Credit shallow regimes face higher governance premia

COBAC’s decision to place Cameroon’s NOFIA under provisional administration illustrates acute structural weaknesses within the CEMAC financial ecosystem rather than an isolated microfinance failure. Real GDP growth in Cameroon is projected at 3.8% in 2025, with headline consumer inflation estimated at 3.7% for the year. Domestic credit to the private sector in Cameroon remains constrained: claims on the private sector were approximately 15.7% of GDP in 2024, notably below the Sub-Saharan Africa benchmark of around 30%. In such a low-intermediation environment, a funding shock within a mid-tier microfinance institution can propagate quickly through depositor behaviour, with limited buffer capacity.

On the regional front, the CEMAC area’s public-debt ratio was approximately 52.6% of GDP in 2024, and reserve coverage hovered near four months of imports—a level flagged as vulnerable. These indicators underscore limited fiscal space across the bloc and constrain the scope for full deposit guarantees or rapid recapitalisation.

With the regional policy rate set at 4.5% since March 2025, the effectiveness of monetary easing is hampered if financial institutions cannot access refinancing or renegotiate funding costs. Consequently, the supervisory intervention by COBAC signals a transition from forbearance to pre-emptive containment; this strengthens the regulatory signal but simultaneously compresses near-term credit growth, especially within the microfinance segment.

Microfinance intermediates cash flows for traders, smallholders and informal sector actors in Cameroon—segments largely excluded from commercial banks. A precaution-driven withdrawal from NOFIA may induce credit contraction even with a stable policy rate: if microloan disbursements fall by 5% in 2026, the drag on economic growth could reach 0.2 percentage points. While remittances equivalent to about 0.8% of GDP in 2020 suggest external household liquidity buffers, a shift toward informal or cash-based systems would reduce transparency and weaken formal intermediation. The interest-rate channel, credit-quantity channel and expectation channel all interlink decisively here: lower refinancing costs may not translate into higher lending if institutions face liquidity mismatches or deposit outflows, and depositor concerns can amplify the effects via a velocity reduction.

In the fixed-income markets, CEMAC sovereign curves are responding to heightened governance risk. Without transparent resolution frameworks, investors embed a governance premium, widening spreads and steepening yield curves. International comparators reinforce this dynamic: Kenya and Nigeria, with deeper capital markets and listed microfinance banks under market discipline, cleared vulnerabilities more rapidly, reducing credit cost disparities. In CEMAC’s hybrid structure—centralised instruction via BEAC, regional political overlay, and weak capital-market depth—supervisory responses can limit contagion but extend uncertainty. The result: steeper curves and reduced willingness to finance micro-finance-oriented lenders.

From a global-flow perspective, the development carries relevance for frontier-market portfolios and sovereign-credit risk assessments. As global interest rates remain elevated and capital flows pivot toward higher-yielding markets, the governance premium in CEMAC may widen further unless resolution credibility improves. Commodities remain an exogenous driver: if oil prices slip—posing risk to CEMAC hydrocarbon-dependent states—external financing and reserves may tighten, reinforcing domestic funding stress.

The forward test must be measurable and precisely time-bound. By Q2 2026, success should manifest through: non-performing loan ratios in the microfinance/MFI segment declining toward 10% or lower; annual MFI deposit growth recovering to 5–7% without elevated volatility; BEAC liquidity-window uptake stabilising below 2 % of system assets; and 3- to 5-year CEMAC sovereign yields falling back toward early-2024 averages (for example, a decline of 50 basis points). Failure in any of these indicators would signal that resolution credibility remains weak and that shallow credit intermediation continues to impair monetary and fiscal transmission mechanisms.

The structural signal is clear: CEMAC’s policy regime is evolving from passivity to active surveillance, elevating governance as a determinant of investment risk. For global institutional investors the calculus shifts: policy credibility must now be judged alongside macro fundamentals, and frontier allocations should differentiate not only by growth prospects but also by supervisory-regime strength and resolution architecture.

The NOFIA case is thus a critical marker: unless microfinance institutions are recapitalised or resolved efficiently, the shallow-credit trap may deepen, constraining growth, inclusion and the monetisation of low-income segments across Central Africa.