Performance and Effectiveness of the Decentralised Financial System and Poverty Reduction in Niger

Abstract

Reforms in the financial system have enabled WAEMU member countries to envision models other than the traditional models to assess credit risks and to ensure that credit contracts are respected, thus building trust between individuals who do not meet the requirements set by the classic banking system and financial institutions. This new approach, referred to as the decentralised financial system (DFS), should facilitate participation of the poor in economic activities via a savings and loan system that aims at being financially viable and profitable.

In Niger, this DFS continues to develop and to position itself as a tool to supply financial services to the most disadvantaged populations. As a result, after several years of experimentation with savings and loan micro-projects, it is important to attest on the performance of the microfinance sector and its contribution to economic and social development in Niger. These considerations have led us to raise the following questions: What is the system’s capacity in terms of mobilising resources (collecting savings and refinancing)? Does the DFS have a significant reach in terms of the services offered to its clientele? Is the system able to reach its potential target, that is, the poor?

To answer these questions, our study proposes to analyse the performance and effectiveness of the financial system in Niger. The available data shows that development of the microfinance system is in full swing in Niger, with an increase in the number of Micro-Finance Institutions (MFI), in the volume of credit granted and in jobs created, and an increasing number of beneficiaries, which are primarily women. Despite the relatively high interest rates and usury for very short repayment periods, microfinance in Niger is striving to ensure financial self-sufficiency by developing a portfolio of savings and loan activities that have been increasing every year since 2000.

Despite some obstacles to long-term viability, micro-credit remains a financial possibility that is of vital importance to the poor and therefore is essential for poverty reduction in Niger. To make the DFS more effective, this study recommends targeting the poor and identifying their financial needs but also considering DFS clients not as people looking for charity but really as people who are trying to do business by accessing basic tools (capital and training).