VZCZCXRO6280
PP RUEHMA RUEHPA
DE RUEHCO #0196/01 0990612
ZNR UUUUU ZZH
P 080612Z APR 08
FM AMEMBASSY COTONOU
TO RUEHC/SECSTATE WASHDC PRIORITY 0257
INFO RUEHLMC/MILLENIUM CHALLENGE CORP WASHDC
RUEHZK/ECOWAS COLLECTIVE
RUEHFR/AMEMBASSY PARIS 1251

UNCLAS SECTION 01 OF 02 COTONOU 000196 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR AF/W (DBANKS) 
PARIS FOR D'ELIA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL KCOR KMCA BN
SUBJECT: BENIN: CRISIS IN MICROCREDIT SECTOR 
 
 
COTONOU 00000196  001.2 OF 002 
 
 
¶1. (U) SUMMARY: The Government of Benin (GOB) dismissed the Director 
General of PADME, a microcredit institution, for mismanagement 
disclosed by a report from the Financial Audit Office (IGF). The 
Director General (DG) and the employees of PADME denied all 
allegations of mismanagement and malfeasance and accused the 
government of attempting to take over PADME. When the GOB refused to 
back down, PADME personnel went on strike countrywide to protest the 
dismissal. The situation risks destabilizing the microcredit sector 
in Benin. END SUMMARY 
 
¶2. (U) On March 5, 2008, the Council of Ministers examined the IGF 
audit findings of PADME. The IGF'S report highlighted the following 
improprieties: mismanagement of the credit portfolio by 39 PADME 
employees through fictitious loans resulting in a loss of over CFA 
1,000,000,000 (about $2.2 million); excessive and undocumented 
travels of the DG (over 170 days in 2005; 151 days in 2006 and 57 
days from January-July 31, 2007); the payment of an unduly high 
salary to the DG; and the failure to appoint a deputy to the DG or a 
Technical Director. The report stated that the DG failed to 
supervise adequately because of his extended absences. 
 
¶3. (U). As a result, the Council of Ministers instructed the 
Minister of Microfinance and Promotion of Youth and Women to dismiss 
the DG, to dismiss and replace the members of PADME's Board of 
Directors and to take disciplinary action against the accused. The 
Council of Ministers also urged the treasury to recover the funds 
embezzled through fictitious loans and to seek reimbursement for the 
travel allowances paid to the DG. The government called on the 
Ministry of Justice to take legal action against the individuals 
involved in the case. On March 18, the Minister of Microfinance and 
Promotion of Youth and Women named her technical advisor as Acting 
DG of PADME and installed him officially on March 31. 
 
¶4. (U) The PADME DG strongly denied all of the IGF allegations. He 
linked the GOB's reaction to a research paper that he published on 
the microcredit sector in Benin, which was not favorable to 
President Yayi's low interest microcredit program to assist the most 
poor. The ousted DG claims the government is taking revenge. His 
lawyer referred to a wide range of ministerial decrees and to the 
charter of PADME to conclude that the GOB's dismissal of the DG has 
no legal basis. The DG has challenged the government decision before 
the Supreme Court. In support of their Director, PADME employees are 
on strike. Attempts by the GOB to engage PADME employees in dialogue 
have failed. On March 26, PADME clients staged a protest march 
through Cotonou. PADME has about 100,000 clients, mostly small 
traders who can no longer make the required regular payments on 
PADME loans or renew loans.  Every day that PADME branch offices 
remain closed due to the strike raises public displeasure and the 
level of inconvenience to the clients. 
 
¶5. (U) PADME is a non-profit organization created in 1993 by the GOB 
with World Bank financing and consultants from VITA, a U.S. NGO, to 
off-set the fall-out of structural adjustment.  It allowed civil 
servants to leave the public sector and start private enterprises, 
in the interest of slimming down a bloated state apparatus. In 
December 1997, on completion of this project, the PADME was turned 
into an association with the GOB transferring to it an asset 
amounting to CFA 2,000,000,000 (about $4.4 million). According to 
the Minister of Microfinance, since its creation the government has 
injected into PADME a total sum of CFA 6,000,000,000 (about $13.216 
million) 
 
¶6. (U) In 1994, the Assembly of the West Africa Monetary Union 
(UMOA) member states adopted the PARMEC law (Projet d'appui a la 
Reglementation sur les Mutuelles d'Epargne et de Credit) to regulate 
mutual or cooperative institutions, including microfinance 
institutions in the UMOA. Articles 66 and 67 of the PARMEC law, 
stipulate that Ministries of Finance have primary responsibility for 
external control and supervision of microfinance institutions and 
allow member governments to delegate this authority to the Central 
Bank. Under the framework of the PARMEC law, special provisions 
known as Tailored Agreements (or Convention Cadre) were introduced 
in 1997 in UMOA to facilitate registration and supervision of 
microfinance institutions at the country levels. Consequently, 
member states had an obligation to adopt this law in their 
respective countries and to issue decrees for application.  The GOB 
signed Agreement No. 1652 with PADME in 2005, which authorizes the 
Ministry of Finance to supervise PADME's activities and to take 
sanctions against employees involved in malfeasance and 
mismanagement. 
 
¶7. (U) Pending the verdict of the Supreme Court, PADME's lawyer 
acknowledged the existence of the aforementioned legal instruments 
governing the microfinance sector in Benin. However, he maintained 
that the dismissal of the PADME DG was illegal. On the other hand, 
the Minister of Microfinance based the legality of her dismissal of 
the DG on the following points:  GOB oversight responsibility for 
 
COTONOU 00000196  002.2 OF 002 
 
 
official funds invested in PADME's operations and applicability of 
Agreement No. 1652 between PADME and the GOB. 
 
¶8. (U) Until recently, PADME was known as the best microfinance 
institution in Benin and one of the best in Africa in terms of the 
quality of the services and outstanding performance. The Director 
General of PADME, unanimously hailed for his professionalism and 
competence, was invited frequently to attend conferences worldwide 
on microcredit issues.  According to a well-informed source, PADME 
was in the last stages of transforming from an association into a 
for-profit enterprise with local and international investors when 
the GOB issued its report. 
 
¶7. (SBU) COMMENT: The current situation does not augur well for 
peace and stability in the already tense environment leading up to 
local elections now set for April 20. The crisis undermines 
President Yayi's popularity given the number of people who benefit 
from and depend on PADME. On one hand, a Supreme Court ruling in 
favor of the GOB would be a welcome boost for President Yayi's 
anti-corruption efforts. On the other, the courts would have to 
establish the DG's culpability in order to dispel doubts surrounding 
the case and to reinforce the government's credibility. Until these 
doubts are dispelled, PADME will be essentially moribund and 
discredited; existing loan holders will have little incentive to 
repay their loans; and foreign investment in the sector will be 
stymied.  Also, MCC's Access to Financial Services project, which 
aims to strengthen government oversight of the microfinance sector, 
may be potentially impacted by the case.  It will be crucial to 
prove that current GOB oversight of the sector is correct and not 
unduly influenced for political ends.  END COMMENT. 
 
BROWN