## _wp05166 — References (selected findings on credit access, SMEs, agriculture, housing, and banking spreads)

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### III. Barriers to credit expansion and reform priorities
- Stylized facts:
  - Stock of bank credit to the private sector (including nonfinancial public enterprises) is very low in SSA compared with other developing countries; exceptions: South Africa and Mauritius.
  - For most SSA countries the ratio of M2 to GDP in 2003 was in the range of 15 to 30 percent; only South Africa, Mauritius, and Seychelles recorded higher ratios.
  - For most SSA countries the ratio of bank credit to the private sector to GDP is in the range of 10 to 20 percent; several countries have a ratio below 10 percent (examples: Madagascar, Malawi, Tanzania, Uganda, Zambia).
- Government domestic financing and crowding out:
  - Regression result (Christensen, 2004): an expansion of domestic debt of 1 percent relative to broad money is associated on average with a decline of the ratio of private sector lending to broad money of 0.15 percent.
  - Domestic government debt to GDP at end-2000 exceeded 18 percent in: Cape Verde, The Gambia, Ghana, Kenya, Namibia, Nigeria, Zambia; The Gambia peaked at 31 percent.
  - South Africa and Mauritius domestic debts: 41 and 36 percent of GDP, respectively; Ethiopia: 42 percent (2000); Seychelles: 102 percent (debt held mostly by a very liquid banking system).
- Bank liquidity and lending behavior:
  - Banks often hold large liquid reserves (between 30 and 50 percent of bank deposits in some countries) rather than expand private lending.
  - Examples: CFA zone countries, Madagascar, Mozambique, Uganda show liquid, profitable banks with subdued private credit expansion.
  - Tanzania: bank credit to the private sector increased by 2½ times in real terms in 2001-04.
- Banking system prerequisites for deeper intermediation:
  - High quality and controllable financial information on borrowers.
  - Sufficient and enforceable collateral.
  - Adequate protection of creditor rights via effective judicial system and conflict-resolution instruments.
  - Promote competition and develop new markets/products (leasing, factoring, mutual guarantees).

### III.A Accounting standards, registries, and credit information
- Accounting standards (findings and actions):
  - Borrowers’ inability to provide adequate financial statements and audited accounts discourages banks from lending to SMEs.
  - WAEMU adopted SYSCOA in 2001.
  - Tanzania: Company Act modernized accounting/auditing practices in 2002.
  - Improvements noted in Uganda and Zambia, but reliable borrower information remains frequently elusive.
- Registries and credit bureaus (findings, country progress, policy implications):
  - Weak or absent company and land registries; inadequate registries for mortgages and chattel interests.
  - WAEMU: work on a Centrale des Bilans to supplement a “Centrale des risques.”
  - Kenya: 2003 amendment to the Banking Act allowed information sharing among banks.
  - Tanzania: banks agreed to set up a credit bureau in 2004; credit bureau started operations at end-2004.
  - Zambia: Bankers’ Association setting up a credit bureau (initially default information only).
  - Uganda: licensing/establishment of a national credit reference bureau under preparation.
  - Mozambique: public credit registry since 1997 but coverage low.
  - Policy recommendations:
    - Expand coverage and enforce data submission to public registries.
    - Progressively acquire more comprehensive information (including SMEs).
    - Extend credit information mechanisms to nonbank financial providers.

### III.A Claim recovery, collateral, and insolvency (findings and reforms)
- Collateral and registries:
  - Title issuance extremely slow; land registries under-resourced and procedures inadequate.
  - Legal impediments to land as collateral in some countries (example: Mozambique); Madagascar: foreign entities cannot own real estate, impeding seizure.
  - Tanzania: 1999 Land Act limited mortgages and excluded foreclosures; revised April 2004 to promote collateralization and ease foreclosure (supporting judicial measures not yet implemented).
- Judicial and enforcement weaknesses (selected datapoints preserved):
  - Days to recover debt outside insolvency: Maputo average 540 days; South Africa 80 days.
  - In Senegal: 22 percent of commercial banks’ bad debts are older than 10 years; 35 percent have been on the books for 5 to 10 years.
  - Insolvency proceedings lengthy; corporate bankruptcy procedures on average require 5 years.
  - Uganda: Official Receivers Department inadequately resourced; proposals (September 2004) to introduce corporate rescue procedures and moratoria.
- Policy recommendations:
  - Establish out-of-court or summary enforcement procedures to reduce reliance on lengthy courts.
  - Revamp legal codes to enable effective enforcement, accelerate title issuance, and improve resourcing for registries and courts.
  - Improve company registries.

### B. SME finance: instruments, competition, and MFIs
- Constraints to SME lending:
  - Banks find SME lending riskier and prefer governments or larger firms when returns suffice.
  - Preconditions: improved credit information, enforceable collateral, non-preemption of loanable funds by governments, adequate banking competition.
- Instruments and market development:
  - Promote leasing, discounting, factoring, warehousing with appropriate regulatory and fiscal frameworks.
  - Leasing constraints in country examples:
    - Tanzania: courts may entertain borrower injunctions at repossession if lessee has paid more than 50 percent of asset value.
    - Kenya: tax treatment of leases uncertain; purchase option execution and maturity extensions problematic.
    - Uganda: tax deductibility issues hamper lessors.
    - WAEMU: recent tax/ accounting adjustments need clarity to avoid taxation of principal repayments.
  - Recommendations: modernize tax laws, clarify lease tax treatment, and reform judicial procedures to improve repossession/enforcement.
- Mutual guarantee schemes:
  - Advantages: alleviate collateral constraints via solidarity and risk-sharing; require homogeneity/trust; historical precedents (European banques populaires).
  - Country initiatives and cautions:
    - Senegal, Gabon, Madagascar, Tanzania examples of schemes or plans.
    - Design carefully to avoid moral hazard; maintain lender due diligence and monitoring; avoid overcoverage that removes repayment pressure.
- Role of MFIs:
  - Mature MFIs can finance SMEs using cash-flow lending, scoring, and client histories.
  - Country examples:
    - Cameroon: extensive MFI network active in SME finance.
    - Senegal: large MFI networks planning banks specialized in SME lending.
    - Benin: commercial banks extend credit to MFIs with good recovery records.
    - Tanzania (NMB): about 750,0000 depositors, about 20,000 micro borrowers, average loan size equivalent to $400; NMB positioned to bridge micro to SME lending.
  - Recommendations:
    - Support MFI maturation, facilitate access to lines of credit and medium/long-term financing from commercial banks, and enable regulatory evolution to full-service SME-oriented banks under appropriate oversight.

### C. Agricultural finance — constraints, patterns, and examples
- Structural impediments:
  - Land tenure systems prevent land as collateral; limited physical collateral; rain–fed agriculture risk; commodity price volatility; poor transport/communication.
  - Specialized state agricultural banks historically insolvent or required rescues (examples: Togo, Benin, Senegal, Côte d’Ivoire).
- Export-crop vs small-scale crops:
  - Bank financing plentiful where collateral and marketing firms exist (Côte d’Ivoire cocoa; Sahel cotton).
  - No financing for small-scale cereals; farmers sell immediately after harvest at depressed prices.
  - Recommended: promote farmer cooperatives to set up warehouses and use warehouse receipt collateral (Madagascar example).
- Medium- and long-term finance:
  - Working capital often available for export crops; longer-term investment finance is lacking (example: Kenya coffee sector).
  - Mechanism: organize sectors around major marketing/processing firms that can on-lend to farmers (Sahel cotton companies; Lonrho in Mozambique; large sugar companies in Mauritius).
- Case study — Benin cotton scheme (CSPR):
  - Operational rules: at campaign start (February) ginning operators pay 40 percent of pre-agreed quotas to CSPR to repay input financiers; at campaign end (December) producers receive 60 percent through CSPR after input costs deducted.
  - Performance: very good in 2000-01 and 2001-02; in 2002-03, 10 percent of loans not repaid due to misuse of inputs, off-market sales, and warehouse fires.
- MFIs in rural finance (country datapoints preserved):
  - Tanzania: NMB inherited 200 rural branches; SACCO network ~400 with total membership 83,000 in 2001; average SACCO loan size about $200; donor NGO network ~130,000 borrowers.
  - Kenya: SACCO 113 units with total assets end-2003 equivalent to $30 million (half of 1 percent of banking system assets); average loan size $180.
  - WAEMU/Benin FECECAM end-2002: 101 credit unions, 386,000 members, total assets $35 million, average loan size about $500, total loans equivalent to 13 percent of total bank loans in the country.
  - Senegal: credit unions’ loans at end-2003 represented 5 percent of total bank credit.
  - Mali and Burkina: credit union shares at end-September 2004 were 5.4 and 6.4 percent respectively.
  - Côte d’Ivoire: share estimated at 2.2 percent.
  - Ethiopia: 22 MFIs (18 active rurally) with about 2 million clients in 2001; loans outstanding Br 350 million (equivalent to $46 million or 0.7 percent of GDP), 2.5 percent of total banking system loans; average loan size $100; commercial bank agricultural credit in 1999 estimated Br 490 million (1 percent of GDP); estimated 70 percent of rural credit demand unmet.
- Policy implications:
  - Until farm scale, land titles, and credit culture improve, long-term agricultural financing will rely on strong marketing firms or cooperatives using warehouse receipts; progress is slow.

### D. Housing finance (constraints and country experiences)
- Constraints and examples:
  - Slow issuance of land titles and cumbersome foreclosure procedures deter mortgage provision.
  - Ghana: Home Financing Company remains sole mortgage provider; authorities reviewing legal framework to encourage others.
  - Senegal: more favorable legal context; commercial banks entered housing finance; work on regional private mortgage refinancing company and securitization underway.
  - Gabon: banks willing to lend but land title slowness hampers activity.
  - Tanzania: >80 percent of land still not titled; 2004 Land Act revisions made mortgages subject to less enforcement constraints; effectiveness pending.
- Policy implication:
  - In countries with urban land titles (e.g., Senegal), focus shifts to refinancing mechanisms for bank housing loans; elsewhere, titling and foreclosure reforms are priorities.

### IV. Banking spreads, profitability, and drivers
- Main drivers of high spreads:
  - Relatively large share of NPLs.
  - High operating costs and overheads.
  - Difficulties in obtaining/using collateral and slow judicial recovery.
- Country and cross-country datapoints (preserved exactly as reported):
  - Countries with particularly high spreads: Zambia and Mozambique (19 percent in 2002) and Uganda (19.5 percent in 2003).
  - Overhead costs as percent of assets: Uganda 9 percent; Kenyan private banks 5.1 percent.
  - Small banks in Africa: average operating expenses incidence 6.1 percent of assets.
  - Tunisia: operating expenses incidence 2.3 percent of assets; financial margin 3.7 percent in 2003.
  - Morocco: operating expenses incidence 3.1 percent of assets.
  - Comparative spreads: spreads in Northern African countries and Southern Europe are on average one third of those in African banks.
- Profitability comparisons:
  - Profit margin (ROA) and ROE higher in small African banks; example: rate of return of 18.3 percent in 2002 for small African banks.
  - Higher profitability reflects higher overall risk and possibly lower competition.
- Tables and aggregate indicators (selected exact figures preserved):
  - Table 1 selected entries (Bank Credit to Private Sector and Non Fin. Pub. Ent. to GDP, M2 to GDP, Bank Liquidity Ratio shown for Benin, Ethiopia, South Africa, Morocco).
  - Table 2 Broad Money to GDP (Sub-Saharan Africa): 1997-2001 37.8; 2001 37.3; 2002 38.4; 2003 41.2; 2004 42.3. Excluding Nigeria and South Africa: 1997-2001 25.4; 2001 26.1; 2002 28.8; 2003 28.0; 2004 26.4.
  - Table 3 Domestic Debt/GDP (average 2000): 21.5; HIPC 16.0; Non-HIPC 30.9.
  - Table 4 Overall Fiscal Balances (Sub-Saharan Africa): 1997-2001 -3.0; 2001 -2.6; 2002 -2.8; 2003 -2.2; 2004 -0.8.
  - Table 5 Prudential indicators: examples include regulatory capital ratios and NPL shares (e.g., Mozambique gross NPL 40.5; Uganda gross NPL 28.8; Kenya provisioning rate 106.3).
  - Table 8 decomposition: Senegal (2002) Average Lending Rate 11.3; Average cost of resources 2.2; Total spread 9.2.
- Policy-relevant recommendations to reduce spreads and expand credit:
  - Strengthen credit information systems and operationalize credit bureaus.
  - Improve collateral frameworks and land registries; accelerate title issuance.
  - Update insolvency legislation; introduce out-of-court enforcement and specialized commercial courts to reduce average recovery times (currently often 3 to 4 years).
  - Modernize accounting and auditing standards (e.g., SYSCOA in WAEMU).
  - Promote competition and address operational inefficiencies to lower overheads.

### Conclusions and sequencing of reforms
- Feasible near-term actions:
  - Create credit bureaus.
  - Reinforce accounting standards and auditing oversight.
  - Update and strengthen company registries.
  - Improve regulatory framework for leasing.
- Longer-term institutional reforms required:
  - Judicial system improvements for enforceability of claims and collateral recovery.
  - Revamping of land titles and registration systems considering collective land traditions.
- Role of MFIs and intermediaries:
  - Mature MFIs can transition clients toward SMEs and may have a competitive advantage for SME lending given client information and cash-flow assessment techniques.
  - MFIs need access to credit lines and medium/long-term funding to scale beyond modest working-capital lending.
- Agricultural credit takeaway:
  - Small farmers face persistent obstacles; grouping farmers into cooperatives and use of warehouse receipts are promising but progress slow; large marketing firms and commercial growers remain better positioned to obtain credit.

*Italic: IMF Working Paper excerpt (content unit: _wp05166 - References and selected sections).*

### References..............................................................................................................

### _wp05166 - References..............................................................................................................

### I. INTRODUCTION
- Authorities in Sub-Saharan African (SSA) countries are concerned that banking systems are not providing enough support to new economic initiatives, particularly SMEs and agriculture.
- Observations:
  - Banks remain highly liquid in many SSA countries and reluctant to expand credit beyond the most creditworthy borrowers.
  - Microfinance institutions (MFIs) have expanded in some countries but their credit size is limited and interest rates on microcredits are very high due to large administrative costs relative to scale.
- Purpose of the paper:
  - Overview scale of bank credit to the economy in African countries.
  - Review main barriers to credit expansion to the private sector and actions to address these obstacles.
  - Examine credit to agriculture and the role of MFIs and linkages with the traditional banking system.
- Organization:
  - Section II: Data on bank credit expansion to the private sector in SSA, comparisons with other developing countries, impact of public deficits on private credit, and bank liquidity/profitability.
  - Section III: Institutional barriers and reforms for credit promotion, with focus on SMEs, agriculture, housing, and MFIs.
  - Section IV: Comparative analysis of banking interest spreads and profitability.
  - Section V: Conclusions and policy implications.

### II. BANK CREDIT EXPANSION TO THE PRIVATE SECTOR IN SUB-SAHARAN AFRICA: STYLIZED FACTS
- Key stylized facts:
  - Stock of bank credit to the private sector (including nonfinancial public enterprises) is very low in SSA compared with other developing countries; exceptions: South Africa and Mauritius.
  - For most SSA countries the ratio of M2 to GDP in 2003 was in the range of 15 to 30 percent; only South Africa, Mauritius, and Seychelles recorded higher ratios.
  - For most SSA countries the ratio of bank credit to the private sector to GDP is in the range of 10 to 20 percent; several countries have a ratio below 10 percent (examples: Madagascar, Malawi, Tanzania, Uganda, Zambia).
- Government domestic financing and crowding out:
  - Domestic government securitized debt can crowd out private sector credit; Christensen (2004) regression: an expansion of domestic debt of 1 percent relative to broad money is associated on average with a decline of the ratio of private sector lending to broad money of 0.15 percent.
  - Domestic government debt to GDP at end-2000 exceeded 18 percent in: Cape Verde, The Gambia, Ghana, Kenya, Namibia, Nigeria, Zambia; The Gambia peaked at 31 percent (Table 3).
  - South Africa and Mauritius domestic debts: 41 and 36 percent of GDP, respectively.
  - Ethiopia: domestic debt to GDP ratio of 42 percent in 2000.
  - Seychelles: debt–GDP ratio of 102 percent, debt held mostly by a very liquid banking system.
- Country-specific bank asset allocations and fiscal pressures (selected exact figures preserved):
  - Ghana: at end-2003 lending to the government represented more than half of the total domestic assets of the banking system; reserve requirements oblige banks to hold at least 35 percent of deposit liabilities in government securities.
  - The Gambia: financing of the government absorbed more than half of deposit base up to year 2000; declined to 32 percent at end-2003.
  - Malawi: ratio rose from 16.8 percent at end-2000 to 39 percent at end-2003.
  - Uganda: ratio rose from 35.2 percent at end-2000 to 47.3 at end-2003.
  - Kenya: ratio rose from 29.5 percent to 36.7 percent in 2000-03 as fiscal deficit doubled to 2.3 percent of GDP.
  - Zambia: ratio rose from 16.8 percent at end-2000 to 48.9 percent at end-2003.
- Liquidity and lending behavior:
  - In many SSA countries low private-sector credit is not due to government financing needs but to low M2 to GDP and high bank liquidity ratios; banks prefer holding liquid reserves at central banks or short-term foreign assets with correspondents abroad (between 30 and 50 percent of bank deposits in some countries).
  - Examples of countries with liquid, profitable banks but subdued private credit expansion: CFA zone countries, Madagascar, Mozambique, Uganda.
  - Tanzania: bank credit to the private sector increased by 2½ times in real terms in 2001-04.
  - Nonperforming loans (NPLs) and profitability:
    - After restructuring in late 1980s–early 1990s, banks are broadly reasonably profitable (Table 5); inadequate provisioning of NPLs is a problem in only a few countries.
    - Large bank restructuring episodes listed (years and countries provided in text).
    - High NPLs with inadequate provisioning persist in Ghana, though wide interest rate spreads lead to comfortable banking profits.
- Cross-region comparisons:
  - Latin America: bank credit to private sector to GDP in 2003 — Mexico well below 20 percent, Peru 20 percent, Colombia and Brazil below 30 percent, Costa Rica about 30 percent, Chile 62 percent.
  - Asia: about 30 percent in India, Sri Lanka, Philippines; higher than 80 percent in Thailand and Malaysia.
  - Central and Eastern Europe: despite real credit growth in excess of 20 percent in many countries, private sector credit to GDP remains around 30 percent or below for most countries in the region.

### III. BARRIERS TO FINANCIAL INTERMEDIATION AND REFORM ACTION PROGRAMS
- Shift in reform focus:
  - With macroeconomic stabilization (reined inflation, contained fiscal deficits), attention has shifted to institutional and legal weaknesses deterring banks from extending credit to less creditworthy borrowers.
  - Prudence of banks, including subsidiaries of foreign banks that took over troubled banks, contributes to cautious credit policies.
- Recognized prerequisites for deeper bank intermediation:
  - (i) High quality and controllable financial information on borrowers.
  - (ii) Sufficient and enforceable collateral.
  - (iii) Adequate protection of creditor rights via an effective judicial system and conflict-resolution instruments.
  - Additionally: promote competition among banks; develop new markets and products adapted to financing needs.
- Five categories of Fund and Bank recommendations to foster a credit culture:
  - (i) Improve borrower financial information: quality of annual accounts and financial statements, professional development of accounting personnel, update land and company registries, establish credit bureaus, possible introduction of rating systems.
  - (ii) Strengthen claims recovery and collateral realization: modernize land title issuance, accelerate title issuance, facilitate foreclosure procedures, reinforce judiciary physical and financial resources.
  - (iii) Establish more appropriate bank resolution processes to protect creditors and maintain borrower discipline.
  - (iv) Develop new markets and products: leasing, factoring, establishment of mutual guarantee associations.
  - (v) Promote bank competition: encourage market access and ensure better consumer protection through improved information on loan terms and conditions.
- Implementation note:
  - Progress across these areas is underway but varies by country; many reforms require comprehensive processes unlikely to be completed quickly.

### III.A Promoting Credit Information and Credit Recovery
- The paper indicates subsequent sections analyze problems and reform strategies for credit information and credit recovery, and then instruments to facilitate lending to SMEs, agriculture, and housing (text breaks here to continue analysis in following sections of the paper).

*Source: _wp05166 - References (content provided).*

### 13.      To foster a credit culture, it is essential that progress be made in the area of

### _wp05166 - 13.      To foster a credit culture, it is essential that progress be made in the area of

### Accounting standards
- Findings:
  - Borrowers’ inability to provide adequate financial statements and audited accounts discourages banks from lending to SMEs.
  - In many countries the accounting profession is not well regulated and the quality of accounts varies widely, hampering transparency.
  - Initiatives noted:
    - WAEMU member countries adopted a uniform accounting system in 2001 (Système Comptable Ouest Africain-SYSCOA).
    - Tanzania modernized regulation of company accounting and auditing practices through the 2002 Company Act.
    - Improvements in accounting standards have been introduced in Uganda and Zambia.
  - Despite improvements, reliable information on borrowers frequently remains elusive and is not shared among lenders.
- Policy implications / recommendations:
  - Strengthen accounting and auditing regulation and oversight to widen SME access to banks.
  - Promote sharing of reliable financial information among lenders.

### Registries and credit bureaus
- Findings:
  - Poor borrower information is compounded by absence or weakness of updated company and land registries, inadequate registries for mortgages and chattel interests, and the absence of well functioning credit bureaus.
  - Credit information sharing increases transparency of borrower quality, benefits good borrowers, increases cost of defaulting, and expands the bankable population.
- Country examples and progress:
  - WAEMU: work to establish a Centrale des Bilans to supplement an existing “Centrale des risques.”
  - Kenya: 2003 amendment to the Banking Act allowed information sharing among banks; other finance providers have yet to be given access to a common mechanism.
  - Tanzania: banks agreed to set up a credit bureau in 2004; the credit bureau started operations at end-2004; expected to take time before becoming a useful tool.
  - Zambia: credit bureau being set up by the Bankers’ Association; initially will include only information on borrowers’ default.
  - Uganda: licensing and establishment of a national credit reference bureau under preparation; planned coverage for all institutions supervised by the Bank of Uganda.
  - Mozambique: public credit registry established in 1997 and operating successfully since; coverage of borrowers is low; recommendations include harsher penalties for noncompliance with data submission and expansion to include nonbank financial institutions and other lenders.
  - WAEMU: a borrower rating system exists due to rediscount eligibility requirements; since end-2002 banks are required to submit rating agreements request for their 50 largest credit users.
- Policy implications / recommendations:
  - Expand coverage and enforce data submission to public registries.
  - Progressively acquire more comprehensive information (including SMEs) in credit bureaus to facilitate access to banking for firms with good credit histories.
  - Extend credit information mechanisms to nonbank financial providers.

### Availability of collateral, reliability of registries, and claim recovery procedures
- Findings:
  - Claim recovery and collateral realization processes are often very weak across many SSA countries.
  - Issuance of titles is extremely slow in many countries due to absence of appropriate registration procedures and inadequate resources of property registration offices.
  - Legal impediments to use of land as collateral exist in some countries (example: Mozambique); in Madagascar foreign entities cannot become owners of real estate, preventing foreign-owned banks from seizing real estate collateral.
  - Tanzania:
    - 1999 Land Act established limitations on creation of mortgages and excluded foreclosures as a relief instrument for lenders.
    - Land Act revised in April 2004 to promote collateralization of land and to ease foreclosure regulations subject to proper notification and pre-specified timeframe to settle NPLs before collateral is liquidated; supporting judicial measures not yet implemented, limiting impact on bank lending.
  - Agricultural financing hampered by extremely limited agricultural land tenure and registration—major impediment to long-term financing of agricultural investment.
  - Company registries often unreliable and out of date (Uganda improvement of company registries noted as a key priority in the 2004 FSSA update report).
  - Judicial and enforcement weaknesses:
    - Figure 5 cited: number of days needed to recover debt outside insolvency varies widely (example: Maputo average 540 days, South Africa 80 days).
    - Enforcement of judgments for loan defaults often takes several years with high recovery costs.
    - Foreclosure/realization of security typically requires judgment and order for sale by public auction in many countries (example: Ghana).
    - Insolvency proceedings are very lengthy; in Senegal they are rarely completed, affecting creditors’ rights and suspending debt collection during insolvency.
    - In Senegal: 22 percent of commercial banks’ bad debts are older than 10 years, and 35 percent have been on the books for 5 to 10 years.
    - Borrowers employ delaying tactics and can obtain injunctions that impede creditor recovery.
    - Uganda: stigma attached to insolvency proceedings; high recovery fees; low number of accountants and lawyers competent in insolvency issues; Official Receivers Department has inadequate resources.
    - Uganda: proposals submitted in September 2004 by the Uganda Law Reform Commission to overhaul the formal insolvency system, including introduction of a corporate rescue procedure with temporary administration and moratorium/stay on creditor claims.
- Policy implications / recommendations:
  - Prioritize establishing out-of-court enforcement procedures or summary enforcement proceedings to reduce reliance on lengthy court processes.
  - Revamp legal codes to enable effective enforcement mechanisms, recognizing potential cultural resistance favoring borrowers in default.
  - Accelerate issuance and formalization of property titles, particularly in urban areas, and improve resourcing and procedures for property registries.
  - Improve company registries to remove a major impediment to credit extension.

### B. Improved Financing for SMEs
- Findings on constraints:
  - SME financing is perceived as more risky; banks have incentives to prefer lending to governments and larger firms if returns are adequate.
  - Stimulating SME lending requires improvements in credit information and credit recovery, plus: (i) governments not to preempt loanable funds; and (ii) maintaining adequate competition in the banking system.
  - Instruments suited to SMEs (leasing, discounting, factoring, warehousing) should be promoted with appropriate regulatory and fiscal frameworks.
- Enhanced competition:
  - With increased competition some banks may specialize in financing smaller firms; subsidiaries of large foreign banks may focus on larger, trade-related firms, creating space for local banks to expand SME lending.
  - Example: Senegal—banks are very liquid and all major banks have a desk dedicated to SME financing.
  - Competition reduces spreads: example in Burkina Faso spreads fell considerably (by about 2 basis points) between 1998 and 2000 when number of banks increased from five to seven.
  - Spreads have been declining in recent years in Senegal, Cameroon, Cape Verde, and Gabon, reflecting more competition and ample liquidity.
- Development of leasing:
  - Leasing and nonbank intermediaries (discounting, factoring, warehousing firms) are well suited for SMEs, particularly for firms lacking collateral and for agribusiness.
  - Development hampered by legal, judicial and tax constraints; lessors face similar recovery problems as banks.
  - Country examples of constraints:
    - Tanzania: courts may entertain borrower injunctions at repossession if lessee has paid more than 50 percent of the value of the property.
    - Kenya: tax treatment of leases uncertain; revenue commissioner may change definition of the lease if purchase option executed; maturity term cannot be extended; financial leases do not allow transfer of ownership at end of lease for residual value.
    - Uganda: expansion of leasing toward small borrowers hampered by tax deductibility of capital depreciation by the lessee rather than the lessor.
    - Senegal and other WAEMU countries: tax treatment of the lessor’s revenue stream recently modified to conform to new accounting system; needs better specification to avoid repayment of principal by the lessee being taxable.
  - Policy implications / recommendations:
    - Modernize tax legislation and clarify tax treatment of leasing in multiple countries to facilitate leasing development.
    - Reform judicial procedures to reduce injunctions and improve repossession/enforcement for lessors.
- Mutual credit guarantee schemes:
  - Characteristics and advantages:
    - Mutual guarantees groups (MGG) alleviate collateral problems via solidarity and co-sharing of risks; require homogeneity and trust among members.
    - Historical precedent in Europe: mutual credit guarantees underpin networks such as “banques populaires” in France and Italy.
    - Successful use of tontine-style arrangements reported in Western Africa.
  - Country examples and initiatives:
    - Senegal: several mutual guarantee funds exist.
    - Gabon: mutual guarantees under consideration; public institution FODEX could assist SMEs to regroup and provide counter-guarantees.
    - Madagascar: guarantee fund established after the 2002 crisis; constituted by donors, banking association, and government; provided incentives for new loans.
    - Tanzania: guarantee fund at advanced stage of preparation; purpose to provide guarantees for loans made through commercial banks with government taking a share of the risk.
  - Policy implications / recommendations:
    - Design and manage mutual guarantee funds carefully to avoid moral hazard by borrowers and lenders.
    - Maintain due diligence and monitoring responsibilities with the lender.
    - Ensure coverage is not so high that it eliminates pressure to repay.
- The role of MFIs:
  - Findings:
    - Mature microfinance institutions (MFIs) in several countries are beginning to finance SMEs, using cash-flow based lending, scoring techniques, and prior lending experience rather than conventional bank criteria.
    - MFIs can transition clients from micro-enterprises to SMEs, leveraging client information and risk assessment skills.
    - Country examples:
      - Cameroon: extensive MFI network has played an important role in SME financing for many years.
      - Senegal: two large MFI networks plan to create a bank or financial establishment specializing in SME lending.
      - Benin: commercial banks have extended credit to MFIs with strong credit recovery records.
    - Tanzania’s National Microfinance Bank (NMB) example:
      - NMB has the largest branch network in the country.
      - NMB has about 750,0000 depositors, about 20,000 micro borrowers, with average loan size equivalent to $400.
      - No data on amount of SME lending, but NMB appears well positioned to bridge micro lending and SME lending.
  - Policy implications / recommendations:
    - Support development and maturation of MFIs as potential intermediaries for SME lending.
    - Facilitate access by MFIs to lines of credit and medium- and long-term financing from commercial banks where feasible.
    - Encourage regulatory frameworks that allow MFIs to evolve into full-service banks oriented to SMEs while preserving appropriate oversight.

*Italic: IMF Working Paper excerpt (content unit: _wp05166 - 13.      To foster a credit culture, it is essential that progress be made in the area of).*

### 27.      The above analysis indicates that improving access to credit for SMEs depend on a

### _wp05166 - 27.      The above analysis indicates that improving access to credit for SMEs depend on a

### Improving access to credit for SMEs
- Key prerequisites identified:
  - Improving the quality of accounting and creditors’ information.
  - Wider availability of collateral.
  - Strengthened claims and collateral recovery procedures.
- Other important factors to increase SME credit flows:
  - Increased competition in the banking system, stimulated by new entrants.
  - Better regulation of leasing.
  - Development of mutual guarantee schemes.
  - Strengthening of MFIs.

### C. Agricultural Financing — overview and constraints
- Priority and failures:
  - Developing rural and agricultural finance has been a priority, but agricultural specialized banks created by the state have become insolvent or required costly rescues.
  - In Western Africa, agricultural banks collapsed through the 1980s in Togo, Benin, Senegal, and Côte d’Ivoire.
- Structural impediments to agricultural credit:
  - Land tenure systems preventing use of land as collateral.
  - Absence of physical collateral.
  - High risk of rain–fed agriculture and sharp commodity price fluctuations.
  - Poor transport and communication facilities.
- Successful export-crop financing conditions:
  - Bank financing plentiful for export crops where collateral and strong marketing structures exist (example: Côte d’Ivoire cocoa; Sahel cotton marketing companies).
  - In WAEMU, excess bank liquidity has been employed during cocoa export campaigns to finance crop purchases.

### Financing patterns and limits for non-export and small-scale crops
- Export-oriented arrangements rely on:
  - Collateral provided by export crops.
  - Strong marketing/processing firms or large wholesalers (sometimes state controlled).
- Financing gap:
  - No financing for small-scale production of cereals for local consumption (corn, millet, rice).
  - Farmers of these crops sell immediately after harvest at depressed prices.
- Recommended strategy:
  - Promote establishment of farmers’ cooperatives to set up warehouses and obtain credit via warehouse receipt collateral.
  - Example: Madagascar cooperatives supported by multilateral agencies secured bank financing using warehouse receipt collateral.

### Medium- and long-term agricultural financing
- Working capital often available for export crops, but longer-term financing for medium-term investment is lacking (example: Kenya coffee sector).
- Realistic mechanism for long-term finance:
  - Organize sector around major marketing or processing companies that can on-lend to individual farmers.
  - Sahel cotton companies and large concerns (e.g., Lonrho in Mozambique; large sugar companies in Mauritius) can secure and extend financing, provide extension services, and maintain rural roads.

### Case study — Benin cotton producer scheme (CSPR)
- Scheme established in 2000 after dismantling the marketing board; groups three largest cotton producers’ organizations into “Centrale de Securitisation des Paiements et du Recouvrement” (CSPR).
- Functions:
  - Register loans extended in connection with delivery of inputs to producers.
  - Monitor seed cotton procurement and delivery during marketing season.
  - Separate financial flows from ginners’ payments into a share for producer and a share for input/credit provider.
- Operational mechanics (credit mechanism managed by the CSPR):
  - At campaign start in February, ginning operators pay 40 percent of value of pre-agreed quotas of cotton to the CSPR to repay dealers/commercial banks that financed inputs.
  - At campaign end in December, producers deliver cotton and receive, through CSPR, payment of the 60 percent value of their production corresponding to the part accruing to them after deducting cost of inputs.
- Performance:
  - Very good results in 2000-01 and 2001-02 campaigns.
  - In 2002-03, 10 percent of the loans were not repaid due to producers borrowing inputs for non-cotton crops, sales outside Benin, and warehouse fires.

### Land registries and credit
- Reliable land registries are important for extending credit.
- Uganda example:
  - Deficiencies in land registries (and company registries) increase cost of credit and hinder access.
  - 2003 Uganda FSAP report notes unreliable registries, uncertainties in land titles from nonowner occupiers, and high costs of registry searches and mortgage registration impede credit, especially for small farmers.
  - Largest bank expanded loans to growers of commercial crops with long-term relationships with foreign buyers, underscoring role of scale and predictable earnings.

### The role of MFIs (microfinance institutions) in rural/agricultural finance
- MFIs provide rural financing in several SSA countries, but support is limited and largely confined to working capital.
- Country snapshots and figures:
  - Tanzania:
    - National Microfinance Bank inherited rural branches network of 200 branches; average loan size is small; bank holds large amounts of liquidity.
    - Network of about 400 rural SACCOs with total membership of 83,000 in 2001 and average loan size of about $200.
    - Donor-sponsored NGO network with about 130,000 borrowers.
  - Kenya:
    - SACCO comprises 113 units with total assets at end-2003 equivalent to $30 million (or half of 1 percent of assets of the banking system); average loan size equivalent to $180.
  - WAEMU / Benin:
    - FECECAM at end-2002 included 101 credit unions, 386,000 members, total assets equivalent to $35 million, average loan size about $500, and total loans equivalent to 13 percent of total bank loans in the country.
  - Senegal:
    - Credit unions expanding; total loans by credit unions represented at end-2003 5 percent of total bank credit.
  - Mali and Burkina:
    - Shares of credit union loans at end-September 2004 were respectively 5.4 and 6.4 percent.
  - Côte d’Ivoire:
    - Share estimated at 2.2 percent.
  - Ethiopia:
    - Out of 22 MFIs, 18 active in rural areas with about 2 million clients in 2001.
    - Loan outstanding equivalent to $46 million (Br 350 million or 0.7 percent of GDP), or 2.5 percent of total loans of the banking system; average loan size equivalent to $100.
    - Commercial bank agricultural credit in 1999 estimated at Br 490 million, or 1 percent of GDP.
    - It is estimated that 70 percent of rural credit demand is unmet.
- Overall assessment:
  - Despite expansion, MFI size remains inadequate beyond modest working capital.
  - Until small farmers’ scale is modest, land titles are lacking, and credit culture is weak, provision of credit for capacity expansion will rely on strong marketing firms or large commercial growers.
  - Alternative: establish strong farmer cooperatives to negotiate bank financing using warehouse receipt collateral — a scheme with long European precedent — but progress in Africa is slow.

### D. Housing Financing
- Constraints:
  - Lack or slowness in issuing land titles deters lenders from providing housing finance.
  - Inefficient and cumbersome foreclosure processes reduce mortgage market participation.
- Country examples:
  - Ghana:
    - Most lenders deterred; Home Financing Company remains sole mortgage provider due to favorable legal framework; authorities reviewing framework to encourage other lenders.
  - Senegal:
    - More favorable legal context; commercial banks entered housing finance; discussions to create a regional private mortgage refinancing company to issue bonds to refinance banks using mortgage portfolios as collateral.
    - Work underway on legal and regulatory frameworks to facilitate bank issuance of mortgage bonds and securitization.
  - Gabon:
    - Banks eager to provide housing financing but hampered by slowness in issuing land titles.
  - Tanzania:
    - Surveying and titling under way, but more than 80 percent of land still not titled.
    - Revision of the Land Act in 2004 made mortgages subject to less enforcement constraints; effectiveness of simplified foreclosure procedures remains to be seen.
- Conclusion:
  - Significant efforts remain in most SSA countries to develop viable housing financing sectors.
  - In countries like Senegal where urban land titles are common and mortgages have expanded, policy focus shifts to efficient refinancing mechanisms for bank housing loans.

### IV. Banking spreads and profit margins
- Main drivers of high spreads in SSA banking systems:
  - Relatively large share of NPLs (nonperforming loans).
  - High operating costs.
  - Difficulties in obtaining and using collateral.
  - Absence of efficient judicial procedures for loan recovery.
- Kenya analysis:
  - Spreads are a function of loan-loss provisions and operating costs.
  - State-owned banks have the highest loan-loss provisions and highest profit margins; these together account for almost two-third of the spread.
  - Higher lending profit margins reflect higher write-offs on loans; overall profitability is lower as indicated by return on assets.
- Cross-country observations and exact figures:
  - Countries with particularly high spreads: Zambia and Mozambique (19 percent in 2002) and Uganda (19.5 percent in 2003).
  - Comparison between Uganda and Kenya shows overhead costs as percent of assets much higher in Uganda (9 percent) versus Kenyan private banks (5.1 percent); this difference almost fully explains higher interest spreads in Uganda.
- Bank size and spreads:
  - Most SSA banks are small: definition used is assets lower than equivalent of $1 billion.
  - Very few banks in Africa have assets > $1 billion; only 1 among 43 Kenyan banks.
  - Only in South Africa are there banks with assets exceeding the equivalent of $10 billion (classified as large banks).
  - World Bank cross-country comparisons (143 countries, 1995–2001) show smaller banks and smaller financial systems have higher overhead costs and net interest margins relative to total earning assets.
- Competition effects:
  - Evidence that increased competition reduces spreads and encourages banks with better local market knowledge to expand SME lending, improving access to credit (evidence from Burkina Faso cited).
- Regional comparisons of financial margins and operating costs:
  - Financial margins as share of total earning assets in Morocco and Tunisia are 2/3 lower than in Senegal, Kenya, and small banks in Africa.
  - Tunisia financial margin: 3.7 percent in 2003.
  - Portugal: 3.3 percent in 2003.
  - Italy: 3.2 percent (year implied as 2003 in comparison).
  - Average operating expenses incidence:
    - Small banks in Africa: 6.1 percent of assets.
    - Morocco: 3.1 percent of assets.
    - Tunisia: 2.3 percent of assets.
    - Italy/Portugal/Greece: about 2 percent on average.
  - Loan loss provisions (percent of assets) in Tunisia and Southern Europe are about half those for small banks in Africa.

*Source: _wp05166 - 27.      The above analysis indicates that improving access to credit for SMEs depend on a*

### 46.      However, it is interesting to note that the ratio of total non interest expenses to

### 46. However, it is interesting to note that the ratio of total non interest expenses to financial margin is relatively close in SSA countries to that in Northern African and Southern European countries

### Profitability comparisons and drivers
- Starting from a higher financial margin in SSA countries, and after deducting total noninterest expenses, the profit margin (rate of return on assets) is considerably higher, by about a factor of two, in small banks in Africa, and in Senegal and Kenya, in comparison to banks in Northern Africa and Southern Europe.
- The rate of return on equity is almost the double in African countries.
- This higher profitability can be justified by the higher overall risk, but probably reflects also a lower degree of competition.
- It is noteworthy that the profitability in small African banks (rate of return of 18.3 percent in 2002) appears in line with that of banks in other regions of the world (selected countries in Latin America, Asia and Central and Eastern Europe), as indicated in Table 9.

### Conclusions and policy implications — overview
- The study reviewed developments in bank credit to the private sector in Sub-Saharan Africa (SSA) and highlighted the barriers to access to bank credit.
- With the return of most SSA countries to broad financial stability over the past few years, including containment of inflation and government deficit, and the banking systems to a large extent restructured after the difficulties encountered in the 1990s, banks have the resources for supporting an expansion of bank credit to the private sector.
- Credit expansion remains modest in most countries, and the ratio of credit to private sector to GDP low mainly because the institutional framework is not supportive.

### Institutional and informational barriers identified
- Information on borrowers is inadequate, with weak accounting and auditing standards and limited credit information sharing.
- The legal, judicial, and regulatory framework governing enforceability of claims and property rights are frequently inadequate, and collateral and real estate registration limited.
- Instruments such as leasing, which are well adapted to financing of SMEs, are frequently subject to inadequate regulations, and lessors are exposed to similar difficulties in recovering property.

### Feasibility and sequencing of reforms
- Some corrective actions are more readily feasible:
  - Creation of credit bureaus.
  - Reinforcement of accounting standards.
  - Updating and strengthening of company registries.
  - Improved regulatory framework for leasing.
- Other reforms will require more substantial efforts as they involve fundamental institutional revamping:
  - Correcting deficiencies in the judicial system, including in the enforceability of claims and recovery collaterals, with the introduction of out-of-court enforcement procedures.
  - Revamping of the titles system and land registration.
- The land tenure system, given the tradition of collectively held land, is likely to provide an obstacle to agricultural credit, although this obstacle can be circumvented with improved systems of crop collateral, for instance relying on warehouse receipt collaterals.

### Role of MFIs (microfinance institutions)
- In some countries the more mature MFIs appear well adapted to lend to SMEs, and may have a competitive advantage, as they can use risk assessment techniques and information acquired through dealing with clients that began as micro-entrepreneurs.
- To put these advantages to good use would require that MFIs obtain adequate resources through credit lines from banks, and be able to provide credit at rates below those they apply to microcredits.

### Agricultural credit challenges and recommendations
- Provision of credit to small farmers faces major obstacles due to the limited availability of collateral.
- Efforts must be made for farmers to regroup in strong cooperatives, which can provide adequate guarantees to banks.
- A substantial difference is likely to persist between:
  - Large marketing firms and boards, as in Western Africa, or commercial growers with close relations with foreign buyers, as in many Eastern African countries (for whom securing credit to finance the current crop does not present difficulties); and
  - Small farmers, for whom access to credit, other than from MFIs, which are limited in the size of available lending, remains problematic.

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05166.pdf*

### 51.      The study has reviewed the size of banking spreads and their determinants in a

### _wp05166 - 51.      The study has reviewed the size of banking spreads and their determinants in a

### Key findings on banking spreads and profitability
- Spreads are high in Africa in part because of the small size of banks, which contributes to higher administrative costs for unit of lending, and because of the higher risks, related to inadequate credit information and deficiency in the enforceability of claims.
- In some countries spreads have come down, as a result of more competition resulting from new entries to the system.
- A comparison with spreads in Northern African countries and Southern Europe indicates that in these latter countries spreads are on average one third of those in African banks; a part of this difference is due to the different average size of banks.
- Banks are more profitable, on average, in Africa than in these countries, as would be expected considering the higher overall risk (credit risk and operational risk).
- However, the higher profitability may also partly reflect less competition; comparison with profitability of banks in countries in Latin America, Asia, and Central and Eastern Europe show that earnings of banks in SSA are not out of line.

### Determinants and contributing factors (qualitative)
- Small bank size → higher administrative cost per unit of lending.
- Higher risks stemming from:
  - Inadequate credit information.
  - Deficiency in the enforceability of claims (slow and costly collateral realization and judicial processes described in country notes and Table 6).
- Competition effects: market entry in some countries reduced spreads.
- Institutional and infrastructure weaknesses highlighted across tables: weaknesses in credit bureaus, land registries, foreclosure procedures, insolvency laws, and accounting standards.

### Country- and region-level statistics and illustrative datapoints (preserved exactly as in source)
- Comparison statement: spreads in Northern African countries and Southern Europe are on average one third of those in African banks.
- Table 1 (selected entries, ratios in percent):
  - Benin 2003: Bank Credit to Private Sector and Non Fin. Pub. Ent. to GDP 15.7; M2 to GDP 22.0; Bank Liquidity Ratio 63.2; Bank Credit to Priv. Sector and NFPE to Bank Deposits 82.6; Bank Credit to Gov. to Bank Deposits 6.7.
  - Ethiopia 2003: Bank Credit to Private Sector and Non Fin. Pub. Ent. to GDP 24.3; Cred to NFPE 1.5; Bank Credit to Gov to GDP 15.8; M2 to GDP 59.1; Bank Liquidity Ratio 47.0; Bank Credit to Priv. Sector and NFPE to Bank Deposits 52.4; Bank Credit to Gov. to Bank Deposits 41.8.
  - South Africa 2003: Bank Credit to Private Sector and Non Fin. Pub. Ent. to GDP 82.7; Cred to NFPE 6.9; Bank Credit to Gov to GDP 62.6; M2 to GDP 23.0; Bank Liquidity Ratio 139.4; Bank Credit to Priv. Sector and NFPE to Bank Deposits 10.8.
  - Morocco 2003 (Selected Other Countries): Bank Credit to Private Sector and Non Fin. Pub. Ent. to GDP 56; Cred to NFPE -- ; Bank Credit to Gov to GDP 18.4; M2 to GDP 92.1; Bank Liquidity Ratio 15.5; Bank Credit to Priv. Sector and NFPE to Bank Deposits 74.8; Bank Credit to Gov. to Bank Deposits 24.8.
- Table 2 (Broad Money as a Ratio to GDP, selected aggregates):
  - Sub-Saharan Africa: 1997-2001 37.8; 2001 37.3; 2002 38.4; 2003 41.2; 2004 42.3.
  - Excluding Nigeria and South Africa: 1997-2001 25.4; 2001 26.1; 2002 28.8; 2003 28.0; 2004 26.4.
  - Oil producing countries: 1997-2001 18.6; 2001 19.3; 2002 22.9; 2003 20.4; 2004 19.3.
  - Nonoil producing countries: 1997-2001 44.0; 2001 44.1; 2002 44.1; 2003 49.1; 2004 51.5.
- Table 3 (Domestic Government Debt to GDP Ratios, selected entries):
  - Average (countries listed) Domestic Debt/GDP (in percent, 2000) 21.5; Bank credit to gov. 9.0; GDP per capita (in US dollars, 2000) 1083.
  - HIPC: 16.0; Bank credit to gov. 4.5; GDP per capita 305.
  - Non-HIPC: 30.9; Bank credit to gov. 16.7; GDP per capita 2426.
- Table 4 (Overall Fiscal Balances Including Grants, selected aggregates and country examples, in percent of GDP):
  - Sub-Saharan Africa: 1997-2001 -3.0; 2001 -2.6; 2002 -2.8; 2003 -2.2; 2004 -0.8.
  - Excluding Nigeria and South Africa: 1997-2001 -3.7; 2001 -2.7; 2002 -3.5; 2003 -2.7; 2004 -1.6.
  - Oil producing countries: 1997-2001 -3.2; 2001 -2.2; 2002 -3.2; 2003 -1.4; 2004 4.7.
  - Example: Angola overall fiscal balances: 1997-2001 -14.1; 2001 -1.6; 2002 -9.3; 2003 -7.5; 2004 -1.4.
- Table 5 (Prudential indicators, selected datapoints):
  - Regulatory capital to risk-weighted assets: ranges and country values reported (e.g., Senegal 11.5; Kenya 13.8; Namibia 40.5; Tanzania 16.5).
  - ROA and ROE reported variably across countries (examples: Ghana ROE 58.4; Kenya ROA 1.1; Uganda ROE 30.9).
  - Spread between reference lending and deposit rates: examples include Senegal 9.2; Ghana 10.0; Kenya 20.5; Zambia 35.8; Uganda 19.0 3/.
  - Gross NPL to total loans: examples include Senegal 13.3; Côte d'Ivoire 19.7; Ghana 19.4; Mozambique 40.5; Uganda 28.8.
  - Provisioning rate examples: Senegal 75.3; Côte d'Ivoire 70.2; Ghana 83.5; Kenya 106.3.
- Table 6 (Financial infrastructure, country observations summarized):
  - Credit bureaus: amendments or establishment noted (e.g., amendment to Banking Act in 2003; credit bureau started end-2004; legislation changed in 2004 to allow their establishment; credit bureaus established by Bankers' Association).
  - Collateral/credit recovery: foreclosures require judgment and order for sale by public auction; recovery costs high; enforcement can require 3 to 4 years; land registry weaknesses; Land Act reformed in 2004 to promote collateralization with titles limited to 20 percent of land; collateral enforcement through official court process is lengthy (on average 3 years); claims recovery and collateral realization slow; "22 percent of banks bad debt are older than 10 years."
  - Insolvency laws: described as needing updating; corporate bankruptcy procedures inefficient and slow, requiring on average 5 years.
  - Accounting standards: "Needs modernization" for some countries; "Accounting standards and auditing practices modernized in 2002" for others; "Uniform accounting standards for WAEMU members (SYSCOA) introduced in 2001."
- Table 8 (Decomposition of Interest Rate Spreads, selected datapoints):
  - Senegal (2002): Average Lending Rate 11.3; minus Average cost of resources 2.2; Total spread 9.2.
  - Cape Verde/Africa (2002) and other country decompositions reported with components including Other operational income, Financial margin, Tax on financial operations, Overhead costs, Loan loss provisions, Reserve requirements and dep. ins. premium, Tax on profits, Profit margin, Return on assets (ROA), Return on equity (ROE). (Detailed cell values present in source tables.)
- Figures summarize cross-country comparisons (Money and Bank Credit to Private Sector; Bank Credit to Government and to Private Sector; Domestic Debt and Bank Credit to Government; Bank Liquidity Ratio and Credit to Private Sector; Days to Recover Debt Outside Insolvency) with data sourced from Tables 1 and 3 and FSSA reports.

### Policy-relevant implications and institutional recommendations (drawn from country notes and tables)
- Strengthen credit information systems: establishment and operationalization of credit bureaus is essential (country notes document legislative amendments and bureau startups).
- Improve collateral frameworks and land registries: address high foreclosure costs, long enforcement times (3 to 4 years in many cases), unclear property titles, and restrictions on land as collateral.
- Update insolvency legislation and speed up bankruptcy procedures: corporate bankruptcy procedures described as inefficient and slow, requiring on average 5 years; specialized commercial courts and procedural reforms recommended.
- Modernize accounting standards and auditing practices: several countries noted improvements in early 2000s; adoption of uniform standards (e.g., SYSCOA for WAEMU) is highlighted.
- Promote competition in banking sector: increased entry has been associated with reductions in spreads in some countries.
- Address operational inefficiencies and high overheads in banks to lower spreads (Table 8 decomposition highlights overhead costs as a significant component).

*Italic: Source — _wp05166 (excerpted pages and tables provided).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp05166.pdf_