Implementation of the PARMEC Law for Regulation of Microfinance

This paper discusses the implementation of a common approach to the regulatory framework of microfinance institutions (MFIs) in Benin, which was called the PARMEC law. The main features of the law are:

• Only credit unions and their network federations can be granted a full-fledged license;
• Other MFIs are permitted to operate within the realms of rules defined by a special agreement called convention cadre with the Ministry of Finance;
• The "Convention Cadre" has created a different regulatory regime that does not solve the problem of the regulatory void felt by non-credit union MFIs;
• The Convention Cadre has the following problems:
  • Credit-only MFIs licensed under a convention cadre can be allowed to mobilize deposits and are tax-exempt if they choose the association status;
  • There are no pre-defined prudential ratios for credit-only MFIs.

The paper concludes that:

• Implementation of the PARMEC law reveals several shortcomings that need to be dealt with at a regional level;
• Even for credit unions for which it was intended, the PARMEC law seems to fall short with respect to prudential regulations that are substandard and not in line with international best practice in microfinance;
• Removing the uncertainties regarding convention cadre will help private sector investment in the microfinance market;
• It is hoped that with the central bank taking over the direct supervision of MFIs, there will be a better chance for microfinance in Benin.