The Ideas Forum · Contributions

Microfinance in the WAMU: an opportunity for prudential regulation that serves financial inclusion

By Sidy Lamine Ndiaye
Inclusive finance expert
Former Executive Director of APSFD-Sénégal

Adopted at regional level in late 2023, the reform of the legal framework for microfinance in the West African Monetary Union (WAMU, known as UMOA in French) paves the way for an updated prudential framework. The BCEAO, the WAMU Banking Commission and national authorities have an opportunity to bring together financial soundness, client protection and social performance.

A promise fulfilled, vulnerabilities exposed

West African microfinance emerged from a simple need: to provide savings and credit services to people excluded by conventional banks. In villages, markets and working-class neighbourhoods, microfinance institutions (MFIs) have enabled women to start businesses, young people to finance projects, traders to expand their activities and farmers to prepare for the agricultural season.

This growth has also exposed weaknesses. Some institutions have experienced liquidity crises; others have been weakened by poor governance, inadequate internal controls or unreliable information systems. Such difficulties particularly threaten low-income savers, for whom losing access to savings can have serious consequences.

A new legal framework

On 21 December 2023, in Cotonou, the Union’s Council of Ministers adopted the draft uniform law regulating microfinance in the WAMU. The reform seeks to adapt the legal framework to changes in the sector, strengthen institutions and improve their contribution to financial inclusion.

Implementation requires national legislation and implementing measures. In Senegal, Law No. 2025-04 of 19 February 2025 regulates microfinance. In Côte d’Ivoire, the Council of Ministers adopted a bill on this regulation on 29 April 2026. Adoption, promulgation and entry into force are distinct stages; the timetable must be assessed country by country using official texts.

The new legal framework therefore calls for an updated prudential framework. The BCEAO and the WAMU Banking Commission play a central role, with due regard for the responsibilities assigned to national authorities. These rules can be designed to build confidence, rather than being seen solely as constraints.

What we expect from this regulation must nevertheless be made clear. Two requirements stand out, and neither can be considered in isolation.

Two complementary requirements

Financial soundness comes first. It requires solvency and liquidity standards proportionate to institutions’ size and risk profiles, strict limits on concentration risk and lending to directors, and risk-based supervision, with closer oversight where the risks warrant it.

Social performance is the second requirement. This is where the authorities could deepen their approach. Five categories of indicators warrant systematic monitoring alongside financial ratios:

effective access to services for women, young people and rural populations;
client protection: transparent pricing, prevention of over-indebtedness and complaints handling;
contribution to local development;
contribution to sustainable finance through the financing of environmentally responsible activities;
changes in the socioeconomic circumstances of the people served.

These indicators should be based on common definitions and reliable data, with reporting requirements proportionate to institutions’ capacities. Measuring a change does not, on its own, establish that microfinance caused it: impact evaluation requires an appropriate methodology.

A framework that safeguards deposits without examining whether an institution effectively serves its intended clients would overlook an essential dimension of its mission.

These requirements cannot be met overnight. Implementation must proceed in stages.

A three-stage pathway

In the short term, MFIs will need to comply with the provisions applicable to them. For mutual or cooperative savings and credit institutions (IMCEC), adapting their legal form and governance to the new framework is a major undertaking, particularly where institutions are required to adopt the legal form of a cooperative with a board of directors (SCOOP-CA). Arrangements and deadlines must be assessed against national legislation and its transitional provisions.

Institutions will also need to strengthen their capital base in line with applicable requirements, improve governance, train their leadership and make their information systems more reliable. Digitalisation must be underpinned by robust security and data protection. Smaller institutions will need support; otherwise, the reform could lead to closures rather than consolidation.

In the medium term, the challenge will be to secure their long-term viability: achieve sustainable financial performance and diversify their services, notably through partnerships and within the scope of authorised activities—microinsurance, Islamic finance or digital financial services—without losing their community roots.

In the long term, they will be able to strengthen their integration into the regional financial system and their contribution to financial inclusion.

This pathway ultimately redefines the place of microfinance within the Union.

An appeal to the BCEAO and the Banking Commission

The effectiveness of the updated prudential framework will depend on how it is designed and implemented. Three priorities are proposed:

establish social performance monitoring, using clearly defined, routinely reported and verifiable indicators alongside solvency and liquidity requirements;
make compliance requirements and deadlines proportionate to institutions’ size and risks, with support for smaller institutions;
involve MFIs and their professional associations, together with the relevant national authorities, in developing implementing measures so that regulation reflects conditions on the ground.

These are proposals, not obligations already in force. Their aim is to make the reform a benchmark for inclusive finance regulation.

Bringing financial security and social value together

The ongoing reform offers an opportunity to pursue two objectives together: prudential rigour and a social mission. Better-regulated microfinance builds depositors’ confidence. Microfinance assessed for its social value remains faithful to its purpose. If the rules and their implementation combine these requirements, they can help make safe, useful financial services more accessible, from the most remote village to the most densely populated neighbourhood.

The views and proposals expressed in this contribution are those of the author. Translated from the French.

Microfinance dans l’UMOA : l’opportunité d’un dispositif prudentiel au service de l’inclusion financière