Microfinance Sector Development in Sierra Leone - An Assessment

This paper analyzes the microfinance sector in Sierra Leone and makes recommendations for its development. The paper reviews the nature and activities of financial services providers in Sierra Leone. These include:

• Commercial banks: They provide mostly basic financial services such as credit, deposit accounts, transfer services and currency exchange services;
• Development banks: Two Development Banks and both are engaged in microfinance;
• Community banks: Communities contribute the paid-up capital required for a license;
• Informal Sector consisting of rotating savings and credit associations (ROSCAs) and money lenders.

The paper identifies the following opportunities:

• The potential demand is high in Sierra Leone, most of this demand is unmet;
• The government is supportive of the development of a sustainable microfinance as an integral part of the financial system;
• The present laws and regulations allow a microfinance sector to develop;

The mission also observes the following constraints:

• Absence of leaders who could demonstrate that microfinance is commercially viable;
• Insufficient funding to build a sustainable microfinance sector;
• Limited capacity of operators.

The paper concludes that, at present the microfinance sector in Sierra Leone is at a nascent stage and only serves a fraction of the existing demand. It recommends that donors should make funding available to potentially viable microfinance institutions and microfinance banking units for capacity building, capitalization and expansion.