Regulation and Supervision of MFIs in the West African Monetary Union: How the PARMEC Law Impedes Access to Finance for SMEs

Publication Date: Apr 2005
Published by: Microfinance Regulation and Supervision Resource Center
Document Type: Paper (PDF)

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The paper provides an overview of the PARMEC law in the West African Monetary Union region

This paper states that the West African Monetary Union consists of eight member states - Benin, Burkina Faso, Cote dIvoire, Guinea Bissau, Mali, Niger, Senegal, and Togo. In 1994, the PARMEC Law was passed and further ratified by almost all member states to regulate and supervise member-based microfinance institutions in West Africa.

The PARMEC Law is based on the assumption that all MFIs in the region would be member-based mutual institutions. Any other type of institution must apply for a special agreement from the country’s Ministry of Finance, that gives the organization permission to operate for a five-year period and often includes special arrangements regarding interest rates or reporting requirements that differ from the PARMEC Law.

This essay discusses the implications of such a system the shortcomings of such a system, particularly in regards to:

• Failures within the internal and external supervisory mechanisms,
• Obstacles to private investment,
• The effect of interest rate ceilings,
• And governance issues for West Africa’s MFIs.