Timor-Leste: Independent Review of the Credit Component of the Community Empowerment Project

This review analyzes experiences with the Community Empowerment Project (CEP) credit component, and draws a number of lessons and general principles. The paper presents the following features of CEP:

• Credit contributed to a revival of rural economic activities, re-establishing markets, stimulating production and marketing of food-stuffs and higher value crops;
• CEP's use of credit to achieve post-conflict reconstruction goals had implications for the revival of financial services.

However, the review states that the promotion of credit was not consistent with the immediate needs of post-crisis reconstruction and caused operational difficulties. It also states that there is a need for a transition from intermediated grants to intermediated credit.

Concluding, the review states that CEP reinforces lessons learnt from microcredit elsewhere, and lists the limitations of microcredit in the immediate post-conflict setting:

• Where decision making is divorced from risk, credit allocation is insufficient;
• Subsidized credit undercuts credit delivered by institutions striving towards sustainability;
• The absence of an assurance of follow-up credit is a disincentive to repayment;
• Failure to recycle credit reduces the multiplier effect of economic activity of a given amount of loan capital;
• Microcredit is not adapted to the needs of seasonal agriculture;
• Credit management groups are organic entities forged by training and sustained by mutual obligation, not arbitrary and administratively-convenient assemblages.