Timor-Leste Access to Finance for Investment and Working Capital

The regulatory environment governing microfinance & recommendations for its improvement
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This study reviews the policy and regulatory environment for microfinance and other financial services in Timor Leste, and makes recommendations for increasing the range and capacity of financial institutions serving the poor and low-income people.

The study argues that:

  • There is a need for a policy environment that supports both urban informal sector dynamism and rapid transition from subsistence to monetization in agriculture;
  • Such policies must include measures facilitating access to financial services for households, which are the backbone of the informal and subsistence economies.

The study presents the following picture of the economy of Timor Leste:

  • It has a farm sector wherein as many as 80% of workers are dependent on subsistence production;
  • It has a non-farm sector in which micro- and small enterprises are an overwhelming majority;
  • Most urban enterprises operate in an informal environment, while in both the farm and non-farm sectors the household is the basic unit of economic activity.

The study finds that:

  • Access to microfinance services is a central issue;
  • There is a need for a more dynamic informal sector;
  • The formal financial system is limited;
  • There is a lack of human resources in the financial sector;
  • Deficiencies exist in the legal and regulatory environment for financial services.

The paper concludes with recommendations for the banking sector, the microfinance sector and the legal and regulatory environment.