CEMAC Microfinance Sector Faces Crisis as Bad Loans Surge

Overview of the Current Situation

As of the end of 2025, the Central African Economic and Monetary Community (CEMAC) is grappling with a concerning financial landscape. Nearly 48.7% of microfinance institutions within the region have been classified as 'very fragile' by the Central African Banking Commission (COBAC). This alarming classification is attributed to a significant rise in nonperforming loans coupled with a dramatic drop in net profits for the sector.

Loan Performance Decline

At the close of the year, CEMAC's microfinance sector faced a harsh reality, with nonperforming loans increasing by 33.2% to reach CFA236.8 billion (approximately $404.3 million) from CFA177.8 billion the previous year. This surge illustrates a troubling trend, with nonperforming loans now constituting 20.5% of the total gross loan portfolio, up from 17.1% in 2024.

COBAC has attributed this decline in loan quality to various factors. Assessments conducted under the SYSCO-EMF risk classification system, which began evaluating institutions in September of 2025, highlighted weaknesses in operational models, credit risk management, and profitability. Moreover, issues regarding compliance with anti-money laundering regulations have raised further concerns within the sector.

Profitability Crisis

The increase in bad loans has directly impacted the financial performance of microfinance institutions. By the end of 2025, the collective net profits of these institutions plummeted to CFA2.4 billion, a staggering 89.4% decrease from the previous year's CFA22.5 billion. This steep decline is particularly alarming given that net financial income remained relatively stable at CFA147.6 billion, only slightly down from CFA148.9 billion in 2024.

COBAC identified that the primary driver behind this profit drop was a substantial 47% hike in net provisions for credit risk. These provisions are crucial as they prepare financial institutions for potential losses arising from borrower defaults. However, this increase in provisions has strained reported profits and hindered the ability of microfinance institutions to bolster capital reserves while continuing to lend.

Regulatory Measures and Compliance Issues

In response to the crisis, COBAC has taken decisive steps. At the end of 2025, about 39% of monitoring microfinance institutions did not meet requirements for fixed-asset coverage, indicating a lack of resources for financing long-term assets. Additionally, 36% of these institutions were found to be in violation of exposure limits to individual or related borrowers. These limitations are essential for mitigating excessive risk concentration.

Furthermore, issues with related-party lending were discovered, as 32% of institutions failed to comply with regulations regarding loans to connected parties. There was also a liquidity crisis, with 26% posting ratios below the regulatory minimum, further aggravating the situation.

To address these weaknesses, COBAC implemented several restructuring measures. By the end of 2025, 14 institutions were under temporary administration due to their inability to prove financial viability. This included four first-category and ten second-category institutions. Furthermore, there were five liquidation proceedings initiated, following three compulsory license withdrawals and two disciplinary revocations, all connected to non-compliance with essential regulations.

Conclusion: A Path Forward

The ongoing challenges within CEMAC's microfinance sector underline the urgent need for regulatory oversight and intervention. The measures taken by COBAC aim to protect depositors, stabilize the financial ecosystem, and foster resilience within the sector. As these institutions strive to improve their financial health, concerted efforts will be necessary to restore confidence and ensure sustainable growth in CEMAC's microfinance landscape.