Regulatory Framework and Microfinance Institutions' Performance within the West African Monetary Union

Ali Hadizatou

Working Papers from African Economic Research Consortium

Abstract: This study assessed the performance of microfinance institutions (MFIs) in the West African Monetary Union (UMOA) following a change in regulations and prudential ratios (capital and liquidity). Results of econometric estimations based on data covering the period 2002-2015 showed that the application of the 2007 law did not bring any benefit to the performance of the MFIs. This is because the opportunity cost of holding liquidity when the new law was adopted and the period during which it was effectively enacted was high enough to have a negative effect on return on assets, on the return on equity and on the proportion of loans per capita. During the same period, the minimum capital requirements were of great importance for financial performance, since they led to an accumulation of funds for investment purposes. The relationship between minimum capital and performance remained positive even when different performance indicators and estimation methods were used. However, the effect of liquidity and regulation varied with the estimation method used.

Date: 2021-05-06
Note: African Economic Research Consortium
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