An Assessment of the Legal, Regulatory, and Institutional Environment of the Microfinance Sector in Mali

The study on the legal, regulatory and institutional framework for microfinance institutions in Mali was conducted with the support of USAID and based on a sample of cooperative and non-cooperative MFIs which permitted the identification of a certain number of constraints handicapping the growth of the microfinance sector and also a range of proposals to improve this situation.

The vast majority of MFIs analysed recognize that the PARMEC law has permitted their evolution in a legal framework and reduced the anarchy that formerly characterized the sector. However, due to complexities in application of the law, and the rapid expansion in the number of MFIs in Mali, problems have become apparent in the process of elaboration of legal texts which require some details, accompanying documents and in sum the revision of certain underlying arrangements of the law and the its texts of application (decrees, circulars, and instructions from the BCEAO). Included amongst the constraints are:

• MFI managers spend almost half their time engaged in respecting regulations;
• The legal framework does not specify the role of commercial banks concerning financial intermediation with MFIs, although their deposits are completely placed in the banks;
• The power the law gives to the Boards of Directors provokes abuses system (e.g. haphazard distribution of credits, embezzlement, etc.);
• The law does not limit the number of terms of elected officials;
• The principle of voluntarism on the part of elected officials who must repay loans is bypassed through improper behavior;
• The actual level of the usury rate and its non-flexibility makes it difficult to attain financial stability and sustainability of MFIs;
• The current ratio of loans to deposits creates anxiety on the part of non-cooperative MFIs;
• The absence of a professional code and ethics gives rise to prejudicial errors.

The paper makes a number of recommendations including:

• Allow the law to confer non-cooperative MFIs legal status and grant them the same fiscal incentives of those enjoyed by the cooperative MFIs;
• Revision of the law regarding the power of elected officials to protect the management of MFIs;
• Liberalize the usury rate to better reflect the market realities;
• Strengthen MFIs internal control systems;
• Reform and reinforce Board Credit Committees of MFIs;
• Reinforce training and information for members of Boards of Directors;
• Create a professional code for MFIs;
• Strengthen the relations between banks and MFIs;
• Make an inventory of unlicensed MFIs with the objective of their integration into the formal system;
• Reinforce the collaboration between the Ministry of Economy and Finance and the Ministry Home Affairs to facilitate the approval of legal agreements or recognition of MFIs;
• Establish a partnership between USAID and BCEAO in a framework to better share their experiences in microfinance and assist the growth of the sector.