Fourth Progress Report for East Timor - Microfinance
The paper states that the microfinance operational strategy adopted for East Timor focuses on:
- Creating an enabling policy environment for the viable delivery of a wide range of financial services to the poor, especially women and in the rural areas;
- Fostering a sustainable microfinance infrastructure through the establishment of a viable microfinance institution (MFI or bank) and the rehabilitation of credit unions (CUs);
- Intensive capacity building of East Timorese to manage the MFI and CUs, and to provide effective social intervention for skills and values formation among clients;
- Adopting and promoting best practices in microfinance;
- Promoting private initiative and autonomy among CUs and MFI (bank),with a divestment scheme for the latter to East Timorese citizens, civil society, CUs, etc.
The paper explores demand for microfinance, determinants of microfinance development, microfinance services and its impact on poverty, and microfinance operational strategy in East Timor. These are examined against the backdrop the following challenges:
- An economy ravaged by the destruction of the post referendum violence;
- Poor infrastructure, with limited communications and transport facilities for market access;
- A nation in transition lacking vital laws, regulations, and policies for economic activities;
- The absence of a formal financial infrastructure, especially in the rural areas;
- Limited local expertise;
- A growing culture of donor dependence.
The paper argues that East Timor offers a daunting challenge to the development of its microfinance sector, but notwithstanding the formidable challenges, the country also offers a rare opportunity for adopting proven best principles and practices in microfinance developed from lessons learned elsewhere. Findings reveal that the first two of the above-mentioned challenges are being dealt with by the collective efforts of government and the donors. However, the microfinance operational strategy adopted for East Timor directly addresses the last four challenges.
