Transparent Pricing In West Africa

The West African Economic and Monetary Union (WAEMU) (in French: Union Economique et Monétaire Ouest-Africaine, UEMOA) is an organization of eight states in West Africa: Benin, Burkina Faso, Guinea Bissau, Ivory Coast, Mali, Niger, Senegal and Togo. The Union was established to promote economic integration in the region, consolidating regional economic activity under the guidance of one bank, the Central Bank of West African States (in French: Banque Centrale des États de l’Afrique de l’Ouest, BCEAO).

The BCEAO acts as the head regulatory and supervisory body for all financial institutions operating in member states. In 1993 the BCEAO developed the PARMEC Law in order to regulate licensed MFIs in WAEMU countries. More than 410 MFIs with total deposits of about FCFA 170 million and outstanding loans of FCFA 130 million were registered in the WAEMU region as of 2003. Since then the policy framework has undergone several phases of change, including issuance of the New Microfinance Law in 2007.

The official formula for calculating prices for all microloans in the WAEMU region, as stipulated by BCEAO, is known as the “Taux Effectif Global (TEG)” or the Effective Interest Rate (EIR). The official pricing regulation specifies that the TEG takes into account fees paid by the borrower as well as interest payments, but there is ambiguity whether insurance fees are included in the calculation.  The formula does exclude compulsory savings requirements.  Although the law is well-known, the formula for calculating the TEG is not well-known.  In fact, there is a great deal of confusion about the formula and how to interpret and apply the formula.

While the microfinance industry is generally governed by the new microfinance law of 2007, the pricing component is specifically  addressed separately in the “Law on Usury” which was published by BCEAO in 1997. This law applies to all financial institutions that provide loans, including microloans. The most significant stipulation of the Law on Usury is a price rate cap. This law fixed the cap at 27% for all non-bank institutions offering microfinance services. The cap was revised down to 24% in 2013.