Nonetheless, knowledge of the functioning of Informal Banking and Finance in Cameroon, as outlined below, would definitely prove very useful.
1. INFORMAL BANKING AND FINANCE
"TONTINES" OR "NJANGIS"
OVERVIEW
The concept of formal Banking and Finance in Cameroon as well as anywhere else in Africa perhaps might never have seen the light of day, save for the advent of colonialism. But, the same is definitely not true with INFORMAL BANKING AND FINANCE which was so deeply entrenched in Cameroon from time immemorial, as was the case during the colonial period up to independence, and still is, in post independent Cameroon; happily or unhappily coexisting with and complementing at least the basic functions of commercial banks, financial investment houses, insurance companies and co-operative associations etc,. in mobilising savings, granting loans and offering protection to members at times of sufferings.
The above important source of funding in Cameroon therefore begs to be looked at in more detail.
THE TRADITIONAL "TONTINE" AND ITS FUNDAMENTAL" RAISON D'ETRE"
* The history of the "TONTINES' or 'NJANGIS' as they are popularly known, may be traced to village, cultural or ethnic settlements in Urban Centres, where the urge for the same identity and sense of belonging, protection, solidarity and co-operation and indeed the closely-knit African Societal heritage, are prevalent and considered as imperative.
* Basically therefore, people as described above would come together, and pull up agreed resources with pre-determined maturities as the case may be, to be shared out among themselves, when appropriate.
EXAMPLE "TABLE A"
No MONTH BENEFICIARY AMOUNT DATE
1 January CARLTON CFA 100.000 LAST FRIDAY OF EVERY MONTH
2 February ROLAND CFA 100.000 "
3 March MATHIAS CFA 100.000 "
4 April GEORGE CFA 100.000 "
5 May IRENE CFA 100.000 "
6 June TINA CFA 100.000 "
Total CFA 500.000
The main characteristics of this kind are:
1) Agreed/fixed monthly contributions/Savings.
2) Pre-determined dates for collection of proceeds: either by negotiation or voting, definitely to coincide with calculated projects.
3) Rotationary as regards the beneficiary and the venue i.e. from residence to residence. Nonetheless, an agreed venue for all contributions is not uncommon.
This is the typical "Tontine" where the essence, is to freely save whether to acquire a fixed investment, or meet up with a planned social or financial event etc.
THE PURELY FINANCIAL "TONTINE"
However, modern "tontines' have without losing sight of their traditional roles of providing financial assistance and insurance/help to members, evolved to purely financial goals and in the majority of cases provide capital/finance for investment at cut-throat interest rates or prices.
Take the example in Table A above.
During the January session, three of its members are in dire need of the funds. Here the funds are placed on auction with a minimum up front price of say 5 % i.e. FCFA 25.000. The highest bidder may end up paying 15 % to collect the funds depending on the desperate need (demand) as opposed to the fixed supply. The beneficiary is therefore paid F. CFA 425.000 with the discount/interest of F. CFA 75.000 collected at source.
This scenario, clearly depicts a money market situation (a primary market) of lenders (savers) and borrowers, and a price, the discount. The market necessarily does not end at this juncture as even the discount is again sold to the highest bidder at say 5 % per month; repayable one month, i.e. F. CFA 78750. This latter and proceeds of subsequent sessions are shared amongst members as dividends at the end of the contribution, and a new time-table is announced.
It is true that the grave risks of the lack of security of funds, death of a member who already received the contribution etc. greatly challenge the value of this sector.
The above notwithstanding, the following salient points are indications that the contributions of the informal sector towards national development and financing the economy cannot be overlooked.
- Quick and transparent access to funding in case of urgent need.
- Absence of time-consuming, credit checking paper work, and bureaucracy that characterise the banking sector.
- In the majority of cases, lenders/borrowers share the same cultural heritage and know themselves well and loan default rates are almost zero. It is also an underlying principle in the "Tontine' that not even death should be a reason for default, and this is abided to religiously.
- Actual monitoring of projects financed by loans on a minute-by-minute basis by members as well as disbursement/drawdowns.
- Blank cheques usually drawn and handed to the group, along with sales certificates of prime and highly marketable moveable assets as security for the funds.
- The risk of security of funds by default or death of a partner may serve to force members to resort to Insurance companies for the relevant coverage.
The "tontines' complement the banking and finance houses, and top groups do mobilise between US$100,000 and US$500,000 per session, which inevitably ends up in banks to finance import/export and other investment transactions.
The real loss to the banking sector therefore, is the float on funds that banks would have otherwise earned from the time a beneficiary practically hoards funds collected, from say on Friday and the actual deposit made at a bank, perhaps on Monday etc.
THE LAW RELATING TO "TONTINES "
The main tool, to enforce the social and/or contractual undertakings of members in a 'tontine" as mentioned above is a blank cheque signed by the drawer i.e. a recipient of funds during a contribution. In case of default at any of the sessions, his/her criminal responsibility comes in to play for dishonoured cheques etc. Or, as earlier mentioned, a sales certificate of a highly marketable asset is further held as collateral. Both instruments, merely pressurise the borrower to respect his/her engagement when due.
II. FORMAL BANKING AND FINANCE
A. HIGHLIGHTS OF THE DEVELOPMENT OF THE LAW RELATING TO BANKING AND FINANCE
1. During the colonial-era, German, French & English, the practice of Banking & Finance and the laws relating thereto, were basically those applicable by the colonial masters.
2. By Decree 62/LF/90 of 24/3/62, the unified and Independent Cameroon enacted their first piece of legislation in this area, which was later only modified/appealed, eleven years later in 1973.
3. Banking terms and conditions were first harmonised by Arrete 265/MINFI/CE of 5/9/1973. Prior to this date the English & French Cameroon were applying separate terms and conditions as per several Interbank Agreements concluded.
It is worth mentioning that to date, pricing for Banking and Financial services, as well as a wide range of their services, are still dictated upon by the Monetary Authority; although it is hoped that with the new wave of liberalisation, deregulation, privatisation and under the growing awareness of the advantages of the free forces of the market, Institutions would soon be the sole determinants of their pricing.
4. In 1960 and 1972, during two leading International Agreements, Africans were reminded to take the real management of their commercial and Central Banks in their own hands. In this regard, Cameroon authorities began creating Banking and Financial Institutions that could contribute towards the development of the Country: (Banque Camerounaise de Developement, S N I, Fonader, Credit Foncier etc.).
5. The 1973 law, Cameroonised the post of General Managers for Banks and Financial Institutions and capped foreign shareholding in this sector to 65 %. This in fact, is the most unfortunate advancement ever recorded/achieved in Banking and Finance in Cameroon, its consequences including; the liquidation of BCD, Paribas, SCB, Cameroon Bank, several unsuccessful acquisitions/buyouts, with their toll on the state Treasury, liquidity squeezes, loss of confidence in the system, and finally, dud loans of over US$ 1,400 MN.
6. The 1985 reform, the most elaborate and extensive text on the subject since Independence (though far from all-embracing) ordinance 8510021311811985, was enacted, and inter alia, amended the shortcomings of the 1973 Law ;
a. The government withdrew its pre-emption rights on share-holdings by no longer insisting on owing at least 113 of the shares of Foreign Institutions in the country and further, provided for "offshore" Banking opportunities in the country.
b. It also withdrew its right of appointing, as often as in the past, civil servants with no technical or ethical standards, in positions of top management of banking and financial institutions.
c. The text further defined banks, financial and investment institutions, provided for conditions to head such institutions, the capital required to float them, their range of services, created a professional body, APECAM to take care of their interest, provided for licensing procedure, penalties, closure, Supervisory Bodies etc. The Supervisory bodies include BEAC (the Central Bank for Central African States), The Ministry of Finance and Economy, the NCC (National Council of Credit) and COBAC (the commission for bank supervision) for the six member States of BEAC.
7. Decree No 90/1469 of 9/10/1990, redefined Art 45 of the 1985 ordinance by extending the definition of a bank to include:
a) A licensed deposit taker; accepting deposits, making payments and granting loans;
b) Specialised banks; which include the "offshore banks " and any other institution which can provide medium and long term finance to the Community either via funds from their own resources or by accepting fixed deposits with maturities of over 2 years.
It would appear that in this, lies the inception of investment and Merchant Banking in Cameroon, and one can only wait to see its growth and development.
8. Decree No 90/1469 of 9/10/1990 also modified the 1985 ordinance's purview of financial Institutions. Whereas, the latter broadly placed them in 3 categories, the former now defines them as falling into 6 types, authorised to handle all banking operations except accepting deposits, making payments and handling of foreign trade/exchange.
The 6 types are the following:
a) Financial Institutions to promote consumer goods.
b) Investment Houses handling long term investment in companies etc.
c) Brokerage Houses.
d) Factoring Institutions.
e) Recoveries companies.
f) Hire purchase and leasing entities.
9. The 1990 decree further elaborated on the functions of finance companies, with an investment outlook such as:
- Investing in the share capital of other financial, industrial and commercial institutions.
- Granting loans or guaranteeing facilities accorded to affiliates/subsidiaries in financing economic/social investments.
- Ordering the transfer or sale of the shares of other companies.
- Managing the shares/assets of other companies even if not quoted on the stock exchange or mobilising capital either by way of shares issue, bonds or treasury bills.
The above is not an exhaustive list of the different conventions, laws, ordinances, presidential decrees, ministerial orders or circulars which govern Banking and Finance in Cameroon.
From the above development, formal banking and finance has finally staggered to a recognisable and acceptable position. Now is the time to put the rails on, and live the functioning of these institutions in the market, on a real time basis.
The actual law however, relating to this sector as well as others in the country as administered by the Courts of law leaves much to be desired.
The worrying legal lapses of incompetence of Lawyers, Magistrates/Judges in Banking, Finance and Commercial matters, inadequate Court materials, corrupt and unethical Magistrates, absence of reference documents such as publication of judgements up to the Supreme Court level; are indeed a disincentive to the attraction of foreign capital, the privatisation effort underway, as well as commercial transactions in general.
However, the IMF and the World Bank working hand in hand with the government are presently, making frantic, but steady and reinforced moves towards a substantial alleviation of these ills.
B. THE CAMEROON ECONOMY IN BRIEF
From the key data provided above on Cameroon, its place as one of the richest countries in the sub-region even today, 17 years from 1978, when the country was at its prime, with a bustling economic growth rate of 5 %, then hitting a record high of 7% the same year on the discovery of oil deposits cannot be over emphasised.
This boom fared on to 1985, with yearly growth rates of 7%, petroleum accounting for over 20 % of GNP, 44 % of government spending and the budget surpluses were the order of the times.
However, most of the receipts in the boom years were wasted, in state controlled structures and ventures, than spent lucratively to support and enhance, a much more useful private sector that was almost non-existent.
The shocks of 1985, characterised by falling oil prices, as well as those for cocoa and coffee, our main exports, coupled with the depreciation of the dollar and the Naira, thereby artificially appreciating the FCFA in real terms by over 50%, rock-bottomed favourable trade terms by over 60%. Between 1986 and 1993, GNP dropped by an annual 6%.
The IMF and World Bank during this period intervened. Some relief was afforded by them, but the immediate and long lasting results, which were intended to stabilise the government treasury, whilst encouraging private savings and the development of the private sector, did not work out as planned. The budget deficit was ever-widening, thanks to deteriorating revenue intakes as opposed to faster government expenditure. Consequence; internal and external debts soared and increased the hopelessness of savers in the system.
With the FCFA over-valued, the Banking and Financial system under-capitalised and most, with negative networths, GNP plummeting, exports non-competitive, and the State Treasury in near bankruptcy, Cameroon and other FCFA zone members were forced in 1994 to accept a devaluation of their currency by 50 % vis-a-vis other hard currencies.
The immediate flush (through export earnings) and rush-back of liquidity (capital packed abroad) into the Cameroon system dreamed of, lagged way behind expectations. In Gabon for example, over CFA 10. 000 MN found its way back to the system in the first two weeks following the devaluation and in
Ivory Coast official sources have over 300.000 MN in the first 6 months.
The IMF and World Bank, apparently have since the later months of 1994, onwards, been more than fairly satisfied with Cameroon's performance;
- Budgetary revenues, are picking up mainly through improved customs payments, turnover tax returns plus other direct and progressive tax intakes.
- Whilst expenditure on salaries have dropped by 28 % to 36 % between 1993 and 1995 with the days offs in the civil service.
In the context of the improved out look, the IMF and the government in September 1995, signed Structural Adjustment Loan (II) (CAS (II)) worth $ 150 MN.
C. THE BANKING AND FINANCE INDUSTRY
This Sector in Cameroon, is the most important and diverse compared with those in the remaining 5 member States of BEAC: (Gabon, Central African Republic, Tchad, Congo and Equatorial Guinea). At the end of 1995, it included:
- 8 commercial banks,
- 8 non banking financial Institutions,
- A post office savings bank,
- 16 Insurance companies and one re-insurance company,
- 1 real estate corporation,
- A pension's fund,
- Various mutual trust funds, co-operative and credit unions.
- A recoveries corporation. etc.
Cameroon further shares with the other 5 countries, a Central Bank, BEAC (The Central Bank for Central African States). A money market was also launched in 1994, but is not fully operational due to lack of confidence and co-operation among participating banks.
Total assets of the sector are approximately US $ 2515 MN employing over 10050 staff.
However, the eight commercial banks, are the most developed in this sector and account for over 64 % of the total assets.
With 104 branches throughout the territory, they employ 2200 persons, and as at September 1995 assets totalled US $ 1.668MN. Among the eight banks, three dominate the sector per asset size, accounting for 61 % of same i.e. US $ 980 MN. Their asset quality and mix, however, greatly discount the advantages of mere size, as the negative networth of these same banks total over US $ 9OMN and their portfolio of dud loans, US $ 100 MN at least.
STATISTICS (US.$ MN)
BICIC SCBCL SGBC BMBC STAN CCEI C.A. AMITY TOTAL
CHAR
DEPOSITS 235 272 227 173 104 89 103 15 1218
LOANS 313 227 268 83 114 34 97 9 1145
LOAN LOSS PROVISION 153
The health of Cameroon banking and Financial Institutions has suffered tremendously since 1986. Poor management, often characterised by a huge portfolio of dud loans, lack of sufficient provisioning, negative networth, the non respect of any of the prudential ratios whether specified by the Balse guidelines or by Cobac, have in all, frustrated the commercial banks role of providing finance to the economy.
At moment, there are limitations on withdrawals to a maximum of US$10 per week per client at Meridien BIAO. Another leading Bank has been witnessing serious liquidity shortages since the beginning of 1995, on account of a number of dud loans meted-out.
In 1995, International Bank for Africa and First Investment Bank were put under liquidation.
The difficulties of this sector are not limited to the banking industry alone. Most of the insurance companies are virtually bankrupt, with unpaid arrears on premiums topping startling figures that surpass their annual turnover. Indeed, these companies, rather than supplying funds for financing long term investments, are on the other hand, merely net users of financial resources. The pension fund is also in heavy deficit.
D. MEASURES UNDERTAKEN TO SALVAGE THE BANKING AND FINANCE SYSTEM AND THE ECONOMY
The ailing system, has from time to time received certain bouts of treatment. In 1989, the Cameroon Recoveries Corporation (SRC) was created, to liquidate in the first place, and later, manage the delicate assignment of recovering over US$1,400 MN of bad loans. The IMF/govemment's, privatisation and restructuring effort, further transferred agreed liabilities and assets to the SRC, thereby at least artificially, 'cleaning up' the balance sheets of the top three banks and giving them, face uplifts.
The exercise is still on-going, and with the latest approval of the Board of Directors of the World Bank, US $ 150 MN is expected ; a position of which will address:
- The status of Meridien/BIAO and another leading bank.
- Technical support to the government to round up the restructuring of the Banking and Finance sector.
- A proper audit of the Banking and Finance sector.
- The worrying lapses of the legal system as contained in section A above, which must be completely overhauled as a prelude to any meaningful and successful revamping of the private sector etc.
Way back in 1985, with government waiving its pre-emption rights on shareholding of banks and other financial institutions, 100% privately owned banks cropped up. To date, CCEI and Amity Banks are the leading names, offering a wide range of personalised services at competitive rates, matching sound and transparent management techniques, through ethical standards, innovative techniques and dynamic human resources, with an ambitious share yield to shareholders' policy.
In the area of Banking and Finance software, these two privately-owned banks are also the market leaders, thanks to the services of SOFTECH Intentional, a Computer/Consulting guru with offices in Cameroon and Head Office in Washington D C. Their CEO, MR. TAM SANGBONG is dedicated towards matching, if not surpassing the sophistications of a real time Online banking service in Cameroon that the advanced world has so far monopolised.
The Banking and Financial Industry in Cameroon is still very young, unsophisticated, but full of potential. Official spreads between lending and deposit rates, at over 10% basis points, remain one of the most attractive anywhere else in the sub-region. Privatisation and restructuring are forcing banks to cut overheads, respect credit controls, enforce internal controls and aim at profitability.
Continuous and untiring efforts are being made to ameliorate the legal environment. The regulatory environment, too, is giving its own share in adapting the law to new structures and products, and with the 'police' of banks and financial institutions "COBAC ", tighter and stricter control is being placed/enforced on banks.
Overall, therefore, the future of Banking and Finance may well be rosy with the other accompanying measures and macro-economic factors interacting and complementing one another.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances"
For further information contact Mr Nico Halle, Tel: (237) 42 64 79 or Fax: (237) 43 26 34; or enter a text search on "Nico Halle Law Firm" and "Mondaq Business Briefing".
