, the replacement of the requirement of a 100 percent guarantee on any bond issue with a rating of the issuer would contribute to lower the costs of issuing bonds.
    

97. 
    Another important product for SMEs access to financial services is leasing. Unfortunately, with the request by STOCA to have its license withdrawn, leasing products might become less accessible to Togolese firms. Undertaking a study to understand the reasons behind the failure of STOCA and determining the conditions needed to bring new equipment financing and leasing firms to Togo would be most helpful for future access of firms to appropriate financial services.
    

3. The Microfinance Sector in Togo

98. 
    Microfinance is defined as the provision of financial services (primarily savings and loans) to relatively low-income clients who typically lack access to normal commercial bank products. Microfinance loans are typically granted to groups or individuals backed by non-traditional collateral.
    

1. Evolution of the Microfinance Sector in Togo

99. 
    Despite sluggish economic performance and the suspension of donor aid, the microfinance sector in Togo experienced noticeable growth over the past decade. In order to adequately play its role of serving urban and rural populations who do not have access to traditional financial services provided by banks, MFIs are active not only in Lomé, the capital city, and other large cities but in small rural towns as well.
    

100. 
     As in the rest of the WAMU region, microfinance institutions (MFIs) in Togo are classified in three main categories: (i) savings and credit cooperatives, (ii) credit-only MFIs, and (iii) donor projects with a microfinance component. At end of the year 2004, there were 145 licensed retail microfinance organizations in all three categories of MFIs and a total of 238 service outlets. Eighty seven percent (126 organizations) of licensed retail organizations were affiliated with six networks while the remainders (19) were independent organizations. Thus, in reality, there were a total of 25 distinct or separate organizations³¹ that received a license to operate in Togo. These formal MFIs were represented all over Togo and served more than 265,000 people, i.e., a penetration rate of 4.4 percent of the population and 11 percent of the active population according to the Ministry of Finance (Table 3.1). They mobilized deposits totaling CFAF 26 billion (US$47 million)³² while the total outstanding loan amount reached CFAF 21 billion (US$38 million). The sector is dominated by FUCEC, the largest savings and credit cooperative network which possessed 26 percent of all outlets, catered to 65 percent of all clients (173,323 members), mobilized 76 percent of total deposits (CFAF 20,012 million or US$36 million) and provided 65 percent of total outstanding loans (CFAF 13,779 million or US$25 million).
     

101. 
     Over a five-year period between 2000 and 2004, the number of clients of the Togolese microfinance sector grew 39 percent (190,537 clients in 2001 to 265,431 clients in 2004). Savings deposits grew 76 percent, from CFAF 14,923 million (US$27 million) to CFAF 26,213 million (US$48 million), while total outstanding loans increased by 50 percent reaching CFAF 21,261 million (US$ 39 million) in 2004 (Table 3.1). As shown in figure 3.1 savings deposits remained consistently higher than loans outstanding over the period, emphasizing the pre dominance of savings and loans organizations in the sector. By the end of 2004, deposits from MFIs reached 10 percent of those of banks while their loans amounted to 11.6 percent of banks loans.
     

102. 
     Through 2000-2004, the growth in the microfinance sector was also reflected in average deposits per client which grew 50 percent, from CFAF 65,796 (US$ 120) to CFAF 98,756 (US$ 180) and represented 55 percent of the GDP per capita compared to 37 percent five years earlier (Table 3.1).
     

103. 
     Meanwhile, average loan balance increased by 29 percent, from CFAF 62,313 (US$113) to CFAF 80,100 (US$146). Despite the steady increase in both savings and loan sizes, average loan amount remained at US$150, a sign that microfinance in Togo still cater to the poor.³³ It is worth, however, noting that microfinance activities remain quite concentrated in Lomé, in the “Maritimes” and the “Plateaux” regions, where mainly small urban commercial activities are financed. As a result, rural areas are quite marginalized leaving farmers and others with no access to microfinance services.
     

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