Benin Country-Level Savings Assessment

Read the results of CGAP's third country-level test diagnostic of small-balance savings mobilization.

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Executive Summary

This report summarizes the results of the third test of the Country-Level Savings Assessment Toolkit being developed as part of CGAP's Savings Initiative. The purpose of the toolkit is to help government agencies, donors, and others identify opportunities and constraints in increasing poor people's access to highquality deposit services. The methodology examines four levels of the financial system: clients, financial institutions (micro), supporting infrastructure (meso), and policy (macro). It concludes with suggestions for possible strategies to improve the quality and quantity of deposit services available to poor and lowincome households.

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A decade-and-a-half after a banking collapse that saw the failure of all three of Benin's state-run banks, mistrust of the banking system is still widespread. At the same time, a lack of data on client patterns and preferences with respect to savings perpetuates a widespread perception that low-income Beninese do not or cannot save.

In reality, there is a deeply entrenched tradition of saving in Benin. Much of it occurs in the informal sector. Despite the number and variety of formal deposit-taking institutions, they have been largely unsuccessful in competing with informal deposit service providers in terms of costs and convenience. Moreover, the safety of savings in formal institutions is not guaranteed because institutional financial performance is highly variable.

The quality of management support available to retail institutions is also variable, although training and TA providers are numerous. This issue is especially worrisome for cooperative networks, which are delegated supervision responsibility by the Ministry of Finance. In addition, institutions and networks have not established internal liquidity management mechanisms, and they must accomplish this task by transacting with banks. Easily available bank refinancing, along with donor and government lines of credit, diminish the incentives for retail institutions to focus on deposit mobilization.

At the macro level, the assessment does not find that the much-analyzed regulatory framework in Benin significantly hinders small deposit mobilization, although some conservative prudential ratios reduce the attractiveness of deposits for banks. Regarding MFIs, the framework is, if anything, too permissive, resulting in a plethora of often weak deposit-taking institutions that cannot be effectively monitored with current supervisory resources. Also of concern are state-run initiatives that undermine strong MFIs' viability and incentives to mobilize deposits. This analysis suggests nine strategies to improve small deposit mobilization in Benin that which warrant further research and reflection:

1. Research client preferences to understand the size and characteristics of the market.
   
   
2. Design and actively market deposit products and delivery mechanisms tailored to the needs of specific low-income client niches.
   
   
3. Create a system that enables the public to distinguish among different types of institutions based on their regulatory status and financial soundness.
   
   
4. Conduct consumer education campaigns about the importance of saving in regulated institutions.
   
   
5. Consider consolidating institutions and networks--but ensure management capacity to match their size.
   
   
6. Accelerate the use of e-payment mechanisms to integrate proximity to customers, security, and cost-effectiveness in deposit service delivery.
   
   
7. Improve supervision methods and increase supervision capacity within the government.
   
   
8. Consider adjusting certain provisions in the regulatory framework that reduce the attractiveness of deposits as a source of funds.
   
   
9. Review the proposed National Microfinance Policy through a savings mobilization lens.