Banks, Poverty and Cameroon

Written by Hinsley Njila and edited by Innocent Chia
Warning: This article requires a basic understanding of country-level economics.

Cameroon must urgently reform its banking sector or delay its economic progress indefinitely.

Common sense tells us that for any country to have any kind of sustained economic growth, people and businesses must have access to capital in order to take risks, buy equipment and supplies, undertake capital investments, hire workers etc. Banks and major lending institutions are typically the best and most effective channels for central banks to manage money supply and control inflation in any economy. In our article, we are looking at how banks in Cameroon are contributing to economic development compared to those in South Africa, Nigeria and South Korea in their respective countries.

 
All the data we use come from the world development indicators database (WDI) at the World Bank.

You can tell from the chart above that of the 4 countries we are comparing, Cameroon’s banks have - by far - the highest cash reserve ratio; in other words, they are carrying more cash at any given time as a percentage of their assets than the banks in Nigeria, South Africa and South Korea within the same time frame.

As a matter of fact, in 2008 Cameroon’s banks were carrying as much as eight (8) times more cash than their closest neighbor Nigeria. Our choice of South Africa is because it is Africa’s GDP leader, and South Korea, and Nigeria are both countries that became independent with Cameroon around 1960. One can also see from the second chart above that despite the excess cash on hand, Cameroon’s banks are contributing far less to the local economy in terms of credit provided as a percent of GDP than banks in the other countries.

 

With these charts, and many more that can be referenced from the same source at WDI, some questions deserve to be asked: Why do these banks have so much cash on hand and keep away from lending it to people and businesses who desperately need it for economic development and poverty reduction? How does it benefit the overall economy to have so much cash just sitting around in vaults?  Just these two are an excellent beginning point of questioning with no easy answers. As much as this article explores some reasons why banks have so much cash on hand, it also takes a look at the economic consequences of this cash-in-the-mattress equivalent that banks are practicing in Cameroon. Finally, we provide some clues as to what needs to happen immediately for this cash to do what it’s suppose to be doing - inject the necessary credit into the economy needed for growth; reduction in unemployment rate and poverty reduction.
 
First of all, banks do not print money. This means that they have all this cash just sitting in vaults in their different branches within the country costing even more money. Banque des etats de l’Afrique Centrale (BEAC) - which is the central bank in charge of regulating money supply in Cameroon, as well as other Central African countries - does not seem to understand what it’s supposed to be doing. As consumers and business people, we have no idea what the banking reserve requirements are, and more importantly we have no idea what BEAC’s discount rates are. 

Granted we are on the same page and you understand the functions of the central bank, then you understand this is a very important basis from which all lending is based. Within this framework therefore, we reasonably posit that BEAC has not helped Cameroon’s banks create investment instruments through which it can regulate money supply and inflation, and the government has not helped by creating a system that banks can exploit to qualify people and businesses for credit. Because of these reasons, banks are losing millions of dollars every year to inflation. These are Millions of dollars they could be earning interest on by loaning to individuals and businesses.

Cameroon, it turns out, is actually a very attractive place to invest in terms of real interest rate (nominal interest rate – inflation) when compared to Nigeria, South Korea and South Africa in recent times as the following graph shows:

Inflation has been very low, and as a result interest earned on investments has been higher in Cameroon at least in recent times than the other countries. The volume of economic activity however has been very low because of lack of capital. The banks are not completely off the hook here, because even though they have so much cash on hand, they have been charging very high interest rates to borrowers, making alternatives like njangi houses (unregistered / unregulated, self-support co-opt groups) , and other non-regulated forms of lending seem very attractive to borrowers. The overall economy would never benefit from banks sitting on all this cash, while entrepreneurs and business people cannot get the capital they need to create the value needed for economic growth.

Based on the factors heretofore, the critical mind should readily understand that if Cameroon is ever to have the kind of robust growth that countries like South Korea, South Africa and Nigeria have had, it needs to get its banks involved and quite urgently. BEAC of course needs to act more independently and be more transparent with its activities. BEAC also needs to be a lot more aggressive in setting bank reserve limits as well as controlling the overall money supply.  For investors to effectively estimate risk – reward levels for optimal performance - they also need to know what the discount rates are as well as rates of other investment products including risk free products like treasury notes. By the way, this will all serve to boost confidence in the CFA, and may even translate to it having a higher value.

Without these essential reforms involving the banking system, all the talk about helping countries like Cameroon get out of poverty is just that – talk. Real banking reforms need to happen soon beginning with the central bank in Yaounde, and banks need to adjust their lending rates to help make cheap money available to investors. The kind of investment needed to get Cameroon out of poverty will come from the private sector, and must be financed by banks. Whatever program is designed for economic development will ultimately need the banks; otherwise it will be as impossible as the proverbial elephant going through the eye of a needle if banks maintain their course of steadily increasing their cash reserves and providing less than 10% of credit toward GDP.  Cameroon must learn from other countries like South Africa, South Korea and Nigeria. Banks must rapidly decrease their cash reserves by lending money to entrepreneurs and business people who ultimately take necessary risks that help develop the economy. Cameroon needs a bank managed economic stimulus plan.

Comments

[dango tumma]

Mr hindsley njilia, When i saw your posting about cameroun, i said to myself oh, here we go
looks like finally a southern cameroonian
who is a free thinking citizens of the free flow of ideas of the anglosaxon system of world economy is going to pull the blind fold
from the eyes of tis francafrique colonies
call BEAC, yet you did nothing, just the opposite to reinforce this deceit, this crminal enterprise by france on africa thats been going on since 1947. FIrst cameroun(french) as well as all CFA USERS have no currency, which means no central bank. the BEAC IS just by name, a smoke screen to deceive african, all decisions and currency is printed and control from paris. . THE african countries since 1947 had to rent an acronym call FRANC CFA, control by franc francais,, THIS currency which even the french themselve stopped using since 1999. allows french people to pocket 65% of the gdp of these countries upfront, then there is a 15% insurance fee again which france have to keep soo cameroun as all these african countries have to bank on 20% of their own wealth, this have been going own since 1947, these countries have no say the economic policies or rates or lending policies for these are all done in france then enforce through the local manager
in beac in yaounde or ivory coast. it is estimated that african monies in paris is over 1.2 trillion dollars. these monies which france would in turn use to lend back to cameroun and other african countries through its AFD , agence france de developement,. which they call (AIDE) part is used to pay for french citizens pension and retiremenst in france, soo africans ahve been laboring all these years only for france to live.
please do your research well next time before you start writing any thing about cameroun,
yOU MUST FIRST KNOW THAT cameroun is not an independent country, its owned by france.
and the only way out is for southern cameroons to be independent, the the camerounese would extricate themselves from the slave enterprise themselves.
2

[douala pikin]

Hi son of the soil,
with due respect of you, I salute your efforts. Let it be noted to you that Chiarreport did not asked you to accept his research result period! Talking about attempting to drive investors away from investing in Cameroon is unfounded, because Mr Chiar have given us the source from where he got his data, if you want to prove him wrong please may you gether your data from thesame source and compile yours. This report only encourages our bank to help drive our economy from worst to better. Had Mr Chiar compared other countries as examples than those he had used may be the result could have been different, and you could have still asked the questions on why those counties. With Good faith Mr Chiar gave the readers his reason for selecting those countries.
For your assignment please go to the data source where the data was collected then analyze and present your findings in this forum, since you are more of the son of Cameroon than any other Cameroonian. May God bless you.

[Hinsley]

You know, of all the things I’ve seen so far, the internet in my opinion is the greatest human invention in my lifetime. It’s provided a channel through which rich or poor, people can all express ideas and share stories that would’ve other wise never seen the light of day, among other things.

What it’s also done is given not so bright people and those who wish to hide behind aliases the ability to drown potentially good & progressive debates about very profound issues the voice to cloud complex things with ideas that leave nothing to be desired. The era of obstructive ideas that have contributed to Africa’s demise for decades, is over. Each reader has a responsibility to read an article, get what it’s saying, understand the facts and advance ideas that shape the debate discussed in the particular article. This should be common sense, I’d think.

For instance, this is NOT an article about whether or not BEAC should exist, who prints money and so on, or a report on whether investors should or shouldn’t invest in Cameroon. There are those articles out there, but not this one and not this time. This is however an article that explores how the existing monetary structure can be used to make good for the society. How someone can miss that is of great interest to me.

How does one communicate with people who hide dumb ideas behind aliases, or those who cloud good discussions with ideas that are not only not discussed but are just a series of speculative bullet-points?

We’re all trying to advance ideas that’ll make our country better. So, unless you

- Understand the article
- Have ideas that are specific to what’s being discussed
- Can educate us with facts on better ways to do things
- Or better still dispute on the merits on what has been discussed in this article

Please use your time wisely. I suggest volunteering by donating your energy somewhere. If you’re considering something stupid to say, please walk it off; drink a glass of water and if you may, go out and exercise. It’ll go away somewhere, to stupid thoughts heaven. You MUST NOT comment on everything you read.

[Felix]

The problem all lies in politics and how politicians can help their countries.I have often said that this government either have Block heads as policy makes or they are just too wicked.
I notice banking in Cameroon looks like a child play with the service sector confined mostly to the cities.How do you see a banking system when a civil servant transferred to another part of the country cannot access his or her account or get his pay from the same Cameroon Government Bank located in the town he has been transferred to?
We can blame BEAC, which at some point is true, but then if we have smart government politicians who thinks, they could have lobby BEAC to either conform to a Cameroonian plan or kick it off.Nigeria prints her own currency so why shouldn't we.
I notice again that politicians have access to loans that they never pay back,and they are more liable to use this loan to shop abroad rather create Businesses.
It nice to start reading a brain storming article like this, more is needed to help teach people who couldn't understand basics in Economics like Son of the Soil.
Mr Son of the Soil who's Mind set seems to be blinded by politics of his cultist CPDM and lack of Basic Knowledge in Economics, I have a question for you.Is investment a thing for Foreigner or white men???.Is it not possible for an African like you to build and own company like Pectin, Chevron, Exxon Mobil??.This is where I think you have limited your self to a slavery/Master notion.But Mind you, I am an African and I belief i will one day build a company of my own.Its possible in Nigeria and South Africa and Most North American countries.
And to be sincere if African politicians like you are removed from the equation and replaced with thinking Economics like Hinsley Njila we will be able to move a step forward.

[Dr A A Agbormbai]

I think the behaviour of the Cameroonian banks is very easy to explain.

The key issue here is the business environment and the risk that it contains. All the statistics show that the Cameroonian business climate is very, very risky. What this means is that the probability of business failure is extremely high.

Now, if you were a bank manager in charge of other people's money, would you give that money out as loans when all the authoritative statistics are telling you that you will almost certainly lose that money? Certainly not, or your bank will go broke and you will face the wrath of the bank's customers!

The banks are naturally very conservative institutions, and even when times are good it is not usually easy to get loans.

The solution to the problem is to improve the business climate so that the business risk falls to acceptable levels. Then you will see the banks willing to give out business loans.

This article certainly demonstrates why a major objective of the next President must be to improve this climate. In fact, all Presidential candidates must put forward and explain a plan for the business climate.

I wouldn't advise anyone to vote for a candidate who doesn't convince in this area, or we are going to have a continuation of the current circumstances when the next President takes office.

[Dr A A Agbormbai]

"... even though they have so much cash on hand, they have been charging very high interest rates to borrowers..."

When banks believe that they are likely to lose out through loan defaults (caused by a risky business environment) they charge high interest rates to compensate for any defaults that actually occur, while maintaining an acceptable level of profitability. At the same time they cut down severely on the number of loans they are willing to give out. All these are part of protecting the customer's money while making some money for themselves.
__________________

One thing I must point out is that this discussion has wide implications on the economic health of the country, and in particular on solving the unemployment problem.

The poor business climate of Cameroon, which is caused by bad governance, is a major factor in stifling the private sector.

Successful countries have a vibrant and productive private sector that create jobs and revenue to keep everyone happy. These countries have an attractive business environment that is low risk and as such encourages the banks to support economic growth.

In the US, for instance, there was bad governance under George Bush. Influenced by Dick Chaney he removed many legislations that protected the consumer and the environment. The financial system in the US became a cut-throat jungle-house that attracted crooks and fuelled greed among top executives.

Control of risk was thrown out of the window as many banks engaged in highly irresponsible risk practices. Such lack of conservatism caused the US financial system to almost collapse.

The ramifications were far-reaching, causing economic hardship wherever US interests exist in the world... and this practically means almost the entire world. You can see that the recession is still causing problems in many parts of the world.

[Dr A A Agbormbai]

For some of you who still can't fathom out why (wise) Cameroonians and foreigners are shying away from investing in Cameroon...

The answer lies in the high risk environment, which makes the probability of failing and losing your capital too great.

It's true that a few people are succeeding, but if you investigate this deeper you will find that many of these people are employing unacceptable business practices, such as paying bribes to dodge tax and other types of corruption (cheating, fraud, gangsterism, etc.).

If you are an honest business man, the chances of succeeding in the current Cameroonian situation are very slim. First of all, you'll be surrounded by crooks who only want your money (rather than to do a fair job for your money). It's hard for an honest person to succeed among gangsters, without becoming one.

[Ntaho Boniface]

IT was Mao Tse Tung who said “let a thousands school of thought blossom.

What a buffon called Son of Soil. This is just one of those quotes that dictators like Biya like to quote as if they can take to heart or practically do what these quotes mean.

And what did Mao Tse Tung leave the Chinese? Are you aware that China had to change its course, yanking off communism that by 1976, with hunger palpable on the faces of every Chinese citizen, it gradually began to rethink the follies and dictatorial sytle of its 1949 revolution? Mao Tse Tung is the last person that as intelligent as you pretend to be, given what you intended to say, should have quoted.

[Ntaho Boniface]

When Ghanaians doctors graduate, they go back to Ghana to save the lives of their compatriots, but when Cameroonians graduate, they remain abroad and become CNAs instead of doctors that is if they pursued medicine at all.

The loose canon called Soil of the soil still does not get it right. The Ghanian environment, after so many years of turmoil, is now convinient enough for its western-trained doctors to go back and save the lives of fellow Ghanians.
Do you know how many regimes have changed hands since Ghana's independence? About 11.
And Cameroon, that had its independence in 1960, with just three years difference? Miserable two, perhaps adding the short reign of Andre-Marie Mbida, that would total 3 miserable regimes.

Understand now why citizens are reluctant to go home? Some of us delude ourselves,thinking Cameroonians are so dumb, after so many years living abroad that we should pack up, leave and go face the gallows that loose canons like soil of the soil have prepared for us. Biya, as senile as he is, can only hire people like son of the soil, who, probably, has not got tenure at the miserable university where he purports to teach. A lonely man who has not been able to face the challenges in the West, so he beckons to his country men to pack up and leave.
Sorry the West, particularly the U.S., does not pay teachers very well.

[Va Boy]

Dikopo is now Night Soil of the Son

Still a Beti? Huh, Docta?

[Manny75]

Good stuff, Sir Hins...! For a minute, it read like a krugman piece !! Solid facts, grounded, nicely put together. I'm a harsh critic of most CR publications, but this, my friend is good stuff.

I agree with the Docta above concerning the bizz enviroment. You can't blame the banks entirely for that. The government has to create incentives for investment in the private economy, it has to legalise the informal economy, and ultimately must support the creation of legal property rights.

Banks will not lend to the people whenever the is an almost zero chance of collecting on their debts!! What are the instruments in place to protect honest lending by these banks!? A lot of Cameroonians have access to capital, it's just dead capital!! It will secure a loan as far as the "njangi house", that's about it. Most folks own their homes and the land beneath them, but these ownership goes just as far as close members of that society !!! Your home in Akwaya can't be an asset for a simple bank loan in Garoua.

Land, is the mystery behind capital creation!!! It's one of our most abundant natural asset in cameroon. If we can reform legal land ownership, centralise the system, rewrite the fundamentals of our contract law, Land could be used to secure bank loans!!! All parties have to be involved!!! From customary to constitutional Entities!!!!

[sonny N]

As someone from a monetary economic background, I find the article compelling, backed by reputable undisputed data. It is very well for others to comment on inuendo's and 'gossips' that are completely unsubstantiated. There is a saying in some quarters in Cameroon that 'half education is better than none' and some commentators here fall firmly within that category. It will be beneficial for the government to use analysis like this to come up with policies that provide lending guarantees to these banks to enable them to lend to businesses to generate the much needed economic activity that is required in Cameroon.

[Watesih]

The leaders of Cameroon see money as a vehicule of short-term satisfaction of needs and not one for long-term speculative wealth generation. Little doubts a Minister was scared out of his wits when a rice bag full of banknotes was delivered to his residence. The President himself was almost deprived of a good chunk he was carrying around by his bodyguard. Politicians in other countries invest in their own countries,even through surrogates. Our can't strengthen our banks because they have no business doing with them. If our banks are strong, those in the diaspora can make acquisitions both local and international through them. Meddling in financial institutions by politicians turns off investors. The Minister of finance was recently lurked in a proxy war with the management of the CBC bank, and the Amity bank has also been in the eye of the cyclone for long. This is distraction that the banks can't manage to afford. With weak monetary policies and the fear factor banks can't lend.

[Felix]

Why do you have the gut to put story here concerning a coup when you are afraid of one taking place in Cameroon.
Chia is not only triple standard but a coward to the highest other.Keep on deleting information that makes you feel uncomfortable or opposes the views of the Cameroon Government that is the mark of a Citizen Journalist.

[Piet]

Cameroon banks can have a highest cash reserve ratio b/c Cameroonian are afraid of risk due to hign taxes Simple.

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