IREDD Survey Report in Nimba, Margibi and Montserrado Counties Shows How High Interest Rate from Banks Hinders MSMEs’ Growth in Liberia
Monrovia – The Institute for Research and Democratic Development (IREDD) with support from United States Agency for International Development (USAID) through the Liberia Economy Dialogue Activity (LEPDA) has conducted a research in Nimba, Margibi and Montserrado Counties to assess binding constraints that are hindering Micro, Small and Medium Enterprises (MSME) access to finance to grow and be sustainable businesses in Liberia.
Giving a presentation on the findings from the survey, IREDD’s Executive Director Matthias M. Yeanay said complex collateral requirements for MSMEs to acquire loans due to associated risks make it difficult for them to qualify for loans.
“High interest rate or charges on loans and the short-term repayment period influences or affects MSMEs business decision and ability to repay the loans within the specified timeframe. Lack of delegated national funds for MSME financing in Liberia,” Mr. Yeanay said.
At the policy dialogue Yeanay stressed the need for capacity building for individuals that are involved with MSMEs.
That way, IREDD Executive Director said will help promote MSME access to finance; something he says will stimulate growth and a sustainable business environment in Liberia.
“We need to establish an MSME capacity building program that will provide basic business management skills to MSMEs to gain a minimum understanding of business operations, including sales, cost of sales, bookkeeping, and tax requirements,” Mr. Yeanay said during his presentation on policy reform options from the findings.
IREDD’s Executive Director also called for an introduction of what he termed as simple interest regime for MSME, adding that it will help reduce the considerable burdens of complex interest rate regime that is a key factor for nonperforming loans across financial institutions, especially banks.
Accordingly, Mr. Yeanay said there is a need for a simplified collateral requirements regime for MSME as it will encourage more MSMEs to take loans to grow their businesses and as well create jobs for Liberians.
According to him, most MSME owners are involved with informal banking activities like saving club, and “susu club” rather than using commercial banks.
He said the survey unearthed the reluctance of banking institutions to finance start-up business ventures due to high risks and difficult business environment including utilities cost, and contract enforcement.
Mr. Yeanay said limited enforcement of the MSME policy by the government and the dual currency regime creates uncertainties in the market, adding “interest rates and prices of commodities and services lead to large numbers of non-performing loans that affect banks’ confidence in borrowers.”
The Legal and Regulatory Advisor at USAID-LEPDA, Madam Sue Tatten said it’s important to get the input from all partners involved in providing economic support to MSME which is the heart of economic growth in Liberia.
“It’s important to understand the findings that IREDD has come out with and to examine those findings and for us to comment on what actually those findings lead us to and how we can as partners in our respective institution provide the necessary support for these businesses to be able to strive,” Madam Tatten said.
The chairman of Commerce and Trade of the Liberia Business Association (LIBA) and national PATEL, Dominic Nimely said Liberian businesses continue to struggle to survive due to lack of access to loans and other opportunities for businesses
Mr. Nimely said IREDD’s finding particularly highlighting that Liberian businesses do not want to pay back loans is false and misleading and pointed out to the high interest rate affecting Liberian-owned businesses.
“The banks are not even helping Liberian businesses. There’s a cartel to slaughter Liberian owned businesses. We want the banks to have a special interest rate for Liberian-owned businesses and special interests rate for foreign businesses,” Mr. Nimely added.
Also, the Deputy of Development and Finance Sector at the Central Bank of Liberia (CBL), Dr. Bonokai G. B. Gould said some of the things raised in IREDD’s findings are in place but some have already been done.
“This is a good idea and a good initiative that CBL supports. Access to finance and credit is one of the key pillars in our national financial inclusion strategy and digital financial services,” Dr. Gould said.