A Look at the Legal Framework and Constraints of Credit Granting In Cameroon

By Dr Steve Tametong & Martial Nteme (Download the PDF Version)

The realisation of an investment depends, in certain cases, on the use of credit. The granting of credit requires a prior credit operation. According to section 3 of Law No. 2019/021 of 24 December 2019 to lay down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon, a credit operation means “the act by which a reporting institution, acting for consideration, advances or promises to advance funds to a natural or legal person, or makes a commitment by signature in the interest of the latter”. In reality, the credit applicant is faced with challenges that stem partly from his or her ignorance of the legal framework for granting credit in Cameroon. It is therefore necessary for each credit applicant to master the legal environment that governs the granting of credit. This is the first articulation of this analysis (I). The second section examines the conditions and constraints of credit granting (II). The third section sets out recommendations for improving the framework for granting credit in Cameroon (III).

1. The proliferation of texts relating to the granting of credit

The texts that govern the granting of credit in Cameroon can be classified according to whether they are community texts or national texts. At the community level, there are two major texts: the Convention of 16 October 1990 on the creation of a Banking Commission in Central Africa and the Convention of 17 January 1992 on the harmonisation of banking regulations in the Central African States.

At the national level, we can cite in chronological order

• Order n°85/002 of 31 August 1985 relating to the exercise of credit institutions, amended and completed by law n°88/006 of 15 July 1988 and law n°90/019 of 10 August 1990 on commercial activity in Cameroon;
• Law n° 92/006 of 14 August 1992 relating to cooperatives and common interest groups;
• Decree No. 98/300/PM of 9 September 1998 to lay down the modalities of savings as amended and supplemented by Law No. 2018-022 of 11 December 2018 to regulate loans in banks and Law No. 2019/021 of 24 December 2019 to lay down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon;
• Law No. 2019/021 of 24 December 2019 to lay down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon.

All these texts frame the conditions of obtaining and constraints inherent to the granting of credit in Cameroon.

2. Conditions and constraints for granting credit

The conditions for granting credit in Cameroon differ depending on whether it is a natural person or a legal entity. With regard to natural persons, the law of 24 December 2019 laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon provides in its article 4 (2) that: “Any natural person who applies for a credit must provide the institution with information on his or her financial situation, notably:

• His or her monthly pay slip(s) if he or she is employed, and possibly that of his or her spouse;
• Information on any income from investments (rent or financial income);
• If applicable, copyright, royalties, alimony, disability pensions;
• A declaration of assets;
• The monthly repayments of loans already taken out (property loans, car loans, consumer loans, etc.);
• The amount of his rent, including rental charges if he is a tenant;
• The maintenance charges for the building and the property tax if he/she is an owner;
• The amount of any alimony and other compensatory benefits payable by him;
• Wage garnishments and other deductions resulting from a conviction;
• The existence of revolving loans;
• Various taxes and duties;
• Insurance premiums, including an estimate of those likely to be added if the credit applied for is granted;
• Any other information that may inform the decision of the reporting institution.

With regard to legal persons, section 4 (3) of the law of 24 December 2019 to lay down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon provides that “Any legal person applying for a loan is also required to provide the reporting institution with information on its financial situation”. This includes mainly:

• Balance sheets and income statements for the last two years
• Projected balance sheets and profit and loss accounts for newly created companies;
• Monthly repayments on loans already taken out (property loans, car loans, consumer credit, etc.);
• Information on any income from investments (rent or financial income);
• The amount of her rent, taking into account rental charges if she is a tenant;
• The maintenance costs of the building and the property tax if she is the owner;
• The existence of revolving credits;
• Various taxes and duties;
• Insurance premiums, including an estimate of those likely to be added in the event that the credit requested is granted;
• Any other information that may help the reporting institution to make a decision”.

Paragraph 4 specifies however that: “The list of documents and information listed in paragraphs 2 and 3 above is not exhaustive. The reporting institution may request any other document likely to help it in its decision making”.

Through the analysis of these provisions, it is easy to see the constraints related to the granting of credit in Cameroon. Two constraints in particular can be identified:

The first is related to the plethora of conditions to be fulfilled for the granting of credit. The second relates to the vagueness of certain textual provisions. For example, section 5 of the law of 24 December 2019 laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon remains unclear on the modalities of the obligation of pragmatic offer, advice and information from institutions to clients; hence the need to make useful recommendations to improve the legal framework for granting credit in Cameroon.

3. Useful recommendations for improving the legal framework for granting credit

In order to improve the legal framework for granting credit in Cameroon, it would be wise to proceed with:

• Simplification of the conditions for granting credit in Cameroon: this can be done by harmonising the internal conditions for granting credit of banking and microfinance institutions. This can be done by harmonising the internal conditions for granting credit by banking and microfinance institutions. It can also be done by not using the latitude granted to banking and microfinance institutions to request any other document.
• The modification of the law laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon: a clarification of the modalities of the obligation of pragmatic offer, advice and information of the institutions to the clients will facilitate the interpretation of the law laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon. Furthermore, a distinction between investment credit operations and consumer credit operations in the law laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon will make credit operations easier.

Conclusion

In short, the legal framework for granting credit in Cameroon is dense with legislation. The constraints noted can be eased by simplifying the conditions for granting credit in Cameroon and amending the law laying down certain rules relating to credit activity in the banking and microfinance sectors in Cameroon.