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Decentralized Financial Systems

The difficulties experienced in the 1980s by development banks, traditional agricultural finance organizations, small- and medium-sized companies and craft trades further aggravated the stagnation and even the regression of economic growth in the countries of the Union.

This situation was reflected in the liquidation of the majority of development banks, which has made it even more urgent to promote alternative financing structures capable of mobilizing small savings in rural and urban locations and create the conditions for the progressive integration of the informal sector with the modern economy.

To this end, concertation with the main actors (partners in development, proximity financing institutions, governments and the Central Bank) has highlighted the need to amend the existing system of regulations to grant legal status to institutions other than banks and financial institutions that provide financial services to populations outside the traditional banking system (savings and loan cooperatives or mutuals and non-governmental organizations involved in the collection of savings and/or the distribution of credit, and projects with a credit component). Collectively known as Microfinance Institutions (MFIs) or Decentralized Financial Systems (DFSs), these entities first appeared in the sub-region in the late 1960s.

In the framework of the promotion of these institutions, whose target customers almost exclusively include low-income groups in both rural and urban areas, the BCEAO, with assistance from the member states and partners in development, in addition to adopting a specific set of regulations for these institutions, set up two support projects in 1992 to promote the emergence and the development of proximity finance institutions.

Indeed, to enable these institutions to legally carry out transactions hitherto restricted to traditional credit institutions, a specific legal framework was designed by the BCEAO in application of the provisions of article 22 of the Treaty establishing the West African Monetary Union. These regulations were adopted by the appropriate bodies of the Union in December 1993.

They were complemented in July 1996 by the adoption of a framework agreement by the councils of the Union. In March 1998, the Central Bank issued instructions specifying application procedures for certain provisions of the legal framework.

In institutional terms, sector monitoring was devolved to specialized structures within the Finance Ministries of each member state, in charge of supervising decentralized financial institutions.

Under the terms of the Treaty of November 14, 1973, the BCEAO has a mandate to propose uniform regulations and ensure their harmonized implementation in all member states.

From 1992 to July 1999, two BCEAO Directorates, the Credit and Training Directorates, were responsible for monitoring the sector.

At the end of July 1999, a new entity was created within the BCEAO: the Mission for Regulation and Development of Microfinance (MRDM), which combined the actions of the two directorates and the support projects attached thereto.

Since February 2003, MDRM has been transformed into a Directorate under the Department of Economic and Monetary Studies at BCEAO headquarters.

This decision reflects the will of the Central Bank authorities to promote the diversification of the financial landscape through the emergence of viable alternative financing institutions providing sustainable services for people who lack access to conventional banks and financial institutions.