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CASE STUDIES
resources are among the single greatest contributors
to its success.
Portfolio Quality
Overall, PADME’s total risk has dropped dramatically.
The MFI achieved marked improvement in its
portfolio quality between 1995 and 1998, reducing
its PAR > 30 days from 5.7 percent to a notable 0.6
percent. It has since consistently demonstrated outstanding
portfolio quality, with an average PAR > 30
days of 0.7 percent. Similarly, PADME’s adjusted
write-off ratio, which reflects adjustments made to
the portion of its loan portfolio at risk more than 365
days, declined sharply between 1998 and 1999.
This decline is attributable to the institution’s decision
to begin writing off bad loans in 1997, as well
as to a steady improvement in portfolio quality over
time.
Figure 5: PADME’s portfolio quality, 1994–2003
Indicator 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
PAR > 30 days 3.50% 5.70% 4.70% 3.00% 1.00% 0.60% 0.30% 0.50% 0.80% 1.10%
PAR 90 > days 2.40% 2.20% 2.70% 1.90% 0.70% 0.20% 0.20% 0.20% 0.40% 0.60%
Write-off ratio 0.00% 1.50% 5.50% 3.80% 4.10% 0.30% 0.30% 0.10% 0.30% 0.00%
Source: MicroBanking Bulletin no. 10 data.
Prospects for the Future
PADME has demonstrated a combination of strong
profitability and outreach for six consecutive years
and is unquestionably a leading provider of microfinance
services in West Africa. The microfinance
market in Benin is, however, increasingly competitive,
and PADME must continue to evolve in order
to reach more clients and target new markets. The
institution has already developed additional loan
products.
One challenge remains: the decision whether and
how to transform into a different legal structure. Indeed,
the management of PADME has long identified
its legal structure as its greatest weakness. As
an association (the equivalent of a nongovernmental
organization, or NGO), it is subject to
the restrictive PARMEC laws, which were designed
to regulate credit unions, as well as the BCEAO
interest rate ceiling of 27 percent. Nevertheless, this
ceiling is higher than the 18 percent interest rate
permitted banks. The current status of PADME
technically permits it to mobilize very limited voluntary
savings (it has never chosen to do so), but only
provides a five-year license to operate. This restriction
prevents the institution from mobilizing longterm
finance, including most forms of capital investment.
Options for PADME include transforming
into a bank, a “société anonyme” or an “établissement
financier.” Each status has advantages and
limitations, including whether the institution would
be subject to PARMEC laws or required to pay
taxes.
Conclusion
PADME demonstrates consistent and remarkable
profitability, efficiency, outreach, and portfolio quality.
A historical review of its performance data suggests
that the institution consolidated its financial
position after five years of operation and has since
been able to maintain or improve its performance.
Its strengths ⎯ including a strong market position,
efficient operations, productive staff, skilled management
and outstanding portfolio quality ⎯ position
it well to expand, possibly transform, and serve
an increasing number of microfinance clients in
coming years.
Margot Brandenburg served as Analyst at the Microfinance
Information eXchange (MIX) from 2002 – 2004.
She is currently pursuing her Masters in Public Policy at
the Woodrow Wilson School at Princeton and can be
reached at mbranden@princeton.edu.
This case study is based on a report prepared the MIX for
PADME”s tenth anniversary celebration in September
2003. The MIX thanks the management of PADME for
the authorization to publish its performance indicators.
16 MICROBANKING BULLETIN, MARCH 2005