Credit Access in Chad
Located in Central Africa, Chad is a landlocked country with a population of approximately 12 million people. While the national poverty fell from 54.8% in 2002 to 46.7% in 2011, Chad remains 186th out of 188 countries on the United Nations Human Development Index. Credit access in Chad stands out as one of the leading impediments to economic growth.

Financial Institutions in Chad

Chad’s financial depth is among the lowest in Africa. According to the World Bank’s Global Financial Development Database (GFDD, 2016), financial system deposits of commercial banks and other financial institutions made up 6.8% of GDP in 2014 in Chad, three times lower than the sub-Saharan African median of 24.6%, and the lowest in the sub-region that year.

Likewise, the ratios of private credit to GDP and deposit money banks’ assets to GDP were less than a half of the median in sub-Saharan Africa in 2014, coming at 6.6% and 8.1% respectively.

The role credit has in the growth of developing countries’ economies cannot be overstated. Increased credit access in Chad is essential for allowing farmers, businesses, and consumers across Chad to utilize investment capital and thus help expand economic activity.

Credit Access in Chad

There has been a marked decline in financial and credit access in Chad between 2011 and 2014, according to Global Findex Data. During that period, the proportion of adults with an account at a bank declined from 9% to 7.7%. In comparison, the average proportion of adults with an account at a financial institution in sub-Saharan Africa increased from 23.9% to 28.9%.

Borrowings and savings in Chad experienced a similar trend. Between 2011 and 2014, the number of adults who borrowed money from a bank declined from 6.2% to 2.4%, while the proportion of those who saved declined from 6.8% to 4.6%.

In order for people living in Chad to grow businesses, buy homes or purchase goods, the imperative is that they have access to financial institutions so that they can borrow and save money from those institutions. Credit is essential for building capital and achieving economic growth.

Progress is Being Made

While these statistics might suggest a rather grim financial situation, there is some progress that indicates an improvement of credit access in Chad for its citizens. IMF Financial Access Survey Data report from 2015 notes an increase in ATMs from 30 in 2011 to 64 in 2014. Borrowers at commercial banks have increased from 2.8 to 8.8 per 1000 adults. While these gains are modest and fall short of the sub-Saharan Africa average, they present a glimpse of hope for a country plagued by inaccessible credit and financial institutions.

As mobile banking proliferates throughout Chad’s financial sector, it offers increased access to credit. A Luxembourg based telecommunication firm, Tigo, and Airtel Money, an Indian telecommunications firm have helped facilitate the transition to mobile banking in Chad. They offer services that allow users to pay bills, conduct money transfers, and make everyday purchases. As of 2013, there are 50,000 Tigo Cash users and 53,000 Airtel Money users in Chad.

In addition, a recent U.N. initiative, the Chad Local Development and Inclusive Finance Program, works to promote access to financial institutions and foster sustainable development. The program aims to create 20 multifunctional centers for financial services and 20,000 micro-enterprises. These enterprises will help create jobs for at least 500,000 households.

While Chad’s financial woes are far from over, the proliferation of mobile banking and microfinance across the country have allowed more people to gain access to credit.

– McAfee Sheehan
Photo: Flickr

Credit Access In Samoa
In the past few years, Samoa has seen the emergence of a new banking system with a focus on credit access. This comes after years of financial hardship and a shrinking economy. According to a 2016 report, no new loans had been issued in Samoa in roughly five years. Major financial cornerstones like the Bank of Hawaii had backed out of the country.  In desperation, and on the margins of the mainstream economy, Samoa adopted a public banking system.

The Landscape of Samoa’s Credit Sector

The financial services sector in Samoa encompasses a wide range but is mostly limited to urban areas. The industry has four major commercial banks: two foreign banks and two regional banks. However, the domestic credit market is controlled by Public Financial Institutions. Samoa National Provident Fund holds 22.6 percent of the market; another key player, The Development Bank of Samoa, holds a 10.3 percent share. Much of the success of credit access in Samoa can be attributed to the Central Bank of Samoa. It acts as a regulator and has enforced progressive strategies that have expanded financial services and inclusion.

However, 49 percent of Samoans are outside of the formal financial market. Public constraint has often been attributed to a cash-heavy informal economic sector and inadequate access to distribution points throughout Samoa. The World Bank and The International Finance Corporation have identified Samoa as a struggling credit environment, but policy improvements seek to target these issues.

Somoa’s First Credit Bureau

In 2015, Samoa launched its first Credit Bureau financed by The International Finance Corporation. Its intention was to bring efficiency and transparency to the money-lending market. This was a milestone for Samoa’s financial system, which was historically reliant on cash. It helped many different parties by providing confidence to lenders as borrowers built up their credit profiles. The Credit Bureau was fundamental in establishing a credit infrastructure in Samoa. Backed by the Data Bureau and the largest financial firms in Samoa, technological advancements such as cloud storage and information sharing among banks allowed credit footings to grow. The new technologies meant that lenders could deliver financial services at significantly lower costs to expand credit access to broader segments of the economy.

Expanded Credit Access

Domestic credit to businesses has grown by roughly 60 percent since the mid-1980s. The Strategy For The Development of Samoa, intended for the years 2016 to 2019, outlined plans to increase inclusivity to vulnerable groups and help end all poverty in the region.

Supported by the public domestic credit market, economic resilience accompanies private sector investment and development initiatives to expand credit access. Agriculture and fisheries are especially important to Samoa’s rural economic growth and development. The Development Bank of Samoa finances agriculture through the Agricultural Competitiveness Enhancement Program and Agribusiness Development Program. The Agribusiness Programs, Development Bank and Business Enterprise Center provide increased technical and financial support services for small business development.

Positive Results

Samoa has already left the list of the most undeveloped countries and is on its way to sustainable economic growth. With the continued implementation of credit and financial services aimed at the most vulnerable populations, Samoa has seen growth in per capita GDP of roughly $6,000 USD in 2017, up nearly $500 USD since 2015. 

While extreme poverty does not afflict the region, 20 percent of the Somoa’s population lives under the poverty line and struggles to obtain secure employment. The majority of this population lives in rural areas, lacking access to the resources available in urban areas. With the addition of these financial services aimed at reaching underserved communities and the larger rural economy, many industries are growing and the country is opening new doors for its people. As credit access in Samoa continues to spread, the economy and individual prosperity will also blossom.

– Joseph Ventura
Photo: Flickr

Paraguay
The global indicator “Doing Business” ranks credit access in Paraguay at a not-too-shabby 122 out of 189 countries. The Western Hemisphere Credit and Loan Reporting Initiative stated that Paraguay‘s economy was ‘improving;’ still, the government’s 2014-2018 initiative, National Financial Inclusion Strategy (ENIF), identified two major issues it wishes to mitigate. Namely, it indicated that micro, small and medium enterprises (MSMEs) needed better access to approved loans and that 17 percent of the population had no access to a bank.

What is the ENIF?

The Paraguayan government — working alongside the World Bank and the FIRST Trust Fund Initiative — created the National Financial Inclusion Strategy (ENIF) as part of Paraguay’s National Development Plan. The main goal of this initiative is reducing poverty and promoting economic growth.

The strategy intends to achieve this goal by creating better credit access in Paraguay, as well as access to other financial services for the entire population. The project’s vision explains it best: “Quality and affordable financial services for all people in Paraguay who want them through a diverse and competitive marketplace.”

In order to achieve this vision, the initiative analyzes the issues with Paraguay‘s current state of financial inclusiveness by comparing the objectives to the gap of the “current financial profile versus the financial needs of the five primary income groups.”

It then creates a strategy for closing this gap by identifying the end goals — the ‘key performance indicators (KPI)’ — and a list of tasks to help achieve this goal. Working groups under each KPI then focus on completing these tasks.

Bank Access

About 69 of the 224 districts in Paraguay with more than 2000 inhabitants (17 percent of the population) have no access to banks, bank agents or ATMs because financial services simply cannot survive in an area with such a tiny client base.

This makes access to financial services for the population living in these rural areas very difficult, if not impossible, to obtain. For the two-thirds of this population that live in extreme poverty, this can also prove quite dangerous. Without access to credit, savings, or even government subsidies they can run out of money to buy food and are ill-equipped to handle an economic shock such as an illness or a death.

The ENIF proposes increasing the use of mobile phones and the coverage of mobile networks in the 69 “financially excluded” districts (with an emphasis on the 17 vulnerable districts) to provide those in need with access to money through mobile financial services.

By coordinating with the working groups in other KPIs, ENIF also wishes to provide such populations with access to financial services such as credit, insurance and savings. Along with this, the working group plans to create financial literacy courses and to design products and initiatives that encourage these vulnerable populations to save their money.

Loan Access for MSMEs

While 64 percent of 1.1 million MSMEs wish to have access to a loan, only 35 percent of MSMEs have had the ability to borrow in order to fund their operations. One-fifth of these firms reported not even applying for loans because they anticipated outright rejection.

To the ENIF, this indicates issues with business credit access in Paraguay and a need to improve the loan system. Improving such access will not only help businesses gain more capital for the country, but it will also improve job growth and increase access to opportunity for those in need.

The ENIF believes that credit risk systems of Paraguay’s main bank, Banco Central de Paraguay (BCP), and the collective savings and credit cooperative institution Instituto Nacional de Cooperativismo (INCOOP) should communicate with each other in order to create a collective credit information system. This partnership would allow for better monitoring of indebtedness and to ensure responsible credit is given.

ENIF’s Efforts

Along with this, the ENIF will also help in the creation of other regulatory measures such as:

  • Speeding up the provisioning of micro-credit loans
  • Establishing accuracy, timeliness, disclosure and recourse standards for all institutions
  • Exploring the possibility of implementing factoring and leasing products on the market
  • Monitoring, coordinating and implementing the progress of these KPIs through the Executive Secretary and Financial Inclusion Team. Each working group will send annual reports to the Executive Secretary and a measurement and evaluation system will track their progress
  • Issuing a survey every two years to compare the rates at the individual level to those in 2013

Room to Improve

Hopefully, with a great coordinated effort, the ENIF will see the data of financial inclusion improve and with it, will also see a greater reduction in the number of citizens in poverty. Even with the economy resting at a decent place, a good government knows that its country always has room to improve.

– Elizabeth Frerking
Photo: Flickr

Biggest Issues in the World
The world has several issues, but luckily it also has organizations and individuals ready to combat them every step of the way. The following are a list of the 10 biggest issues in the world we face today.

The 10 Biggest Issues in the World

  1. Poverty. More than 70 percent of the people in the world own less than $10,000 — or roughly 3 percent of total wealth in the world. Geographically, the story is similar. A lack of global emphasis on foreign aid, conflict and political factors have kept poverty as a driving factor. In the last two decades, however, things have started to improve. The “middle class” has doubled in size from seven to thirteen percent.
  2. Religious Conflict & War. Political conflict has drastically increased over the years. Terrorism and the rise of religiously-motivated insurgent groups have forced the hand of several governments. As a result, defense spending around the world has risen steadily since 1995 to $1.7 trillion. While terrorism may be on the rise, the good news is that diplomacy and peace efforts have decreased the number of civil wars and intra-state conflicts around the world from 16 per 100,000 to about 1 per 100,000.
  3. Political Polarization. Political polarization has skyrocketed with the rise of social movements across the world. States have experienced internal strife from events such as BREXIT or the U.S. election of President Donald Trump. PEW claims that the U.S., specifically, has become more polarized than ever. Since 2004, the U.S. has reportedly seen a rise in political partisanship. Bi-partisan groups and organizations, such as the Bipartisan Policy Center, have been actively working to promote a more collaborative political arena.
  4. Government Accountability. Throughout the world, political scandals have led to a distrust of government. Specifically, in the U.S., reports say only a third of Americans trust the government to “do what is right.” Advancements in tech and China’s new surveillance policy do not help. Skepticism on such issues has led to a rise in social movements which have been key in influencing policy.
  5. Education. While education has significantly improved in the last century, there still remains a lot of work to be done. Inequality between genders in specific parts of the world has emerged as a large part of the question. The Malala Fund reports 130 million girls across the world lack proper access to schooling and actively addresses this issue through advocacy.
  6. Food and Water. Currently, 1 in 9 people lack access to clean water across the world and the same ratio are malnourished. The emergence of new technology in agriculture and increased awareness, however, has improved conditions. Several organizations, such as the World Health Organization (WHO), are addressing the issue on the ground and through political influence.
  7. Health in Developing Nations. Statistics has widely shown that aside from malnourishment, access to clean and affordable living conditions has lagged in the developed world. Life expectancy in developing nations is on average 14 years behind developed nations’. Overall health, however, has increased over the years, thanks to organizations such as WHO.
  8. Credit Access. One of the driving factors in continued poverty is the lack of access to credit. Without stable financial services, it becomes difficult for developing nations to grow at a sustained rate economically. Studies show that access to credit can improve economic prospects.
  9. Discrimination. Discrimination covers a wide breadth of issues and takes several forms. Recently, in light of new social movements, it has garnered more attention. Wage gap issues, income inequality, education wage premiums and other problems have appeared at the forefront of social movements. These movements have shown promise for change – the #MeToo movement has brought several employers to justice.
  10. Physical fitness. Obesity has become a global issue. The lack of physical fitness programs and extra-curriculars have created significant issues that could affect future health. Recently, the number has exceeded 39 percent of individuals around the world being overweight and 13 percent being obese. Efforts by the government and even media have started to turn the tide. Professional organizations such as the NFL have implemented Play60 programs to emphasize nutrition and fitness from a young age.

Imminent Progress 

The biggest issues in the world are critical, but not insurmountable. Many have seen concrete progress over the past few decades, and all of them have the attention of different groups and organizations working to improve them.

Continued awareness and effort can ensure these issues have a smaller impact on the world in the future.

– Mrinal Singh
Photo: Flickr

 

Credit Access in Croatia

Croatia, a quaint European country tucked away in the Adriatic Sea, appears to thrive in the Mediterranean. Tourists flock to its squares, and its people show an optimism and cheery spirit. Economically, however, the country has struggled in the past due to external political factors that have had an impact on several parts of Europe throughout the 20thcentury.

The Croatian Economy

Croatia’s problems started long before it became an independent state. Prior to 1991, Croatia had been a part of Yugoslavia. Its communist-based planned economy was successful at first, but it quickly fell apart due to mismanagement and human error. After the planned economy and communist movement fell apart, Croatia experienced high episodes of hyperinflation and inequality. In the past two decades, however, the situation has gotten better.

Croatia has improved significantly from its earlier days of economic turmoil. Despite having a growing economy, the state struggles with the issue of credit access, especially for small businesses. Recently, this can be attributed in part to the 2010 European financial crisis that had an impact on smaller countries on the continent. Challenging market conditions had made it so that receiving credit was harder than usual. In 2008, only 42 percent of Croatians had access to financial services. Since then, Croatia’s economy has stabilized, but the issue of credit access still remains.

Credit in Croatia

The issue is significant. The term ‘credit access’ encompasses a wide variety of financial institutions not limited to strict agencies providing services. Underdeveloped ATMs and local banks create a roadblock to future growth. In order for progress to be made, there have to be several changes made in the infrastructure to unlock the potential in Croatia’s economy.

Legally, there are several hurdles that make changing credit access in Croatia an issue. First, there is the need to alter the legacy banks and institutions in the area. Historically, Croatia has not had a strong financial history, and a large part of its population has grown accustomed to the lack of resources.

In one report, the authors claimed only 14 percent of Croatians were being properly served by the nation’s financial markets. In order to improve this number, there needs to be an institutional change that starts at the legal level.

Currently, around 30 percent of individuals have stated that they had issues with making ends meet. This comes in the context of job insecurity with 29 percent of workers fearing they could lose their jobs in the next six months. The lack of credit access has compounded this worry since these individuals already find their financial situations to be unstable.

Solutions for Improving Credit in Croatia

In other nations, improving credit access has had tremendous success for the economy. Around the world, it has shown to decrease child labor and diversify assets for the poor. Studies have also linked improving credit access to positive agricultural growth. These improvements, undoubtedly positive in nature, have been accomplished at the small price of involving other nations in national affairs.

Similarly, to instigate change through credit access in Croatia, the state has to look to allied nations in Europe as models. Croatia’s membership in the EU may serve it well. Calling upon partnered countries to aid in this specific problem could actually strengthen The EU as a whole. Helping out with the credit issue in Croatia could lead to more benefits than expected with neighboring countries being able to benefit from a more stable trade partner. With an underserved population, there are also business opportunities for several nations to cash in on.

A Brighter Future

Recently, efforts have been made to improve credit access and the Croatian economy in general. To attract investors, the state has repeatedly made tax payments easier for companies. In 2012, Croatia created a private credit bureau to “collect and distribute information on firms” to improve the system and stimulate credit access. These changes have the potential to spur the economy in Croatia in the coming years.

The movement to focus on the economic situation in Croatia has significant implications. Not only could credit access improve but it could also help stimulate regional economic growth and increase jobs. New financial institutions would improve banks and create positions of skilled labor that could attract immigration as well. Improving the financial stature of Croatia could improve its economy in more ways than one.

– Mrinal Singh
Photo: Flickr

Credit access in the Marshall Islands
The Marshall Islands are not a dominant country in the international sphere. Home to only 70,000 people and largely separated as tiny islands that string across the Pacific, the Marshall Islands, and with them their people and businesses, are disconnected from much of the world. Although they lack economic significance in most regards, the Marshall Islands are valuable assets that should be protected and considered when discussing credit access and other business-related activities.

Credit Access Relating to Natural Disasters

Credit access in the Marshall Islands, while small when compared to more developed countries, is an important aspect when considering the looming threat of climate change and the impacts it may have on business development and activity. According to many reports regarding the financial aspects of the Marshall Islands, related relief related to natural disasters is a large component of the credit conversation in the country.

One of the main issues with credit access in the Marshall Islands, whether relating to natural disasters or not, is the limited amount of individuals who are able to oversee and initiate credit activity. As the Pacific Catastrophe Risk Assessment and Financing Initiative reports, “authority lies with a few key individuals who are also responsible for many other portfolios of work.” Already constrained by their regular duties, these authority figures are further stretched when natural disasters take place and require immediate attention. The impact of climate change is growing in this area of the world with rising sea levels, acidification of crops and infrastructural damage, and credit access in the Marshall Islands seems to be entering a time of greater complexity, with few people able to navigate the system.

U.S. Foreign Aid

The Marshall Islands are currently receiving significant levels of aid from the United States. Since 1986, the U.S. has committed roughly $46 million per year to the Marshall Islands, focusing on boosting economic standing within the country. While international aid is a positive aspect as a whole, the fact that a significant portion of the economy and its associated activity rely on outside help is a point of concern, especially because the U.S.-Marshall Island aid agreement is ending in 2023. Foreign aid fluctuations or, in the extreme case, suspension of all aid, could result in disaster for the Marshall Islands and their people.

The Marshallese face not only the prospect of being unable to create and establish new business ventures with a lack of adequate credit, but the possibility that credit already in place could be severely undercut. Credit access in the Marshall Islands is already limited, and international aid is essentially the only aspect keeping the nation afloat.

Difficulties With Microcredit

Microcredit activity is another financial aspect being considered in the Marshall Islands; however, complexities with this activity are also concerning. As the Enterprise Research Institute (ERI) explains, microcredit activity requires “substantial expertise” and diligent follow up, which often prove costly. The ERI finds another issue with microcredit initiatives in the fact that, “usury laws impose a ceiling on lending charges at an effective nominal interest rate of 24 percent per year. This amount is below the minimum sustainable level of successful microcredit institutions in other countries.”

Individual Credit Access

When taking a closer look at individual access to credit, the situation is not much better. While legal rights are widely acknowledged throughout the country, the depth of credit information is severely lacking; the Marshall Islands scored a 0 out of 8 in the category for depth in credit information index. Not only is credit access misunderstood throughout the country, but basic information regarding this area of concern is either limited or held from view. Additionally, the Marshall Islands placed 90 out of 190 countries in the category of “getting credit.” While not at the bottom of the list, there is still substantial room for improvement.

While the Marshall Islands are home to a small population and an economy that predominantly relies on agricultural activity, access to credit remains an important aspect within their economy, especially when considering the looming impacts of climate change on economic activity. Not only is Marshallese credit access reliant on foreign aid from countries like the United States, but it is becoming increasingly tied to the topic of disaster relief. Credit information is limited nationwide, microcredit activity is seemingly non-applicable and authority figures who can properly handle the allotment of credit are already few and far between. As of now, credit access in the Marshall Islands resembles the physical layout of the country: underdeveloped, propped up by international aid and under the constant threat of natural disasters.

– Ryan Montbleau
Photo: Flickr


Credit access in Zambia is limited with only 38 percent of adults having some level of formal financial inclusion. While this number represents progress — as that percentage used to be a mere 23 percent — it also indicates that there is still room for development in the private and financial sector of Zambia.

The Financial Sector Deepening Zambia (FSDZ) is making a substantial effort to increase the availability of financial services and credit access to individuals in Zambia. By working with financial service providers, policymakers and civil society, FSDZ is creating an environment of greater financial inclusion in Zambia.

The Root of the Lack of Credit Access

One of the largest economic drivers in Zambia and several other developing countries are Small and Medium Enterprises (SMEs). SMEs are pivotal to increasing the economy, as they often provide opportunities for low-income people and contribute to Zambia’s GDP by creating growth opportunities. In Zambia, the SME sector comprises approximately 97 percent of all businesses.

However, a majority of SMEs in Zambia face obstacles when attempting to gain support from Financial Service Providers like banks and microfinance institutions to grow their portfolios. According to a business survey conducted in Zambia, a majority of SMEs do not belong to a formal business association or network. Due to this, business owners and farm owners often can only rely on their limited network of friends and family for business, which is not a sustainable growth model.

Conversely, financial institutions emphasize that SME owners often do not have the capacity to prepare bankable business proposals, which was a large constraint to accessing finance. Better relationships between Financial Service Providers and owners of SMEs may create a path of greater understanding and thereby greater financial inclusion.

Long-Term Effects of Enhancing Zambia SMEs Access to Finance

Improving credit access in Zambia and addressing its financial inclusion strategy is key to not only increasing formal financial inclusion but also to growing and developing Zambia’s ever-changing economy. Increasing financial literacy among small and medium enterprise business owners will allow them advocate for themselves among financial institutions. Organizations like International Trade Centre (ITC) work to do just that, facilitating access to financial supply for SMEs with high growth potential.

So far, ITC has provided 105 growth-oriented small or medium enterprises with business development training and individual counseling that improves business management. All of the SMEs that underwent training developed growth strategies that helped them increase sales, invest in new technologies and hire more staff. Through the timeframe of the project, 50 percent of the SMEs that received support and training were able to access formal finance.

The Ripple Effect

Increasing financial inclusion in Zambia will have a ripple effect: if Financial Service Providers provide access to services to owners of SMEs, then SMEs will have more room for growth. If SMEs grow their businesses, then there will be more opportunities for employment, especially for the country’s poor, thereby decreasing poverty rates.

There is still much that needs to be done for Zambia to become more stable as an economy. However, if business owners receive more access to formal financial institutions, then credit access in Zambia will produce many opportunities for its citizens, lead to a more robust economy and alleviate poverty rates.

– Shefali Kumar
Photo: Flickr

Credit access in Jordan
Credit access in Jordan has improved dramatically over the past two years thanks in part to changes in the regulation of funds by the government and the creation of newer, better lending programs across the country.

This year, global indicator, Doing Business has given Jordan’s overall credit access performance a ranking of 159 out of 189 countries, which shows an increase from a dismal 2016 ranking of 185 out of 189 countries. The continued improvement of these numbers will hopefully help Jordan to start pulling itself out of its nine-year stagnation of economic growth.

Background of Credit Access in Jordan

Lack of credit access in Jordan affects all citizens, but especially small and medium-sized enterprises (SMEs). In 2016, SMEs accounted for an estimated 98 percent of all Jordanian business and affected 40 percent of the country’s GDP.

A 2011 survey by the European Bank for Reconstruction and Development (EBRD) reported that 70 percent of SMEs considered themselves ‘credit constrained’ and thus had to put plans of growing and improving their business on hold.

Before the recent creation of new lending systems, SMEs found themselves having to choose between going to one of the many banks in Jordan for a loan and utilizing non-profit microfinance institutions (MFIs). Each of these methods proved to have significant flaws that made accessing credit impractical, if not impossible.

On the one hand, banks found it difficult to work with SMEs as most of them did not have enough collateral to mitigate the risk of providing the smaller business with a loan. On the other hand, while MFIs can provide loans to SMEs without the necessity of collateral, a system of regulation for MFIs did not yet exist within the Jordanian government.

Without regulation, interest rates varied wildly between MFIs, with some of them even going beyond the legal standard. As no clear method of recording credit existed, clients reported receiving the wrong amount of funds.

Remedying the Situation

Providing businesses with alternative forms of funding seems like the best method of helping them cross over the current financial gap. The Jordanian government, as a 2016 Oxford Business Group article reports, has already begun to put forward “initiatives with banks and multilateral institutions to offer more credit to smaller businesses”. The creation of the first credit bureau in Jordan, for example, will hopefully provide a more regulated method of credit access in Jordan than MFIs.

SMEs can also look into more private funding programs. The peer-to-peer lending program liwwa, for example, allows any SME with “business operations that are managed ethically” to apply for loans and, if accepted, campaign to receive loans from an individual or institutional investors. The program also helps regulate these funds by offering such services as negotiating overdue loan repayments with borrowers and investigating the businesses of borrowers to assure qualification. While the program has only processed 305 loans so far, this number can hopefully grow in the future.

The Jordan Loan Guarantee Corporation also provides SMEs with a more accessible finance option by acting as a facilitator between borrowers and investors. Created by a collaboration of USAID with the Overseas Private Investment Corporation (OPIC), this program supports businesses that “(1) have a well-defined marketing opportunity to start-up or expand, (2) need financing to achieve their goal; but (3) lack the collateral banks usually require for making loans” by offering a ‘loan guarantee’ to possible investors (mostly banks in this case). A loan guarantee means that in the case of a borrower defaulting on their loan, a business like JLGC will pay the investor back a large percentage of their investment. So far, the program has issued over 214 loans guaranteed and allowed SMEs to access over $50 million in finances.

Further success in these programs will provide SMEs with the opportunity to expand and thus create more job opportunities for those currently struggling to find employment. Along with this, if credit access in Jordan continues to improve, financially constrained entrepreneurial individuals will have more opportunity to create their business ventures.

Both of the aforementioned benefits can allow even those in poverty to change their social status and become consumers. This, along with expanding businesses, will hopefully improve Jordan’s rate of economic growth.

 – Lyz Frerking
Photo: Flickr

Credit Access in São Tomé and Príncipe
São Tomé and Príncipe (STP) are two islands of volcanic origin located off the coast of western Africa. Since the late 1400s, Portugal began settling convicts on São Tomé and Portuguese became the most commonly spoken language. The island successfully established sugar plantations and became extremely significant shortly after in the transshipment of slaves.

São Tomé and Príncipe

Portugal finally recognized the independence of São Tomé and Príncipe after the coup in 1974. In 1995, Príncipe assumed autonomy and established a multiparty democracy in their 1990 constitution.

Today, the islands have a unitary state comprised of roughly 200,000 people. The country is small, leaving it very fragile to economic shifts, and recent studies estimate that 62 percent of the population is impoverished. Urban poverty is also high because of the limited employment opportunities.

Nevertheless, São Tomé and Príncipe performs high on the UNDP Human Development Index. The gross primary school enrollment is at an astounding 110 percent, and access to basic needs continue to improve. For instance, 97 percent of the population has seen an increase in access to water, and 60 percent of the population can access electricity.

Room For Improvement

The government of São Tomé and Príncipe has implemented several tactics to improve the business sector; however, the country still has issues maintaining its recent levels of growth. The challenges they face are predominantly due to:

  • The government’s delicate economic situation
  • A banking industry with low-performing loans and insufficient capital
  • Outside imbalances

Unfortunately, São Tomé and Príncipe has a small island economy. There is no single economic endeavor that has acted as a driver of growth. Agriculture is mainly used to support the economy, but in recent years it has not been able to counteract the rise of imports; government expenditures have become the principal driver in the country’s growth. The government has been investing in oil exploration and yet production isn’t anticipated until sometime after 2020.

Credit Access in São Tomé and Príncipe

Fortunately, São Tomé and Príncipe has seen some progress in credit. The decade before 2013, the small nation saw a growth in loans for construction, consumption and trade. This growth is likely a result of the potential oil production, but the most recent years have not seen this access.

Credit exposure to specific sectors is very dangerous to STP. In 2015, credit given to the construction sector was mostly offered by one bank. The same can be said for the manufacturing and tourism sectors; however, this comes as a great threat for credit access in São Tomé and Príncipe, as concentration in one bank can make banks susceptible to industry-specific shocks.

Banking and Government Sectors

Banks in STP also face the issue of high operating costs — particularly in utilities like electricity and technology infrastructure — which causes credit access in São Tomé and Príncipe to become at risk. Moreover, in 2015, there was an influx in provisions for loan losses, further troubling the banks. Banks have likewise confessed that since 2013, negative earnings have been on the rise.

The government of STP is working to address the imbalances in the economy by improving domestic revenue, controlling spending and implementing improved management. Public officials are also attempting to secure outside financing through grants and loans. They believe that by supporting economic activities, there will be an increase in earnings from exports.

Furthermore, the government is working to implement policy changes believed to progress the credit market. With these policies, access to credit access in São Tomé and Príncipe is projected to improve and will create opportunities for families at the lower end of income distribution.

Fiscal Success

The World Bank currently works with São Tomé and Príncipe to address their economic issues, and it is believed that the financial sector will greatly improve with increased access to credit in São Tomé and Príncipe. Better-quality credit access and improved energy are the country’s strongest chance to fix their economic problems, and both the agriculture and tourism industries would greatly benefit from better access to loans.

These changes could pull the country, and its most disadvantaged members, out of the fiscal danger zone and on into financial success.

– Stefanie Babb
Photo: Flickr

Credit Access in Mali
Mali is a landlocked country located in West Africa with a population of approximately 18 million people. While the national poverty fell from 55.6 percent in 2001 to 43.6 percent in 2010, Mali remains 175th out of 188 countries on the United Nations Human Development Index.

Diagnosing the Problem

Credit access in Mali stands out as one the leading impediments to economic growth. A smallholder farmer is refused a loan seven times out of ten because of the high risk and unpredictable nature associated with the agricultural sector. This difficulty accessing credit is only further compounded by the fact that about 80 percent of the entire labor force actively participates in farming.

Credit serves an important role in the growth of developing countries’ economies. Increased credit access in Mali is essential for allowing farmers, businesses and consumers across Mali to utilize investment capital and thus help expand economic activity. If 70 percent of farmers are refused loans from the start in a country where 80 percent of the workforce is engaged in farming, significant economic growth becomes nearly impossible.  

Moussa Sylvain Diakite, a mango producer and exporter in Bamako, explains this discrepancy noting that “Malian banks have a commercial focus and not an agricultural one which is why they struggle to accompany agricultural activities.”

Improving Credit Access in Mali

One of the leading initiatives to improve credit access in Mali is the Agricultural Competitiveness and Diversification Project. Led by the Malian government and the World Bank, the program hopes to provide financial support to both individual Mali farmers seeking credit and commercial banks. By enfranchising Mali farmers and reducing risk for commercial banks that offer them loans, the Agricultural Competitiveness and Diversification Project will help scale agricultural production and the number of small and medium enterprises throughout Mali.

Above all, the Project works to “reduce the risk of investing in agriculture endeavors through technical assistance, new technologies, and greater knowledge of the supply chain and key actors,” according to World Bank Agribusiness Specialist Yeyande Kasse Sangho.

Benefits of Greater Credit Access in Mali

Researchers who partnered with Soro Yiriwaso, a microfinance institution in Mali, conducted a two-stage randomized evaluation in 198 villages in rural Mali. The findings point to agricultural lending as an effective means of increasing investments in the agricultural sector, as well as increasing profits and yields.

Village households which were offered loans spent about $10.35 more on fertilizer and $5.08 more on herbicides and insecticides than the households in villages that did not get loans. These loans also contributed to an increase in the value of agricultural output by $32. Many of these households also received grants invested 14 percent more on inputs than households that did not receive grants. Those households also saw output and farm profits increase by 13 percent and 12 percent, respectively.

As the relationships between farmers and commercial banks strengthen, credit access will only continue to spread in Mali and enable further economic growth. With continued efforts and projects as the ones mentioned above, there’s significant hope that the focus on credit access in Mali will serve as an example for the economic development of other impoverished regions.

– McAfee Sheehan
Photo: Flickr