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CASE STUDIES
USD 3,272,480 when it reached financial selfsufficiency
(FSS), qualifying it as a medium scale
institution under the MicroBanking Bulletin definition.
Although the OSS of PADME has tended to vary
more over time than its FSS, there has been a relatively
small difference in these two rates due to the
stable macroeconomic environment in Benin, which
is characterized by low levels of inflation and a low
market interest rate.
Figure 2: PADME’s path towards financial self-sufficiency, 1994–2003
250%
200%
150%
100%
50%
0%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Operational Self-Sufficiency (PADME)
Operational Self-Sufficiency (Africa)
Financial Self-Sufficiency (PADME)
Financial Self-Sufficiency (Africa)
Source: MicroBanking Bulletin no. 10 data. PADME data shown for the period 1994-2003. Africa data shown only for 1999-2002.
The institution’s AROA doubled in 1999, then hit a
relative plateau between 9 and 10 percent thereafter,
far exceeding its African peers, which in 2002
had an average AROA of -2 percent. Annual incremental
increases in PADME’s AROE mirrored similar
increases in the capital/asset ratio. Although its
AROE exceeds that of its peers by a smaller margin,
this performance indicator remains relatively
constrained by the institution’s funding structure.
Indeed, PADME has historically relied heavily on a
combination of donated equity and retained earnings
to finance its growth. In 2003, for the first time
since its inception, accumulated earnings surpassed
donations as the engine of equity growth
and will allow PADME to continue growing steadily
without accessing further debt.
Revenue and Expenses
PADME is subject to an interest rate ceiling imposed
by the PARMEC usury laws of the Central
Bank of West African States (BCEAO), which prevent
it from charging an annual interest rate in excess
of 27 percent. Thus the nominal yield on portfolio
(which includes interest, fees, commissions
and penalties earned on the loan portfolio), has remained
relatively constant over time, averaging 23
percent, significantly less than the average nominal
yield of the Africa peer group (43.4 percent). In
spite of these limitations, PADME makes efficient
use of its assets. Its gross loan portfolio averaged
82.4 percent of total assets between 1999 and
2003, compared to an average of 65.7 percent for
its peers. As a result, its adjusted financial revenue
ratio has tended to slightly exceed that of its peers.
One can explain PADME’s positive returns amid
imposed interest ceilings by its expense breakout.
Since its establishment, all expenses with the exception
of financial expenses have fallen steadily.
Personnel expenses, the single largest driver of
total expenses, declined sixfold in 10 years and
administrative expenses also declined precipitously.
Loan loss provision expenses fell significantly after
1997, the year when the MFI began to write off bad
debts. These expenses have subsequently been
very low due to the institution’s excellent portfolio
quality. In contrast, somewhat constant but low financial
expenses (except in 1995, when high inflation
rates prevailed) reflect the fact that PADME is
heavily financed by equity.
14 MICROBANKING BULLETIN, MARCH 2005