Microfinance in Timor-Leste (East Timor)

Overcoming challenges to financial inclusion
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This document presents a country update by Banking With The Poor Network. It profiles the microfinance sector in Timor-Leste, one of the world’s youngest countries. It traces the emergence of the sector, presents current status and highlights challenges for the future.

When Timor-Leste became an independent nation in 2002, 80% of the country’s infrastructure was damaged or destroyed and there was no functioning access to financial services. As part of the country’s rebuilding efforts, a new financial services industry consisting of commercial banks, MFIs and cooperatives began to emerge from 2000. In 2009, financial access and inclusion had grown to an estimated 13%.

The government has recognized financial inclusion through the National Priority Working Group on Rural Development. The government’s intention to enter the financial services market and serve small and medium enterprises presents an opportunity for alternatives to traditional banking. Future challenges include:

  • Absence of land law, asset registries and enforcement of contract law;
  • Lack of clarity on intermediate savings;
  • Undeveloped wholesale lending and capital and bond markets;
  • Likelihood of demand for deposits outpacing demand for microcredit;
  • Limited financial business support infrastructure.