Microfinance in Vanuatu: Institutions and Policy

This paper provides an introduction to microfinance in Vanuatu.

The paper begins by discussing:

• The three key principles of microfinance: knowing the market, using techniques to lower administrative costs and ensure high repayment rates;
• The developmental benefits of microfinance: poverty reduction, smoothing consumption, managing risks better, and enhancing income earning capacity.

The paper describes the characteristics of:

• Commercial banks in Vanuatu;
• The 'Vanuatu Women's Development Scheme' (VANWODS);
• The credit union movement;
• Demand for microfinance in Vanuatu:
  • Unmet demand from the 'poorest of the rich',
  • High demand for voluntary savings products,
  • Demand for credit for income generating activities in larger centers,
  • Demand for low cost models that emphasize savings mobilization and loans for provident purposes.

It states that microfinance in Vanuatu would find it difficult to attain sustainability and financial self-sufficiency and lists the following key policy issues facing donors and the government:

• Selection of appropriate centers for the establishment of microfinance programs;
• Resources needed for the establishment and sustainability of these programs.

The paper concludes with the following recommendations for a bright future for microfinance in Vanuatu:

• Getting support from the government and donor agencies;
• Taking into account the nature of the local economy;
• Following microfinance best practice principles.