West African Economic And Monetary Union (WAEMU) Microfinance Institutions’ Analysis And Efficiency Evaluation

In the West African Economic and Monetary Union, Microf inance emerged in the early 1990s as an alternative system of financing for small and medium enterprises (SMEs) and the rural sector. Since these microf inance institutions (MFI) were operating in an informal environment, the West African Central Bank (BCEAO) decided to adopt a regulatory framework in order to promote the development of microfinance. This led to PARMEC (savings and credit support and supervision of the project) and the emergence of other projects in order to protect savers, build an integrated legal framework, ensure SFDs’ financial autonomy; in short, improve MFIs’s efficiency.First, we conduct our research by analyzing the microfinance sector in order to have a general idea on its overall evolution and performance according to each country. In fact, the top 12 institutions (non-governmental organizations and cooperatives) accounted for 88% of total savings and 82% of total loans. About the evolution by country, Cote d’ Ivoire (even with a high portfolio degradation rate) and Senegal are at the top. Overall, these two countries accounted for 40% of the UEMOA market share:41% of customers, accounting for 39% of total loans and 46% of total deposits. Corresponding to the level of economic development, the microfinance sector is underdeveloped in Guinea-Bissau and Niger.The study goes on by using DEA (Data Envelopment Analysis) method to measure the efficiency of microfinance institutions in the West African Economic and Monetary Union. This is one of the first studies that consider both the intermediary and outreach function of MFIs in this region. We find a very low average efficiency of 50% under Constant return to scale (CRS) and 63% under Variable return to scale (VRS). The decrease in efficiency over the decade 2004-2014, for the whole area, is due to difficulties faced by the micro-finance sector that led to foreclosures of many institutions, or deteriorating outreach indicators especially in countries such as Cote d’Ivoire, Senegal and Benin. The efficiency scores are then regressed on a series of factors explaining the efficiency of MFIs. Sound financial management and portfolio, subsidies have a positive impact on efficiency and the size of MFIs and training have a negative impact.Given the results of this study, the challenges of microf inance sector remain high. From the MFIs themselves to their supervisory bodies, the sector must make some adjustments to make it more profitable and efficient, thus reducing poverty reduction, because this is one of the main areas of the Union member countries’development policy.