Financial Services Sector Assessment in Timor-Leste and Seminar/Workshop on "The Millennium Development Goals and The Eradication of Poverty - The Role of Microfinance in Timor-Leste"

This paper examines the development of the financial sector in Timor-Leste since its independence in 2002. It also provides suggestions for further development of the financial and microfinance sector.

The paper states that:

• There is an estimated microfinance market of 58,575 households, of which 46, 860 reside in rural areas;
• Of the main financial suppliers, the MFIs and NGOs have succeeded in reaching the very poor;
• Range of services on offer is well developed and varied for the young industry and the small market.

The supply of credit for agricultural production and equipment is the least developed product line. To fill this gap free, in-kind, input supply has been channeled into the market through donor projects. Significant progress has been accomplished:

• In terms of growth, performance improvements and outreach to the poor;
• With the establishment of Association of Microfinance Institutions in Timor-Leste (AMFITIL) as a platform for increased coordination, information sharing and visibility of the microfinance industry.

There is ample scope for improvement and expansion:

• Access to financial services can contribute most effectively to poverty reduction when provided alongside basic social services and efforts to develop local markets;
• There are opportunities to increase linkage banking and coordination with the financial services sector to improve outreach to poor house holds and micro and small entrepreneurs (MSE), especially in the rural areas;
• AMFITIL needs to be formalized.

The paper concludes that promotion and adherence to a market driven approach would facilitate the ability of the self-employed to generate income and curb the level of distortion caused by subsidies and supply led interventions.