Project Progress Report on East Timor: Microfinance Development Project

The paper presents highlights of microfinance development project in East Timor and its present status. The USD 7.72 million project was approved in December 2000 and was scheduled for completion in December 2003.

The project had three main components:

• Setting sustainable MFIs which can become licensed banks under the existing banking regulations;
• Promoting and strengthening credit unions;
• Setting up a project management Unit (PMU) to facilitate MFI formation and strengthening.

The paper outlines the progress made in the different areas mentioned above as:

• Study of the policy and regulatory issues for formation of MFIs has been completed;
• Two institutions have been set up, based on the study recommendations. These are the Foundation for Poverty Reduction in East Timor (FPRET) and the Microfinance Institute of East Timor (MFIET);
• Intensive trainings have been provided MFI federations.

Finally, the paper highlights two prime issues facing the project:

• Probable delay in MFIET's licensing, as it has to raise additional capital to provide the USD 2 million capital required by the Banking and Payments Authority to license microbanks;
• Raising additional USD 1.5 million from the project to MFIET for recapitalization, to ensure that operational loses sustained during the first few years of operation will not erode MFIET's net worth below USD 2 million.