The Government of Liberia through the Ministry of Finance and Development Planning (MFDP) last Friday, August 25, signed a US$4.8 million participating agreement (PA) and approval of withdrawal request for the micro, small and medium enterprises (MSMEs) through the World Bank rural finance post Ebola reconstruction project with GN Bank and BRAC Liberia, among others.
The partnership is expected to alleviate the huge financing gap faced by Liberia’s MSMEs through the World Bank Group grant and is intended to make funding available to MSMEs on sustainable terms, and to strengthen the capacity of Liberias private sector financial institutions and banks to lend profitably to MSMEs.
The Ebola crisis in the country exacerbated challenges in the MSME sector. Some of the challenges faced by Liberian small businesses, especially lack of financing, are common among many African countries.
However, the Ebola epidemic, which ravaged the economies of Liberia, Guinea and Sierra Leone, has further worsened the financing challenges. There are about 10,000 registered SMEs in Liberia many of which operate informally. And with lack of access to finance, the prospects of growth and expansion as well as opportunities for job creation are limited.
Finance Minister Boima Kamara, who signed on behalf of the Government, said the initiative will provide 500 new loans to MSMEs which will create or sustain at least 2,000 jobs; limit non-performing loans to below 10 percent; and lead innovations in the use of mobile money.
“Today’s signing is the culmination of months of efforts by MFDP, the Central Bank of Liberia, and the World Bank to conduct due diligence and lay the foundations for strong grant management,” he noted.
Minister Kamara said at first MFDP, the CBL, and World Bank assessed the capacity of each participating institution to ensure they are ready to administer the MSME Rural Finance project.
“All participating financial institutions have been found to meet stringent eligibility criteria and will be held to these standards throughout the program’s lifetime; we even expect them to strengthen their controls and performance through this program,” said Minister Kamara
According to him, the business operations of every recipient shall be conducted with due diligence and must meet sound administrative, financial, and agricultural and rural development practices.
“To ensure the highest standard of controls, he said, the funds under the project will be ring-fenced. Sub-credits will be separate and distinct from the rest of their credit portfolios. Participating institutions will be responsible for conducting due diligence on sub-credit recipients and monitoring the portfolios’ health.
“This initiative is truly important because, particularly in a market like Liberia, inclusive economic development is about more than simply access to credit. To spur growth and real job creation, lending must also be about targeting financing solutions to the needs of MSME businesses for example, loan terms and duration, particularly in agriculture and helping them grow,” he said.
The Finance boss said MSMEs are drivers of economic activity and innovation in Liberia’s economy: they are collectively the largest employers we have, outside of government. Access to financial service can boost job creation, raise income, reduce vulnerabilities and increase human capital investments. Despite their undeniable importance, World Bank data suggests that MSMEs are less likely to have access to capital instead; MSMEs often rely on informal capital sources. 41% of MSMEs report access to finance as a major constraint to their growth and development in Least Develop Countries (LDCs).
He stressed the needs for targeted, affordable financing for MSMEs, particularly in agriculture, is vividly evident in Liberia, noting that the Liberian economy has long been driven by major concessions, in rubber and iron ore; today, the Government is shifting its focus to economic diversification, particularly through agriculture, agro-processing and manufacturing. But this transformative shift can only happen if trade financing is unlocked.
He revealed that the MSMEs represent the bulk of employment opportunities in the country, responsible for about 80% of income generations, and will lead domestic and regional transformation.
“One aspect of this project to highlight here is that it also includes a component to strengthen Liberia’s local private sector and banks. This cannot be overstated: the development of Liberia’s financial sector is [an absolute] imperative for the diversification of the economy. The financial sector is an engine for growth and a key ingredient to social protection.
“I would like to reemphasize Government’s commitment to this initiative, and to supporting financial sector reform and development more broadly. Liberia needs a fully functioning, developed, and stable financial sector to economically prosper,” he said.
He told partners at the signing ceremony that the government remains committed to working to ensure that citizens and businesses have access to financial services to meet their income generating and household needs.
Minister Kamara: “I am optimistic that, with the partnership of the World Bank and Central Bank, this new financial inclusion project will help steer Liberia’s financial sector development in the right direction, and more importantly, stimulate economic growth and development for Liberians.”
Earlier, in remarks the deputy managing director for Operations at GN Bank, Kweku Bio, lauded the government and the World Bank for such partnerships that will help solve some of financial problems that Liberians are going through to make business.
Mr. Bio urged those who will be applying for the loan should pay back so that others can benefit from the same opportunity.
Also, Tapan Kumar Karmaker, managing director of BRAC Liberia, reiterated calls that the money is intended to provide loan for small business people and as such, participants should be able to pay back.