Our Financial Institutions

The Throes & Thrills Of Financial Institutions

By Ernest Ndukong

Financial institutions provide financial services and act as financial intermediaries to clients or members. They include banks, building societies, credit unions, insurance companies, pension funds, brokers, mortgage loan companies among others.

Banking is the universally accepted term for describing institutions performing financial services. Central banks and other regional financial unions like COBAC (Central African Banking Commission) regulate and set the standards of operation for other financial institutions. The Bank of Central African States (BEAC) issues the currency, regulates the money supply and sets the interest rates in Cameroon.

Commercial banks and microfinance institutions deal directly with natural and legal persons.

Apart from the routine financial services, commercial banks perform functions such as; processing of payments by telegraphic transfers, issuance of bank drafts/statements and bank cheques, lending of funds, accepting time deposits and underwriting of bonds.

Microfinance institutions have mostly low-income earners and solidarity lending groups as clients. It is a faction whose object is a globe in which, as many pitiable and near-poor family units as possible, have enduring access to an appropriate range of high quality financial services, including not just credit, but also savings, insurance and money transfer.

Many have linked commercial banks to high income earners and well-to-do in society and microfinance institutions to low-income earners and the underprivileged in society. Their claim is that bank services are very expensive and not in any way customer-friendly, while services of microfinance institutions are affordable.

Some years ago, one needed at least FCFA 200,000 to own a bank account, whereas 10 percent of that amount would create you an account with a microfinance institution. With the coming of many financial service providers, the pioneer businesses have now adjusted their rates to retain their customers.

Acquisition of loans is another issue which scared most people away from banks because their conditions were unwieldy, unclear and thought to be expensive. Conversely, it took and still takes very little to get a loan from a microfinance institution.

The Bone

The bone of contention here is; who is right and who is wrong, who profits more than the other, who is customer-friendly and who is not? Now, would you claim to be customer-friendly and lend out other people’s funds to unworthy clients, or to inexistent clients, or to those who cannot pay back?

Someone opined that ‘there is no free service offered by a bank’. This statement is subject to its own arguments. Bank staff usually claim to be busier than the bee, such that they might not even explain products to customers. After all, when it’s time to debit the customer, his opinion is not sought. Whether or not these clients bother to listen to a less busy banker, is entirely another issue.

Some bank managers devote more time to well-dressed clients who probably are coming to request for overdrafts. It has been observed that clients with the most sophisticated signatures and vocal nature are liabilities to themselves. But, these are the people who make a fast return for investors.

It is also clear that if a ‘buyam-sellam’ does not deposit her sales, the white-collar person may not have funds to take home. This is to say there should be a reconciliation in the diverse nature of treating clients because they are, independently, important to the financial abode. However, a Buea-based bank manager explained that there are some important personalities in society like the Governor and Ministers, whom you cannot allow to queue up for long. He further explained that these personalities may bring in more clients if they are treated with some respect.

Interest Rates

Bank rates, generally, are believed to be expensive when it is looked at with a narrow mind. From a broader perspective, it is commensurate to the value of the service in question. An account holder with a microfinance institution in Buea may not have access to his funds if he is in Yaounde, because the institution may not have a branch there or their operating software does not permit the operation of an account out of home.

But most, if not all, banks in Cameroon give access to their customers’ funds wherever they are located, especially with the coming of Automated Teller Machines (ATM). My good friend above should not expect this to be cheap, not to talk of being free. What is sad here is a situation where transactions are taxed per operation and not, perhaps, the bank card itself.

Interest rates, both on savings and loans, are determined by the central bank which expects banks to respect with stringency. Microfinance institutions sometimes flex the rates. This explains why their rates are generally higher than those of banks.

It is common practice to see microfinance institutions giving up to 10 percent interest on savings and 24 percent on loans. While banks’ interest rate on saving is, at most, 3.5 percent, that on loans is about 16.5 percent per annum.

Many have complained about the secrecy in determining the amount repayable for a loan in credit unions and other microfinance institutions. Jacob Fisiy wondered how he will be indebted by FCFA 5 million after repaying more than 70 percent of a FCFA 7 million loan he took from a credit union.

Contacted to react to the assertion, a loan officer, who requested not to be named, hinted that the customer is not far from the truth but he could have exaggerated. He explained that this might occur if the client is not faithful with repayment and, thus, suffers from his delinquency and, more so, when it is calculated on a reducing balance basis.

The Organisation for the Harmonisation of Business Laws in Africa (OHADA) stipulates that banks use the straight line method, which is why clients can easily know how much they will be repaying for their loans and thus can plan well.

Ironically, banks ought to have a higher interest rate on loans to generate more income so as to meet up with their obligations held at the Central Bank. The multitudes of microfinance institutions scare most people about their going concern and long term survival. The COFINEST saga is still fresh in the minds of many. It was declared bankrupt in July 2010 and placed under a liquidator, only for it to close its doors on February 22, 2011. Others that have closed up include; Zion Financial Credit, Famme Cameroun, IRCARFLAW and, recently, VIRGO Solution, who reportedly vamoosed with circa FCFA 100 million in Kumba.

Some customers refer to their bankers as ‘bank charges’, saying they are curtailed a minimum of FCFA 5,000 as bank charges on a monthly basis. Some of them expressed their worries over Cameroon Calling on CRTV on Sunday, July 17, 2011. An account-related officer counteracted by saying that bank charges on individual accounts no longer exist, if the client manages a credit balance account.

Role Of Competition

Competition, banking awareness and customer search has impacted positively to these financial service providers in particular and the economy as a whole. Most financial institutions have dropped their rates to very affordable levels. This has had a significant effect on the performance of banks in Cameroon, some of which can now boast of quarterly Balance Sheet values of over FCFA 100 billion and a yearly net profit of over FCFA 10 billion.

Competition has also had a positive impact on customers who now have more access to their funds. Financial institutions have extended working hours to around 5 pm and some even work on weekends.

Money transfer has become cheaper, faster and even more reliable. It costs FCFA 500 or less, to send FCFA 10,000 to any part of the country and the beneficiary gets the cash a few minutes later. Perhaps, the only high-priced transfer agency is Western Union and MoneyGram, probably because they are not locally owned.

Customers will now heave a sigh of relief when many other services will be offered at no cost. The Minister of Finance signed a circular stating in Article 3 that, henceforth, the following minimum banking services will be free of charge; opening of accounts, delivery of account statements, bank books, cheques, certificates of non-indebtedness, change of address and others. Loan and saving rates will also be customer friendly.

What trickles in some analytical minds is that, customers of all financial institutions are complaining about similar things. Where then, is the ideal financial house? Or are clients just too idle and lack a better topic of discussion that they spend time complaining? Or could it be that banking in Cameroon has no concern for the one who brings in the income?

There are just too many unanswered questions.