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Credit Access in MoldovaThe Republic of Moldova, a small, post-Soviet landlocked country bordering Ukraine to the north and Romania to the south, currently grapples with issues of economic freedom. According to the Index of Economic Freedom, Moldova ranks as the 97th freest economy in the world with Russia at 98th and Burkina Faso at 96th. With 180 countries ranked, the Heritage Foundation categorizes Moldova as a mostly unfree economy. Credit access in Moldova suffers along with its corrupt economic and political culture, affecting the most at-risk individuals in the population.

A Shift Away From the Agricultural Sector

Farming and agriculture once made up the bulk of Moldova’s domestic economy with agriculture accounting for 42 percent of the Moldovan GPD in 2000, according to a multi-national case study including USAID. The CIA World Factbook cites that in 2017, Moldovan agriculture made up only 17.7 percent of the GDP while Services took up 62 percent. In just 19 years, the Moldovan economy has experienced a rapid change. Moldova is transferring from an agrarian economy into a service-based economy, but during this transition, farmers are being left behind and their credit access in Moldova is dismal.

Farmers face the unique challenge of navigating a banking system that is new for their country. Before the year 2000, the Moldovan state owned all agrarian land. A USAID report explains how 800,000 private farmers became landowners and suddenly needed additional financial resources, yet struggled to acquire them since the amounts requested were only a few hundred dollars each–unattractive investments for local banks. The banks refused to work with the burgeoning independent farmer sector, making credit access impossible for many who needed small loans to fund and improve their businesses.

No Access to Investment

Along with the difficulties of learning a new market system, Moldovan farmers also encounter immense corruption in both government and business. The World Bank reports in its Country Partnership Framework (CPF) that “a massive bank fraud in 2013-14 enabled by political interference…led to depreciation of the currency, inflation, financial destabilization and loss of investor confidence.” Those who have no credit access in Moldova also have lower chances of receiving investment from outside the country because the risk of investing in a corrupt country carries too much risk for international investors.

The World Bank CPF explains that “limited access, inefficiency and poor quality have contributed to social exclusion, persistent poverty and vulnerability to shocks, especially in rural areas.” Rural farmers cannot rely on either the state or the banks to offer much-needed investment, and therefore are left without a critical resource essential to operating a thriving business.

The World Bank’s Moldovan Engagement

The World Bank currently sees transparency, accountability and corruption as the most pressing issues to the Moldovan economy. In an effort to stabilize the region and bring economic prosperity, the World Bank has ten active projects in Moldova. The organization cites three objectives: “strengthening the rule of law and accountability, improving access and quality of public services and enhancing the quality and relevance of education and training for job-relevant skills”. The objectives of The World Bank CPF, while broad, would allow for Moldovan farmers to either gain the credit access needed to operate their farms or expand into other sectors of the economy.

Three projects from The World Bank in particular help to solve the issue of credit access in Moldova. To help rural community members that wish to expand their horizons past farming, the World Bank has instituted the Moldova Education Reform Project, which gives out result-based specific loans to certain sectors of Moldovan education to improve the efficiency of the education sector and improve “the ministry of education’s capacity to monitor the reform”.

To help squash corruption and inefficiency, the World Bank also created the Tax Administration Modernization Project which reviews the Moldovan tax code to ensure an equal and comprehensive tax policy that supports the development of small businesses.

In an effort to help all Moldovans, the World Bank’s Moldova Economic Development Policy Operation Project (DPO) helps “to support the government of Moldova in reducing fiscal risks and leveling of the playing field for private sector development [by] strengthening oversight [and supporting] private sector development in access to business opportunities and resources”.

Lessons Learned

While credit access in Moldova is a complex issue, institutions like the World Bank that specialize in economic reform and recovery are getting involved in the country. Supporting institutions such as the World Bank helps the World’s poor help themselves by improving local economies and the governmental and business practices around them.

– Spencer Julian
Photo: Flickr

Guyana microfinance, social entrepreneurship
Guyana is a small South American nation with a population just over 700,000. The country is sparsely populated, with the majority of the population identifying as East-Indian or Afro-Guyanese. According to the World Bank, Guyana is an upper/middle-income country, with a GDP of around $3.6 billion. Guyana’s economy is primarily agricultural, with over 60 percent being comprised of six main exports: sugar, shrimp, gold, bauxite, rice and timber. One way to improve the economy, though, could be through increased levels of entrepreneurship in Guyana.

Guyanese Economic Growth Status

Recently, the fractured Guyanese government fell in a no-confidence vote, endangering already fragile race relations. Economic growth has slowed in the past five years, one-third of the population lives below the poverty line and youth unemployment stands at a staggering 21.6 percent. Many Guyanese agricultural enterprises lack credit history and find it difficult to use livestock as collateral on secured loans, making for higher credit risk.

In addition, over 80 percent of Guyanese citizens with tertiary education reside abroad. The emigration of highly educated citizens may pose another threat, as economic growth is often predicated on national education levels. These underlying issues have contributed to distressingly high youth poverty levels. How can the English-speaking South American country alleviate poverty and unemployment? The answer may lie in microfinance and social entrepreneurship.

Microfinance and Social Entrepreneurship in Guyana

In Guyana, there are several privatized financial institutions focused on micro-loans and credit access for the nation’s underbanked. These institutions are characterized as microfinance institutions, and help to provide banking and financial literacy instruction to people and small businesses who would otherwise not receive such support. The main source of income for these institutions comes from interest payments on loans. This financial support is critical for diminishing poverty and improving social mobility.

Microfinance can be significantly expanded among the young people of Guyana. The Institute of Private Enterprise Development (IPED) and the Small Business Development Finance Trust (SBDFT) are two main microfinance organizations and the primary contributors to Guyana’s microfinance sector. As of 2016, the IPED dispersed micro-loans to over 4,500 small businesses — of which only 12 percent of these borrowers were young adults.

This low proportion of youth borrowing could be significantly expanded, as roughly 46 percent of the population in Guyana is under 24 years old. Microfinance efforts have been largely successful in other parts of the world. India’s Range De has successfully reached over 18 Indian states with a 93 percent repayment rate, collateral-free.

Potential for Social Entrepreneurship

Another key element to alleviating poverty in Guyana is expanding social entrepreneurship. According to a Duke University newsletter, social entrepreneurs are defined as business innovators that “play the role of change agents in the social sector.” Focusing loan and microfinance efforts on young entrepreneurs with a social focus will help to decrease youth unemployment rates while simultaneously lowering overall poverty.

Not only would educated citizens choose to remain in Guyana, but lucrative business prospects may attract non-natives to the country. Incubators and credit advisory services are two financial inclusion tactics that have taken root in Africa and South Asia. Tiwale, a Malawi-based startup focused on empowering female education, serves as an excellent role-model for similar enterprises in Guyana. These market-based solutions would help to alleviate poverty and simultaneously stimulate the economy.

Spurring Progress

Credit access and social enterprise efforts have already begun to transpire within the nation. IPED’s recent expansion will help to spur financial access for Guyana’s underbanked. Technological growth and introduction in Guyana will also augment social enterprises and allow for increased scalability. If the microfinance and social entrepreneurship sectors are able to flourish in Guyana, there is a bright future for the nation’s youth.

– Alexander Aguilera
Photo: Flickr

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

Economic Reforms in Macedonia Make Doing Business Easier

Unemployment remains high at about 23 percent in Macedonia, but the country maintains its macroeconomic stability. Since its 1991 independence, Macedonia has made progress in liberalizing its economy and improving its business environment. Economic reforms in Macedonia have focused on registering property, protecting minority investors and gaining credit access.

During the global financial crisis, Macedonia maintained its macroeconomic stability by practicing conservative monetary policy. Conservative monetary policy ensures that the domestic currency is pegged to the euro and that inflation remains at a low level.

Macedonia’s economic performance has been halted by internal political crises in the last two years. Gross Domestic Product (GDP), domestic private investments and public investments declined in 2016. The same year, public debt peaked at 50.5 percent of GDP before settling at 47.8 percent at the end of the year. Macedonia distributed a $495 million Eurobond to fulfill 2016 and part of 2017 budget requirements.

Doing Business, of the World Bank, evaluates economic reforms in Macedonia and their influence on the ease of doing business. According to the organization’s measures, Macedonia’s 2017 business reforms are as follows:

  • Getting Credit
    Credit access in Macedonia was strengthened by amending its laws to provide modern features for the collateral registry, to allow parties to grant nonpossessory security rights and to implement a functional secured transactions system.
  • Resolving Debt
    Macedonia made it easier to get out of debt by increasing creditors’ participation in insolvency proceedings and changing voting procedures for reorganization plans.
  • Protecting Minority Investors
    Macedonia reinforced minority investor protections by extending requirements for immediate disclosure of party transactions to the public, increasing access to corporate information during trial and expanding shareholder rights.
  • Enforcing Contracts
    Enforcing contracts has become more difficult with recent amendments to the Law on Civil Procedure that require mediation before a claim is filed. Required mediation lengthens the beginning phase of judicial proceedings.

Most of the past year’s economic reforms in Macedonia focused on registering property, getting credit and protecting minority investors. According to the World Bank, Macedonia ranks eleventh out of the region’s top ranked economies and has carried out 41 reforms, the second highest number among the top 20, over the past 15 years.

Macedonia is the only upper-middle-income economy that ranks within the top 20 economies in the overall ease of doing business. Thus, reforms in Macedonia have made it easier to do business, leading to better quality of life for citizens.

– Carolyn Gibson

Photo: Flickr

Credit Access in JamaicaEarly in September 2017, the Executive Vice President of the Inter-American Development Bank, Julie Katzman (IDB), and the Minister of Finance and the Public Service, Audley Shaw, signed a pact for a loan of $20 million that will allow for greater credit access in Jamaica for micro, small and medium enterprises.

This initiative seeks to implement limited credit pledges to compensate approved financial institutions to upturn their lending to micro, small and medium enterprises in Jamaica. It will benefit the credit enhancement facility that was formed in 2009 and managed by the Development Bank of Jamaica.

The loan will permit the credit enhancement facility to assure a higher percentage of loans, with up to a maximum of $385,000.

These partial credit guarantees provided by the credit enhancement facility are anticipated to reimburse micro, small and medium enterprises that are incapable of meeting insurance requirements. As a result, the credit enhancement facility is acknowledging one of the major issues that limit an enterprise’s access to finance. Katzman pointed out that this will be the blueprint for an improved inclination and capability to loan to the micro, small and medium enterprises in the long run.

Such loans will enable relationship-building efforts among financial institutions and the enterprises, along with supporting the growth of the skill-set to measure credit earnestness. Credit access in Jamaica has become widely acknowledged, with enterprise owners becoming aware of the opportunity to obtain loans.

Since creditors have established greater credit access in Jamaica, the island’s central bank updated its reports noting that there was a collapse in new non-performing loans (NPLs). The collapse accounted for more than $1 billion from 2014 to the end of last December.

Securities institutions have, as a result, provided better credit underwriting and supervision for all commercial banks, building societies and merchant banks. These advances validate the banks’ commitment to managing the credit risks inherent in their portfolios, especially in a context where borrowers have demonstrated an increased appetite for debt.

Over the last two years, the Bank of Jamaica has stated that it has approved longer-tenured loans that back the facilitation of credit terms to revamp borrowers’ servicing of loans.

– Jalil Perry

Photo: Flickr

Assessing Credit Access in MoroccoMorocco is a North African country bordering the Atlantic Ocean to the west and the Mediterranean Sea to the north. Its economy relies largely on vibrant services and agricultural sectors for growth, and after experiencing a severe drought in 2016, the latter sector has bounced back in 2017. The industrial sector, however, has yet to see significant investment or growth.

According to the Moroccan government’s own estimates, extreme poverty has been eradicated in recent years. The percentage of the population living below the national poverty line was around 4.8 percent in 2014.

One signal of a healthy economy is access to credit. Below are some of the current strategies for improving credit access in Morocco.

Agricultural Credit Access in Morocco: The “Meso-Credit”

As is the case in many countries, rural areas in Morocco have a tougher time gaining access to credit — oftentimes, their residents don’t even bother trying. Innovations for Poverty Action reports that 50 percent of the rural households surveyed indicated that they needed credit in the previous year but never actually requested it.

To meet the needs of the 40 percent of Moroccan farms that are midsized, the Group Crédit Agricole du Maroc offers an innovative “meso-credit” portfolio. Midsized farms are considered too small to take a traditional banking approach but too large for a microfinance approach. Meso-credits are generally loans given to agricultural small and medium enterprises (SMEs) consisting of less than €9,300, with good success and repayment rates.

When the midsized farms can access credit, they can survive, thrive, expand and hire, which ultimately will reduce rural poverty in the area.

The World Bank’s Contribution

In May 2017, the World Bank announced a $350 million program to fund financial intermediation reforms in Morocco.

The program has four main goals:

  1. Support new sources of financing for SMEs
  2. Tighten oversight of the banking sector,
  3. Encourage capital market development by increasing the range of investment tools and protecting Moroccan investors
  4. Invest in the civil service pension fund to keep it solvent

Low-income households are expected to benefit from these reforms, as are female entrepreneurs. The reforms allow women to gain access to more sources of financing and electronic payment systems, which remove social and economic barriers that previously stood in the way of women.

The Takeaway

Many projects are underway to help improve Moroccan investors’ access to credit in a responsible and growth-oriented way.

Hopefully, these efforts—and others like them—will improve credit access in Morocco, get development projects off the ground and lift even more Moroccans out of poverty.

– Chuck Hasenauer

Photo: Flickr

Credit Access in IndiaThe evolution of credit has sanctioned simply the idea of money as an invisible but powerful force. In a place where poverty still affects 22 percent of the population, credit access in India is difficult for many of its people. Often, formal credit is as elusive for the people of India as its tangibility.

PMJDY and Financial Inclusion
Though financial inclusion has become a recent focus for policymakers, 40 percent of people still lack access to basic financial services. Financial inclusion is the basis of perpetual economic growth. “Without financial inclusion, we cannot think of economic development because a large chunk of the total population remains outside the growth process,” said Dr. Harpreet Kaur and Kawal Nain Singh of Punjabi University and The Rayat Institute of Management.

Many low-income individuals have relied on informal, and sometimes devastating, options to borrow money or gain credit access in India. In response to this, formal options such as Pradhan Mantri Jan Dhan Yojana (PMJDY), a mega financial inclusion plan, was designed. PMJDY aims to ameliorate poverty and fast track financial growth. The program targets those from remote areas and promotes financial literacy, universal access to banking services and insurance. This is all to “commence the next revolution of growth and prosperity,” the plan explains.

Unfortunate Faults
More than a few studies have reported the same findings as Dr. Joy Deshmukh-Ranadive of the Human Development Resource Centre in New Delhi. In the doctor’s report on rural micro-finance in India, she explains that “the track record of these formal sources has not been positive. Micro-finance…circumvents the drawbacks of both formal and informal systems of credit delivery.” These downsides include exploitative interest rates and fortifying systems of oppression.

Entrepreneurship in Rural India
The micro, small and medium enterprise sector (MSME) account for 37 percent of India’s GDP, and more than 40 percent of the country’s total exports, according to the World Bank. Despite this, MSMEs have been limited by inadequate access to financial services.

Fortunately, the International Finance Corporation devised a program called India Collateral. The program is modeled after a similar program that has had success in China. The project hopes to revise the discrepancy by opening access to banking services for more MSMEs by increasing lenders’ confidence.

While there are programs formulated to improve access to credit in India, there remains a gender bias. Though loan rejection and approval are issued at an equal rate to both men and women, women tend to seek financial services less often. Higher gender bias countries like India see more women deferring from the loan process, according to a report by the European Central Bank.

It is an interesting paradox: those who have money are those who typically qualify to borrow it. The necessary condition for credit access is already established finances. Those who stand to benefit the most from borrowed money are those who do not have it. Steps toward financial inclusion in India are governed by this idea. Many programs continue to amend credit access in India, develop the informal credit market and lower interest rates in the hopes of developing the country’s economy from the bottom up.

– Sloan Bousselaire

Photo: Flickr