Microfinance Development in Liberia - An Initial Assessment

This report analyzes the microfinance sector in Liberia and makes recommendations for its development. The paper argues that microfinance can be taken up in a post-conflict situation only if the following conditions persist:

• Political stability offering a reasonable degree of security and safety to potential microfinance institutions (MFIs) and their clients;
• Sufficient economic activity that can use credit services;
• Relatively stable client population as it impacts the portfolio and repayment rates.

The paper analyzes the demand of and the supply for microfinance services:

• Supply through formal and informal financial institutions;
• Demand estimated at:
  • Potential active client base of 62,000 households;
  • Total active loan portfolio of LD $685 million (US $13.7 million).

The report identifies the opportunities for the development of microfinance sector that are characterized by:

• High unmet demand;
• Government support to microfinance,;
• Clear focus of operators in sustainability and outreach.

The paper also highlights the constraints which include:

• Lack of liberalized financial system;
• Absence of market leaders in extending credit;
• Limited capacity of operators and infrastructure support.

Finally, the report recommends:

• Policy: Review of policies related to interest rate ceilings and reserve requirements for Liberian dollar and U.S. dollar accounts;
• Programming: Coordination of programs through an investment committee;
• Institutional Arrangements: A microfinance unit established by the Central Bank of Liberia to ensure optimal development of the microfinance sector as an integrated part of the financial sector.