UNCDF Experience in West Africa Highlighted as Best Practice in Building Inclusive Financial Sectors in Post-Conflict Countries

USAID Report focuses on Liberia and Sierra Leone

10 October 2006: Two UNCDF programmes in West Africa have been highlighted in a new study from the US Agency for International Development (USAID) that focuses on developing microfinance in post-conflict countries. The study looks at UNCDF programmes in Liberia and Sierra Leone for valuable lessons in developing financial sectors that meet the needs of the poor in countries torn apart by war and civil conflict.

The report recognizes that in the past, many donors in this sector have waited for peace to be consolidated before investing in microfinance. They also have sequenced activities, beginning with micro-level investments in a few promising retail Microfinance Institutions (MFIs) before broadening efforts to macro-level engagement with the government and developing networks and performance standards at meso levels. According to USAID, this sequenced approach may not be the best for the development of a truly sustainable and effective inclusive financial sector that has the ability to provide services to a broad range of clients in a post-conflict scenario, thereby giving them opportunities to rebuild their lives, reduce poverty and improve livelihoods.

Waiting for the “right” time is rarely a good approach, as nature abhors a vacuum. As stated in the report, when funders wait too long to begin supporting microfinance and then focus solely on MFI building, less experienced government and relief actors often introduce and implement poorly performing programmes that are unsustainable, sow confusion among clients, and waste valuable resources.

While it is still premature to declare that Sierra Leone and Liberia have developed successful microfinance sectors, early results indicate that both countries are moving in the right direction. Among the lessons the report highlights is the need for earlier and broader strategies that address policy, supportive infrastructure and retail capacity constraints, combined with appropriate funding for MFIs, stakeholder collaboration, and microfinance practitioner involvement. This approach, according to the report, can contribute to improved quality and accelerated outreach of microfinance. Lessons such as those coming out of Liberia and Sierra Leone suggest that a broader approach to sustainable microfinance development are helping to move countries devastated by conflict one step further along the road to economic recovery.

The full report, Early and Broad Sectoral Interventions for Rapid Microfinance Development: Evidence from West Africa, is available on the USAID MicroLINKS website.