## sipea2023007

## Source details

**Canonical URL:** [sipea2023007](https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023007.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023007.pdf.md)
- [Structured JSON version](/-/media/files/publications/selected-issues-papers/2023/english/sipea2023007.pdf.json)

---

### Financial Inclusion in Niger: Benchmarking and Key Indicators
- Use of financial services (banking, microfinance, or e-money) in Niger: 14 percent of the population (December 2021).
- Comparators (end-2021): Mali 55 percent; Benin and Togo about 86 percent; WAEMU 67 percent.
- Trajectory: Niger overall use rose from 7 percent (end-2010) to 17 percent (end-2015) and fell to 14 percent (end-2021); WAEMU overall increased from 42 percent (end-2015) to 67 percent (end-2021).
- Banking services in Niger: 2 percent → 7 percent of the population between end-2010 and end-2021; other WAEMU countries: 9 percent → 19 percent over same period.
- MFI loans in Niger: 6 percent (2010) → 11 percent (2015) → 5 percent (end-2021).
- E-money accounts: Niger 11 percent (end-2021) versus about 80 percent in other WAEMU countries (end-2021); both below 1 percent at end-2010.
- Gender disparities (World Bank data): share of women with some sort of account 11 percent versus 20 percent for males; people who made or received a digital payment—8 percent for females versus 18 percent for males.
- Service points per 1,000 km2 in WAEMU: around 3 (end-2010) → 307 (end-2021) driven by e-money; Niger had 18 service points (end-2021).
- Bank credit to the private sector: Niger 13 percent of GDP (end-2021) versus 24 percent regional average (end-2021).
- Bank gross NPLs: Niger 21 percent (end-2021) versus 10 percent in the region.
- MFI sector in Niger: MFI loans 0.5 percent of GDP (2015) → about 0.2 percent (end-2021); MFI NPLs 40 percent (end-2021) versus 8 percent at the WAEMU level.

### Financial Inclusion in Niger: Demand- and Supply-side Constraints
- Main household reasons for not demanding credit (EHCVM 2018/19): (i) do not meet the requirements, (ii) not able to repay, (iii) absence of banks, (iv) do not know how to apply for credit, (v) do not have the capacity to repay.
- Literacy and financial literacy: adult literacy 35 percent (latest available); female literacy 27 percent.
- Population dynamics: rapid population growth weakens capacity to raise financial literacy in medium and long term.
- Mismatch of services to needs:
  - Large rural population reliant on agriculture; agriculture receives 0.97 percent of bank credit in Niger versus 3 percent in other WAEMU countries.
  - Islamic finance potential appears under-exploited.
- Affordability constraint: poverty rate 41.4 percent of the population (2021, World Bank).
- Informality and documentation barriers:
  - Informal sector ~40 percent of Niger GDP.
  - Many SMEs operate informally without financial statements, up-to-date tax payment statements, or beneficial owner information required for credit; non-recognized firm assets cannot be used as collateral.
  - Example: CFAF 150 billion COVID-19 financing facility; only CFAF 17 billion (11 percent) used because of SME informality.
  - Approximately 65 percent of people under age 15 do not have a birth certificate, limiting household access to credit.
- Infrastructure gaps: insufficient electricity, mobile network, internet connection, and access to mobile devices relative to peers constrain mobile banking and e-money adoption.

### Policy Priorities to Foster Financial Inclusion
- Improve financial literacy through education system reforms:
  - Address core education system problems to raise financial literacy in medium and long term.
  - Expedite finalization and implementation of the national financial education strategy currently being prepared by the authorities.
  - Strategy objectives: identify and reduce structural obstacles and social/behavioral constraints to financial education and access; ensure effective collaboration among financial ecosystem actors and strong steering and monitoring mechanisms; deploy high-quality communication and awareness-raising tools.
- Promote digitalization of financial services to expand access and lower costs:
  - Digitalization identified as key to cover remote areas, lower entry barriers, and reduce costs.

### Digitalization of Government Payments and Payment Interoperability
- Accelerate implementation of the roadmap (adopted in 2020) for complete digitalization of government payments to expand digital financial services.
- Main objective: facilitate and increase payments made and received by the State from individuals through existing digital mobile money platforms.
- Regional interoperability project led by BCEAO should allow payments between the government and individuals from any account and electronic payment platforms offered by banks, MFIs and non-bank issuers of electronic money, in particular mobile money.

### Gender Gap in Access and Use of Financial Services
- Closing the gender gap is imperative for women's economic empowerment.
- Women’s savings rate tends to be higher than men's; improving their financial inclusion could promote development of the financial sector.
- Major impediment: inadequacy or absence of gender-disaggregated data collection from financial service providers and lack of analysis.
- Recommendation: BCEAO could organize and harmonize regional collection of gender-disaggregated data on supply and demand to measure gender gaps, identify drivers, and formulate national strategies.
- Suggested approach: take stock of the methodology developed by the Women’s Financial Inclusion Data Partnership and seek technical assistance and funding from donors.

### Strengthening Supervision and Financial Stability
- Strengthen supervision to preserve financial stability and build customer trust.
- Rationale: ensure financial inclusion efforts do not undermine stability through deterioration in portfolio quality and prudential indicators.
- Urgent need: sharp increase since 2021 in banks’ and MFIs’ non-performing loans requires closer supervision.
- Specific measures:
  - Strengthen regional framework for assessing banks’ credit risk (credit underwriting and portfolio monitoring).
  - Enhance national supervision mechanism of MFIs by strengthening operational capacities of the regulatory authority, in accordance with recommendations of the sector’s restructuring and consolidation plan.

### Restructuring the Microfinance Sector
- Restructuring necessary to re-establish a healthy and solid MFI sector serving disadvantaged and vulnerable populations.
- Priority: complete implementation of the restructuring and consolidation plan of the MFI sector.
- Last steps required:
  - Adopt and implement a recapitalization plan for Niger’s two largest MFIs, ASUS and TANADI—accounting for more than 50 percent of the sector’s deposits and outstanding credit—which are currently under receivership.
  - Regional revision of the Law regulating MFIs should introduce additional safeguards, notably by strengthening MFI governance.

### Operationalizing the Financial Inclusion Fund (FDIF)
- FDIF (created in 2020) is the central pillar of the National Financial Inclusion Strategy but is not fully operational.
- Status:
  - Governance bodies’ texts adopted and implemented.
  - Operational procedure texts yet to be adopted.
  - Financial resources necessary for FDIF operation not fully available.
- Donor engagement: 2021 donors round table produced sufficient pledges to cover provisional budget for SNIF and FDIF, but to date no significant resources appear to have been effectively mobilized; only two of the four windows of the FDIF are currently functional.
- Recommendation: mobilize donor support and finalize operational procedures and funding to make the FDIF fully functional.

### Tax Regime for the Banking Sector and VAT Considerations
- Issue: Tax on financial activities (TAFI) is economically inefficient—tax base consists of value of transactions and it burdens inputs engaged in production of services without deduction for taxes paid upstream.
- The relatively high rate of the TAFI, close to that of the VAT (but without deductibility), amplifies inefficiency and distortions and is likely to harm demand for financial services and development of the financial sector.
- Policy option: consider replacing the TAFI with the VAT to exempt inputs, at least partially, from indirect taxation—recognizing practical difficulties calculating value added for financial intermediation services, which explains why most countries with modern VAT systems exempt these services from VAT.
- Note: financial services remunerated by fees, commissions, or other charges may be subject to VAT with usual mechanisms for deducting VAT paid on purchases from VAT collected on services.
- Recommendation: conduct a cost-benefit study to assess expected gains (particularly for financial inclusion and development) and likely loss of tax revenue.

### Improving Bankability of SMEs and Support Mechanisms
- Improve bankability of projects to increase SME access to finance.
- Action: reactivate the system set up in 2015 at the regional level.
- Problem: key stakeholders responsible for upstream SME support and ex post follow-up after financing are not yet functional; urgent steps needed to identify root causes and implement measures.
- FONAP (created in 2020) expected to partially fill regional support shortcomings but is not fully operational:
  - Implementing texts of decree creating the fund adopted and management bodies established.
  - Funding remains to be secured and the manual of procedure to be finalized.

*Source: sipea2023007 - Section 2*

### Section 1

### Financial Inclusion in Niger: Challenges and Opportunities

### A. Benchmarking Niger Against Regional Peers
- Use of financial services (banking, microfinance, or e-money) in Niger stood at 14 percent of the population as of December 2021, compared to 55 percent in Mali, about 86 percent in Benin and Togo, and 67 percent at the WAEMU level (end-2021).
- Niger’s trajectory: overall use of financial services rose from 7 percent (end-2010) to 17 percent (end-2015) but fell back to 14 percent (end-2021); WAEMU overall increased from 42 percent (end-2015) to 67 percent (end-2021).
- Banking services in Niger increased from 2 percent to 7 percent of the population between end-2010 and end-2021; other WAEMU countries rose from 9 percent to 19 percent over the same period.
- Use of MFI loans in Niger: 6 percent (2010) → 11 percent (2015) → 5 percent (end-2021), explaining much of the overall reversal in financial inclusion during 2015–2021.
- E-money divergence: e-money accounts in Niger were 11 percent of the population (end-2021) versus about 80 percent in other WAEMU countries (end-2021); both were below 1 percent in end-2010.
- Gender disparities (World Bank data): share of women with some sort of account 11 percent versus 20 percent for males; people who made or received a digital payment—8 percent for females versus 18 percent for males.
- Geographical access: service points per 1,000 km2 in WAEMU rose from around 3 (end-2010) to 307 (end-2021) driven by e-money; Niger had only 18 service points (end-2021).
- Bank credit to the private sector in Niger: 13 percent of GDP (end-2021) versus 24 percent regional average (end-2021).
- Bank gross NPLs: 21 percent in Niger (end-2021) versus 10 percent in the region.
- MFI sector in Niger: MFI loans shrank from 0.5 percent of GDP (2015) to about 0.2 percent (end-2021); MFI NPLs at end-2021 were 40 percent in Niger versus 8 percent at the WAEMU level.

### B. Challenges of Financial Inclusion in Niger
- Demand- and supply-side constraints noted by households as reasons for not demanding credit (EHCVM 2018/19): (i) do not meet the requirements, (ii) not able to repay, (iii) absence of banks, (iv) do not know how to apply for credit, (v) do not have the capacity to repay.
- Low literacy and financial literacy:
  - Adult literacy: 35 percent (latest available); female literacy: 27 percent.
  - Rapid population growth compounds education system weaknesses, reducing capacity to raise financial literacy.
- Mismatch of financial services to population needs:
  - Large rural population relies on agriculture; agriculture receives 0.97 percent of bank credit in Niger versus 3 percent in other WAEMU countries.
  - Islamic finance potential appears under-exploited.
- Affordability constraints:
  - Poverty rate estimated at 41.4 percent of the population (2021, World Bank) limits broadening financial inclusion.
- Informality and documentation barriers:
  - Informal sector accounts for around 40 percent of Niger GDP.
  - Many SMEs operate informally without financial statements, up-to-date tax payment statements, or beneficial owner information required for credit.
  - Non-recognized firm assets cannot be used as collateral.
  - Example: CFAF 150 billion COVID-19 financing facility set up by the Government; only CFAF 17 billion (11 percent) used because of SME informality.
  - Approximately 65 percent of people under age 15 do not have a birth certificate, limiting household access to credit.
- Infrastructure gaps limiting digital financial services uptake:
  - Insufficient electricity, mobile network, internet connection, and access to mobile devices relative to peers constrain mobile banking and e-money adoption.

### C. Policies to Foster Financial Inclusion in Niger
- Improve financial literacy through education system reforms:
  - Addressing core problems of the education system is imperative to raise financial literacy in the medium and long term.
  - Expedite finalization and implementation of the national financial education strategy currently being prepared by the authorities.
  - Strategy objectives: identify and reduce structural obstacles and social/behavioral constraints to financial education and access; ensure effective collaboration among financial ecosystem actors and strong steering and monitoring mechanisms; deploy high-quality communication and awareness-raising tools.
- Promote digitalization of financial services to expand access and lower costs:
  - Digitalization is identified as a key avenue to foster financial inclusion by covering remote areas, lowering entry barriers, and reducing costs (policy rationale outlined; further operational steps are implied in the strategy).

*Prepared by Yoro Diallo, Arsène Kaho, and Can Sever. IMF Selected Issues Paper SIP/2023/007 (Section 1), completed December 6, 2022.*

### Section 2

### sipea2023007 - Section 2

### Digitalization of government payments and payment interoperability
- Accelerate implementation of the roadmap (adopted in 2020) for the complete digitalization of government payments to expand digital financial services.
- Main objective: facilitate and increase payments made and received by the State from individuals through existing digital mobile money platforms.
- The forthcoming regional interoperability project led by the regional central bank (BCEAO) should allow payments between the government and individuals from any type of account and electronic payment platforms offered by banks, microfinance institutions and non-bank issuers of electronic money, in particular mobile money, creating a further enabling environment.

### Gender gap in access and use of financial services
- Closing the gender gap in access and use of financial services is imperative for women's economic empowerment in Niger.
- Women's savings rate tends to be higher than men's, so improving their financial inclusion could promote development of the financial sector.
- Major impediment: inadequacy or absence of collection of gender-disaggregated data from financial service providers—and lack of its analysis—hindering formulation of evidence-based policies.
- Recommendation: regional authorities, specifically the BCEAO, could organize and harmonize at the regional level the collection of gender-disaggregated data on both the supply side and the demand side of financial services to measure gender gaps, identify main drivers, and formulate national strategies to close them.
- Suggested approach: take stock of the methodology developed by the Women’s Financial Inclusion Data Partnership and seek technical assistance and funding from donors involved in this sector.

### Strengthening supervision and financial stability
- Strengthening supervision is necessary to preserve the stability of the financial system and build customer trust.
- Importance: ensure financial inclusion efforts do not undermine financial stability through deterioration in portfolio quality and prudential indicators of financial institutions.
- Urgent need: the sharp increase since 2021 of banks and, to a further extent, MFIs non-performing loans requires closer supervision.
- Specific measures:
  - Strengthen the regional framework for assessing banks’ credit risk (credit underwriting and portfolio monitoring).
  - Enhance the national supervision mechanism of MFIs by strengthening the operational capacities of the regulatory authority, in accordance with recommendations of the sector’s current restructuring and consolidation plan.

### Restructuring of the microfinance sector
- Restructuring is necessary to re-establish a healthy and solid microfinance sector that can promote access to financial services for the most disadvantaged and vulnerable in rural and urban areas.
- Priority: complete the longstanding implementation of the restructuring and consolidation plan of the MFI sector.
- Last steps required:
  - Adoption and implementation of a recapitalization plan for Niger’s two largest MFIs, ASUS and TANADI—accounting for more than 50 percent of the sector’s deposits and outstanding credit—which are currently under receivership.
  - Ongoing regional revision of the Law regulating MFIs activities should help introduce additional safeguards, notably by strengthening the governance framework applicable to MFIs.

### Operationalizing the Financial Inclusion Fund (FDIF)
- The FDIF, created in 2020 as the central pillar of the National Financial Inclusion Strategy, is yet to be fully operationalized.
- Status:
  - Governance bodies’ texts have been adopted and implemented.
  - Operational procedure texts are yet to be adopted by the authorities.
  - Financial resources necessary for FDIF operation are not yet fully available.
- Donor engagement:
  - At the 2021 donors round table sufficient pledges were made to cover the provisional budget for the implementation of the SNIF and FDIF.
  - To date, no significant resources seem to have been effectively mobilized from donors, so that only two of the four windows of the FDIF are currently functional.
- Recommendation: mobilize donor support and finalize operational procedures and funding to make the FDIF fully functional.

### Tax regime for the banking sector (TAFI) and VAT considerations
- A revision of the tax regime applicable to the banking sector is required to increase efficiency.
- Issue: the Tax on financial activities (TAFI) is economically inefficient—its tax base consists of the value of transactions and it burdens inputs engaged in the production of services without any possible deduction for taxes paid upstream.
- The relatively high rate of the TAFI, which is close to that of the VAT (but without the deductibility mechanism), amplifies its inefficiency and distortions and is likely to harm the demand for financial services and the development of the financial sector.
- Policy option: replacing the TAFI with the VAT could be considered to exempt inputs, at least partially, from indirect taxation—despite practical difficulties related to calculating value added for financial intermediation services (remunerated by interest or margins), which explains why most countries with modern VAT systems exempt these services from VAT.
- Note: other financial services remunerated by fees, commissions, or other charges may be subject to VAT with the usual mechanisms for deducting the VAT paid on purchases from the VAT collected on the services.
- Recommendation: conduct a cost-benefit study of such a reform to assess expected gains, particularly in terms of improving financial inclusion and development in Niger, and the likely resulting loss of tax revenue.

### Improving bankability of SMEs and support mechanisms
- Improving the bankability of projects is important to increase access to finance by SMEs.
- Action needed: reactivate the system set up in 2015 at the regional level.
- Problem: one of the key stakeholders—the support and supervision structures responsible for supporting upstream SMEs in meeting eligibility conditions and for ex post follow-up after financing—is not yet functional.
- Urgent steps: identify root causes of this deficiency and implement appropriate measures.
- The National Support Fund for Small and Medium-Sized Enterprises and Small and Medium-Sized Industries (FONAP), created in 2020, is expected to partially fill shortcomings of the regional support scheme but is not yet fully operational.
  - Status: implementing texts of the decree creating the fund have been adopted and implemented with establishment of management bodies, but its funding remains to be secured and the manual of procedure to be finalized.

*Source: sipea2023007 - Section 2*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2023/english/sipea2023007.pdf_