Paper

Microfinance Development in Liberia - An Initial Assessment

How to develop microfinance in a post-conflict situtation?
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This report analyzes the microfinance sector in Liberia and makes recommendations for its development. The paper argues that microfinance can be taken up in a post-conflict situation only if the following conditions persist:

  • Political stability offering a reasonable degree of security and safety to potential microfinance institutions (MFIs) and their clients;
  • Sufficient economic activity that can use credit services;
  • Relatively stable client population as it impacts the portfolio and repayment rates.

The paper analyzes the demand of and the supply for microfinance services:

  • Supply through formal and informal financial institutions;
  • Demand estimated at:
    • Potential active client base of 62,000 households;
    • Total active loan portfolio of LD $685 million (US $13.7 million).

The report identifies the opportunities for the development of microfinance sector that are characterized by:

  • High unmet demand;
  • Government support to microfinance,;
  • Clear focus of operators in sustainability and outreach.

The paper also highlights the constraints which include:

  • Lack of liberalized financial system;
  • Absence of market leaders in extending credit;
  • Limited capacity of operators and infrastructure support.

Finally, the report recommends:

  • Policy: Review of policies related to interest rate ceilings and reserve requirements for Liberian dollar and U.S. dollar accounts;
  • Programming: Coordination of programs through an investment committee;
  • Institutional Arrangements: A microfinance unit established by the Central Bank of Liberia to ensure optimal development of the microfinance sector as an integrated part of the financial sector.