MICROCAPITAL STORY: Microfinance in Benin Struggling as Microfinance Institution (MFI) PADME Faces Operational Challenges and Government Intervention

Microfinance in the West African nation of Benin is showing signs of struggling after one of the country’s major microfinance institutions (MFIs), facing internal and external turbulence and the threat of government intervention, has lost the confidence of potential investors, according to non-profit ACCION International.

PADME (Association pour la Promotion et l’Appui au Développement de Micro-Entreprises), an ACCION partner receiving technical assistance from the organization since 2001, was approached by the government in early March with a request for the resignation of its board and management team. PADME initiated legal action to avert a government takeover, and since then an interim director has been appointed and the staff has returned to work.

Nonetheless, it is hard to deny that the past few years have been rough ones for the MFI. According to ACCION’s press release, PADME had undergone rapid expansion and faced the pressures of product development, while simultaneously the microfinance industry of Benin dealt with a severe market downturn in 2005 and 2006 and generally sour portfolios, returns on equity, and write-off ratios. The country’s microfinance consortium ALAFIA released an article last year highlighting their main concerns for the industry, which included a sluggish economy, disregard for industry standards and practices, non-repayment of loans, and government intervention with respect to interest rates and other regulations. To make matters worse, fraudulent activity by some PADME staff members was uncovered in 2006.

As a result, PADME underwent an overhaul and adopted measures to enhance systems, policies, and procedures. Despite such efforts to increase transparency, including on-site due diligence visits during 2007, potential investors have withdrawn, largely for fear of government intervention.

PADME is a non-bank financial institution created as a project by the Benin government with World Bank funding in 1993, turned into a private association in 1997, and currently transforming into a share-capital company with the aid of ACCION. Its gross loan portfolio was worth USD 32.8 million at year-end 2007, out of total assets of USD 56.5 million. Its return on assets was -2.96 percent, and its debt-equity ratio was 187.61 percent. Active borrowers numbered 29,732. As for ratings, PADME has not recently reported a third party performance evaluation of operations to the MIX Market, the microfinance information clearinghouse.

ACCION International is a non-profit based in Boston, originally founded in 1961 to address poverty in Latin American cities. It entered the field of micro-lending in 1973. As of year-end 2006 (Annual Report), it had total assets of USD 51.1 million.

MicroCapital has previously reported on ACCION International and its partnerships, including its recent announcement that its network has surpassed three million clients and its cooperative launch of an MFI in Ghana with Ecobank of Africa.

By Stephen Son

Additional Resources:

ACCION International: “Microfinance Struggles in Benin”; PADME; Annual Report 2006

Microfinance Gateway: “Microcredit for the Poorest and Market Distortions in Benin”

MIX Market: Profile for PADME

MicroCapital.org article, April 10, 2008: “ACCION Network Reaches 3 million Clients”

MicroCapital.org article, April 3, 2008: “Non-Profit ACCION International and Africa’s Ecobank Group Launch Microfinance Institution (MFI) in Ghana”