The Wrong vs. the Right End of the Stick - The Potential & Limitations of the Diaspora in Support... more The Wrong vs. the Right End of the Stick - The Potential & Limitations of the Diaspora in Supporting the Growth of Small and Medium Local Firms in Post Conflict South Sudan
Given the scarcity of access to finance for small and medium firms (SMEs) in conflict affected countries, Peace Dividend (an investigative SME finance organization) attempted to channel Diaspora remittances to fund private businesses in South Sudan. The tested hypothesis was that through the close nit and strong Diaspora networks which function both as a channel for information and as contract enforcement mechanisms (Javorcik, Ozden, Spatareanu, Neagu, 2006), the Diaspora may be able to lend or invest in local businesses at a lower risk threshold than other international investors, or at times even local banks. Though the Diaspora were found not to be effective in mitigating the moral hazard or the adverse selection problems riddling South Sudan’s SME finance markets, they did play a crucial role as entrepreneurs (if granted financial access) providing great value in expanding the value chain to rural areas and thus expanding and deepening the local employment and entrepreneur base.
Whilst there is no shortage of women at the micro-entrepreneur level, these are scarce at larger ... more Whilst there is no shortage of women at the micro-entrepreneur level, these are scarce at larger business levels in South Sudan. This article considers the possible causes of this scarcity, as well as potential methods of addressing this disparity based on Peace Dividend’s experience of financing and promoting medium sized entrepreneurs in South Sudan
Two major impediments that obstructed timely and efficient execution by the Bank in Southern Suda... more Two major impediments that obstructed timely and efficient execution by the Bank in Southern Sudan are (1) the failure to negotiate and settle on procurement structure that could function with the Bank’s complex procurement standards, (2) the lack of listening, flexibility and adaptability of the Bank’s structure to changing circumstances, program dysfunction and lessons learned. Addressing these two issues would greatly enhance the ability of the Bank to execute in post-conflict environments such as Southern Sudan. These changes are vital for the Bank’s operational image in such environments, as many actors from both local entities and international organizations are aware of these dysfunctions.
The purpose of this report is to break new ground in enhancing access to finance for small and me... more The purpose of this report is to break new ground in enhancing access to finance for small and medium enterprises operating in countries recovering from civil strife. This paper presents an that alternative lending methodology that would be more effective in reducing risk and informational asymmetry despite the informality of post conflict systems, hence enabling the short run scaled provision of finance to small and medium sized firms. Results are based on the experimental application of innovative techniques in South Sudan. The model that has been proven to function is a balanced solution involving backward linkages from thriving sectors through the direct allocation of purchase contracts, equipment finance and business advice. This is a key result as it means that the jobs and income generating opportunity can be provided to scale in the short run despite the informality of post conflict environment, whilst institutions and systems are formalized for long-term growth. The coordinated funding of programs that adopt such measures would achieve significant short run impact in complex and still largely informal environments such as post-conflict South Sudan.
The purpose of this report is to raise attention to the constraints that presently restrict the p... more The purpose of this report is to raise attention to the constraints that presently restrict the provision of finance in Southern Sudan, and recommend actions that would stimulate the development of the sector as well as a more broad based provision of financial services.
The main providers of financial services in Southern Sudan consist of five commercial banks and six or so microfinance agencies, while a sprinkling of foreign exchange agencies provide foreign exchange and transfer services, six insurance agencies provide a range of insurance services. The commercial banks provide loans, advances and trade finance, but their lending portfolio (63 Million SDG according to the Bank of Southern Sudan’s December 2008 reports) covers only a meagre 7% of the approx. 6000 registered firms and less than 1 % of the Government of Southern Sudan’s revenue. Similarly, the microfinance agencies estimate that their microloan portfolio (9 Million according to self reported figures) only services 5% of the available clients in the greater Juba region, and less than 1% of the potential market in Southern Sudan. Further, the financial sector only provides finance in urban hubs, focuses primarily on the non-productive sectors (such as trade, construction and hotel services, etc.), and only dedicates 10 % of its loan portfolio to small firms (loans between 1000 and 100,000 USD) in Southern Sudan. The financial sector is clearly small and underdeveloped.
The main issues hampering the depth and breadth of provision by commercial banks are not the lack of liquidity, but (1) the lack of competition, and the poor capacity of local banks (in terms of credit analysis skills, controls, systems, management capacity and corporate governance), (2) the lack of collateral due to the frail structures for land registry and a nascent legal, regulatory and enforcement framework, and (3) the specific characteristics of businesses in Southern Sudan. Credit is rationed according to the high risk and the low ability to recover assets – excluding certain sectors and company types with low short-term cash flows and collateral.
Recommendations to enhance the provision of finance by commercial banks include (1) the entry of new banks in coordination with an escalated support to BOSS (for banking supervision) as well as to the local banks (in terms of capacity building), (2) the development of legal, regulatory and enforcement frameworks for lending technologies that match the client characteristics of businesses in Southern Sudan, and (3) the improvement in the financial transparency of businesses (audits, credit bureaus, business training) in coordination with the development of alternative lending technologies that are better suited to the client characteristics of businesses in Southern Sudan (guarantee/ subsidy provision, group lending structures, fixed asset lending, leasing models, factoring and asset based lending, etc). The establishment of an insurance commission might also heighten their ability to access loans from the commercial banks.
This report thus presents a set of recommendations to enhance the provision of finance of microloans by microfinance agencies, and individual loans as well as medium scale loans for trade finance (in terms of LOCs), as working capital for business expansion, and bridge finance to assist in the purchase of fixed assets (overdraw facilities). It is important to note that these recommendations would not enhance the provision of large-scale loans for agricultural finance, investment into manufacture, and real estate, and the demand for start up capital by local Sudanese firms. These would best be met by nor would be better addressed by public private partnership or through alternative support systems.
Given that some of the recommended actions will take several years to implement successfully (e.g. the availability of land as properly registered collateral), a short run strategy to address the financing needs of businesses would be ideal. Accordingly, an investigation into associated methods of reducing the lack of financial transparency of businesses in Southern Sudan (audits, credit bureaus, business training) as well as appropriate alternative lending technologies that are better suited to characteristics of businesses in Southern Sudan (lack of collateral, etc) would be timely. This report, as well as the subsequent investigation would thus pave the way for the development of innovative structures to address the specific access to finance issues in post conflict countries.
The purpose of this report is to outline the current provision of microfinance in Southern Sudan ... more The purpose of this report is to outline the current provision of microfinance in Southern Sudan and to raise attention to the constraints that presently restrict its broad based provision and its potential impact.
While a handful of microfinance institutions (MFI’s) currently provide microfinance services in Southern Sudan, these only service 1% of potential clients, offer a limited range of products, and do not as yet address the productive, rural and agricultural sectors effectively. Certain MFI’s suffer from a high default rate and feedback from the microfinance agencies detail limitations including unstable access to funds (particularly in terms of grant and equity), the lack of a regulatory framework that would enable them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, poor monitoring and controls, etc). Further issues that have been hindering the MFI’s provision of microfinance include low staff retention and the demolition of markets by local government entities, while their geographical and sectoral outreach is limited respectively by security concerns and client access to productive training.
The main measures with the potential to address these constraints include the better incentivised entry of further large international microfinance actors (attracted through the development of a regulatory framework, a more integrated approach to urban planning that takes into account the importance of building the informal sector as a source of income generation, the comprehensive training of the labour force, and the smoother and enhanced access to loan, equity, and grant funding), in coordination with the enhanced capacity building of the present actors (through the increased provision of technical support to the microfinance agencies). As there are now a number of organizations now involved in the provision of support to the microfinance industry in Southern Sudan, a better coordination between relevant organizations would be recommended to avoid duplication and address all gaps. Finally, given the acute need of recovering communities with little access to capital or finance, the development of agricultural and rural lending methodologies appropriate to the post conflict environment would key in enhancing livelihood possibilities.
With rich resources and an untapped consumer market, South Sudan holds great potential for invest... more With rich resources and an untapped consumer market, South Sudan holds great potential for investment. However, the short run challenge lies in solutions that can connect the current skills and capacities of the local population to thriving sectors including: petroleum, construction, catering, accommodation, trade and procurement. South Sudanese have trouble accessing such business opportunities due to the lack of capital, as well as their weak client connections and technical skills. Given current limitations, backward linkages from such booming sectors present an interesting alternative for South Sudanese to benefit from current market opportunities. Along these lines, a “local content” rating and reward system could be instrumental in helping foreign investors engage further with the local economy, whilst a “local content” small and medium-sized enterprises (SME) fund would be helpful in promoting local job creation, enhancing income along the value chain and developing a competitive local industry as well as a balanced middle class.
The Wrong vs. the Right End of the Stick - The Potential & Limitations of the Diaspora in Support... more The Wrong vs. the Right End of the Stick - The Potential & Limitations of the Diaspora in Supporting the Growth of Small and Medium Local Firms in Post Conflict South Sudan
Given the scarcity of access to finance for small and medium firms (SMEs) in conflict affected countries, Peace Dividend (an investigative SME finance organization) attempted to channel Diaspora remittances to fund private businesses in South Sudan. The tested hypothesis was that through the close nit and strong Diaspora networks which function both as a channel for information and as contract enforcement mechanisms (Javorcik, Ozden, Spatareanu, Neagu, 2006), the Diaspora may be able to lend or invest in local businesses at a lower risk threshold than other international investors, or at times even local banks. Though the Diaspora were found not to be effective in mitigating the moral hazard or the adverse selection problems riddling South Sudan’s SME finance markets, they did play a crucial role as entrepreneurs (if granted financial access) providing great value in expanding the value chain to rural areas and thus expanding and deepening the local employment and entrepreneur base.
Whilst there is no shortage of women at the micro-entrepreneur level, these are scarce at larger ... more Whilst there is no shortage of women at the micro-entrepreneur level, these are scarce at larger business levels in South Sudan. This article considers the possible causes of this scarcity, as well as potential methods of addressing this disparity based on Peace Dividend’s experience of financing and promoting medium sized entrepreneurs in South Sudan
Two major impediments that obstructed timely and efficient execution by the Bank in Southern Suda... more Two major impediments that obstructed timely and efficient execution by the Bank in Southern Sudan are (1) the failure to negotiate and settle on procurement structure that could function with the Bank’s complex procurement standards, (2) the lack of listening, flexibility and adaptability of the Bank’s structure to changing circumstances, program dysfunction and lessons learned. Addressing these two issues would greatly enhance the ability of the Bank to execute in post-conflict environments such as Southern Sudan. These changes are vital for the Bank’s operational image in such environments, as many actors from both local entities and international organizations are aware of these dysfunctions.
The purpose of this report is to break new ground in enhancing access to finance for small and me... more The purpose of this report is to break new ground in enhancing access to finance for small and medium enterprises operating in countries recovering from civil strife. This paper presents an that alternative lending methodology that would be more effective in reducing risk and informational asymmetry despite the informality of post conflict systems, hence enabling the short run scaled provision of finance to small and medium sized firms. Results are based on the experimental application of innovative techniques in South Sudan. The model that has been proven to function is a balanced solution involving backward linkages from thriving sectors through the direct allocation of purchase contracts, equipment finance and business advice. This is a key result as it means that the jobs and income generating opportunity can be provided to scale in the short run despite the informality of post conflict environment, whilst institutions and systems are formalized for long-term growth. The coordinated funding of programs that adopt such measures would achieve significant short run impact in complex and still largely informal environments such as post-conflict South Sudan.
The purpose of this report is to raise attention to the constraints that presently restrict the p... more The purpose of this report is to raise attention to the constraints that presently restrict the provision of finance in Southern Sudan, and recommend actions that would stimulate the development of the sector as well as a more broad based provision of financial services.
The main providers of financial services in Southern Sudan consist of five commercial banks and six or so microfinance agencies, while a sprinkling of foreign exchange agencies provide foreign exchange and transfer services, six insurance agencies provide a range of insurance services. The commercial banks provide loans, advances and trade finance, but their lending portfolio (63 Million SDG according to the Bank of Southern Sudan’s December 2008 reports) covers only a meagre 7% of the approx. 6000 registered firms and less than 1 % of the Government of Southern Sudan’s revenue. Similarly, the microfinance agencies estimate that their microloan portfolio (9 Million according to self reported figures) only services 5% of the available clients in the greater Juba region, and less than 1% of the potential market in Southern Sudan. Further, the financial sector only provides finance in urban hubs, focuses primarily on the non-productive sectors (such as trade, construction and hotel services, etc.), and only dedicates 10 % of its loan portfolio to small firms (loans between 1000 and 100,000 USD) in Southern Sudan. The financial sector is clearly small and underdeveloped.
The main issues hampering the depth and breadth of provision by commercial banks are not the lack of liquidity, but (1) the lack of competition, and the poor capacity of local banks (in terms of credit analysis skills, controls, systems, management capacity and corporate governance), (2) the lack of collateral due to the frail structures for land registry and a nascent legal, regulatory and enforcement framework, and (3) the specific characteristics of businesses in Southern Sudan. Credit is rationed according to the high risk and the low ability to recover assets – excluding certain sectors and company types with low short-term cash flows and collateral.
Recommendations to enhance the provision of finance by commercial banks include (1) the entry of new banks in coordination with an escalated support to BOSS (for banking supervision) as well as to the local banks (in terms of capacity building), (2) the development of legal, regulatory and enforcement frameworks for lending technologies that match the client characteristics of businesses in Southern Sudan, and (3) the improvement in the financial transparency of businesses (audits, credit bureaus, business training) in coordination with the development of alternative lending technologies that are better suited to the client characteristics of businesses in Southern Sudan (guarantee/ subsidy provision, group lending structures, fixed asset lending, leasing models, factoring and asset based lending, etc). The establishment of an insurance commission might also heighten their ability to access loans from the commercial banks.
This report thus presents a set of recommendations to enhance the provision of finance of microloans by microfinance agencies, and individual loans as well as medium scale loans for trade finance (in terms of LOCs), as working capital for business expansion, and bridge finance to assist in the purchase of fixed assets (overdraw facilities). It is important to note that these recommendations would not enhance the provision of large-scale loans for agricultural finance, investment into manufacture, and real estate, and the demand for start up capital by local Sudanese firms. These would best be met by nor would be better addressed by public private partnership or through alternative support systems.
Given that some of the recommended actions will take several years to implement successfully (e.g. the availability of land as properly registered collateral), a short run strategy to address the financing needs of businesses would be ideal. Accordingly, an investigation into associated methods of reducing the lack of financial transparency of businesses in Southern Sudan (audits, credit bureaus, business training) as well as appropriate alternative lending technologies that are better suited to characteristics of businesses in Southern Sudan (lack of collateral, etc) would be timely. This report, as well as the subsequent investigation would thus pave the way for the development of innovative structures to address the specific access to finance issues in post conflict countries.
The purpose of this report is to outline the current provision of microfinance in Southern Sudan ... more The purpose of this report is to outline the current provision of microfinance in Southern Sudan and to raise attention to the constraints that presently restrict its broad based provision and its potential impact.
While a handful of microfinance institutions (MFI’s) currently provide microfinance services in Southern Sudan, these only service 1% of potential clients, offer a limited range of products, and do not as yet address the productive, rural and agricultural sectors effectively. Certain MFI’s suffer from a high default rate and feedback from the microfinance agencies detail limitations including unstable access to funds (particularly in terms of grant and equity), the lack of a regulatory framework that would enable them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, poor monitoring and controls, etc). Further issues that have been hindering the MFI’s provision of microfinance include low staff retention and the demolition of markets by local government entities, while their geographical and sectoral outreach is limited respectively by security concerns and client access to productive training.
The main measures with the potential to address these constraints include the better incentivised entry of further large international microfinance actors (attracted through the development of a regulatory framework, a more integrated approach to urban planning that takes into account the importance of building the informal sector as a source of income generation, the comprehensive training of the labour force, and the smoother and enhanced access to loan, equity, and grant funding), in coordination with the enhanced capacity building of the present actors (through the increased provision of technical support to the microfinance agencies). As there are now a number of organizations now involved in the provision of support to the microfinance industry in Southern Sudan, a better coordination between relevant organizations would be recommended to avoid duplication and address all gaps. Finally, given the acute need of recovering communities with little access to capital or finance, the development of agricultural and rural lending methodologies appropriate to the post conflict environment would key in enhancing livelihood possibilities.
With rich resources and an untapped consumer market, South Sudan holds great potential for invest... more With rich resources and an untapped consumer market, South Sudan holds great potential for investment. However, the short run challenge lies in solutions that can connect the current skills and capacities of the local population to thriving sectors including: petroleum, construction, catering, accommodation, trade and procurement. South Sudanese have trouble accessing such business opportunities due to the lack of capital, as well as their weak client connections and technical skills. Given current limitations, backward linkages from such booming sectors present an interesting alternative for South Sudanese to benefit from current market opportunities. Along these lines, a “local content” rating and reward system could be instrumental in helping foreign investors engage further with the local economy, whilst a “local content” small and medium-sized enterprises (SME) fund would be helpful in promoting local job creation, enhancing income along the value chain and developing a competitive local industry as well as a balanced middle class.
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Given the scarcity of access to finance for small and medium firms (SMEs) in conflict affected countries, Peace Dividend (an investigative SME finance organization) attempted to channel Diaspora remittances to fund private businesses in South Sudan. The tested hypothesis was that through the close nit and strong Diaspora networks which function both as a channel for information and as contract enforcement mechanisms (Javorcik, Ozden, Spatareanu, Neagu, 2006), the Diaspora may be able to lend or invest in local businesses at a lower risk threshold than other international investors, or at times even local banks. Though the Diaspora were found not to be effective in mitigating the moral hazard or the adverse selection problems riddling South Sudan’s SME finance markets, they did play a crucial role as entrepreneurs (if granted financial access) providing great value in expanding the value chain to rural areas and thus expanding and deepening the local employment and entrepreneur base.
The main providers of financial services in Southern Sudan consist of five commercial banks and six or so microfinance agencies, while a sprinkling of foreign exchange agencies provide foreign exchange and transfer services, six insurance agencies provide a range of insurance services. The commercial banks provide loans, advances and trade finance, but their lending portfolio (63 Million SDG according to the Bank of Southern Sudan’s December 2008 reports) covers only a meagre 7% of the approx. 6000 registered firms and less than 1 % of the Government of Southern Sudan’s revenue. Similarly, the microfinance agencies estimate that their microloan portfolio (9 Million according to self reported figures) only services 5% of the available clients in the greater Juba region, and less than 1% of the potential market in Southern Sudan. Further, the financial sector only provides finance in urban hubs, focuses primarily on the non-productive sectors (such as trade, construction and hotel services, etc.), and only dedicates 10 % of its loan portfolio to small firms (loans between 1000 and 100,000 USD) in Southern Sudan. The financial sector is clearly small and underdeveloped.
The main issues hampering the depth and breadth of provision by commercial banks are not the lack of liquidity, but (1) the lack of competition, and the poor capacity of local banks (in terms of credit analysis skills, controls, systems, management capacity and corporate governance), (2) the lack of collateral due to the frail structures for land registry and a nascent legal, regulatory and enforcement framework, and (3) the specific characteristics of businesses in Southern Sudan. Credit is rationed according to the high risk and the low ability to recover assets – excluding certain sectors and company types with low short-term cash flows and collateral.
Recommendations to enhance the provision of finance by commercial banks include (1) the entry of new banks in coordination with an escalated support to BOSS (for banking supervision) as well as to the local banks (in terms of capacity building), (2) the development of legal, regulatory and enforcement frameworks for lending technologies that match the client characteristics of businesses in Southern Sudan, and (3) the improvement in the financial transparency of businesses (audits, credit bureaus, business training) in coordination with the development of alternative lending technologies that are better suited to the client characteristics of businesses in Southern Sudan (guarantee/ subsidy provision, group lending structures, fixed asset lending, leasing models, factoring and asset based lending, etc). The establishment of an insurance commission might also heighten their ability to access loans from the commercial banks.
This report thus presents a set of recommendations to enhance the provision of finance of microloans by microfinance agencies, and individual loans as well as medium scale loans for trade finance (in terms of LOCs), as working capital for business expansion, and bridge finance to assist in the purchase of fixed assets (overdraw facilities). It is important to note that these recommendations would not enhance the provision of large-scale loans for agricultural finance, investment into manufacture, and real estate, and the demand for start up capital by local Sudanese firms. These would best be met by nor would be better addressed by public private partnership or through alternative support systems.
Given that some of the recommended actions will take several years to implement successfully (e.g. the availability of land as properly registered collateral), a short run strategy to address the financing needs of businesses would be ideal. Accordingly, an investigation into associated methods of reducing the lack of financial transparency of businesses in Southern Sudan (audits, credit bureaus, business training) as well as appropriate alternative lending technologies that are better suited to characteristics of businesses in Southern Sudan (lack of collateral, etc) would be timely. This report, as well as the subsequent investigation would thus pave the way for the development of innovative structures to address the specific access to finance issues in post conflict countries.
While a handful of microfinance institutions (MFI’s) currently provide microfinance services in Southern Sudan, these only service 1% of potential clients, offer a limited range of products, and do not as yet address the productive, rural and agricultural sectors effectively. Certain MFI’s suffer from a high default rate and feedback from the microfinance agencies detail limitations including unstable access to funds (particularly in terms of grant and equity), the lack of a regulatory framework that would enable them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, poor monitoring and controls, etc). Further issues that have been hindering the MFI’s provision of microfinance include low staff retention and the demolition of markets by local government entities, while their geographical and sectoral outreach is limited respectively by security concerns and client access to productive training.
The main measures with the potential to address these constraints include the better incentivised entry of further large international microfinance actors (attracted through the development of a regulatory framework, a more integrated approach to urban planning that takes into account the importance of building the informal sector as a source of income generation, the comprehensive training of the labour force, and the smoother and enhanced access to loan, equity, and grant funding), in coordination with the enhanced capacity building of the present actors (through the increased provision of technical support to the microfinance agencies). As there are now a number of organizations now involved in the provision of support to the microfinance industry in Southern Sudan, a better coordination between relevant organizations would be recommended to avoid duplication and address all gaps. Finally, given the acute need of recovering communities with little access to capital or finance, the development of agricultural and rural lending methodologies appropriate to the post conflict environment would key in enhancing livelihood possibilities.
Given the scarcity of access to finance for small and medium firms (SMEs) in conflict affected countries, Peace Dividend (an investigative SME finance organization) attempted to channel Diaspora remittances to fund private businesses in South Sudan. The tested hypothesis was that through the close nit and strong Diaspora networks which function both as a channel for information and as contract enforcement mechanisms (Javorcik, Ozden, Spatareanu, Neagu, 2006), the Diaspora may be able to lend or invest in local businesses at a lower risk threshold than other international investors, or at times even local banks. Though the Diaspora were found not to be effective in mitigating the moral hazard or the adverse selection problems riddling South Sudan’s SME finance markets, they did play a crucial role as entrepreneurs (if granted financial access) providing great value in expanding the value chain to rural areas and thus expanding and deepening the local employment and entrepreneur base.
The main providers of financial services in Southern Sudan consist of five commercial banks and six or so microfinance agencies, while a sprinkling of foreign exchange agencies provide foreign exchange and transfer services, six insurance agencies provide a range of insurance services. The commercial banks provide loans, advances and trade finance, but their lending portfolio (63 Million SDG according to the Bank of Southern Sudan’s December 2008 reports) covers only a meagre 7% of the approx. 6000 registered firms and less than 1 % of the Government of Southern Sudan’s revenue. Similarly, the microfinance agencies estimate that their microloan portfolio (9 Million according to self reported figures) only services 5% of the available clients in the greater Juba region, and less than 1% of the potential market in Southern Sudan. Further, the financial sector only provides finance in urban hubs, focuses primarily on the non-productive sectors (such as trade, construction and hotel services, etc.), and only dedicates 10 % of its loan portfolio to small firms (loans between 1000 and 100,000 USD) in Southern Sudan. The financial sector is clearly small and underdeveloped.
The main issues hampering the depth and breadth of provision by commercial banks are not the lack of liquidity, but (1) the lack of competition, and the poor capacity of local banks (in terms of credit analysis skills, controls, systems, management capacity and corporate governance), (2) the lack of collateral due to the frail structures for land registry and a nascent legal, regulatory and enforcement framework, and (3) the specific characteristics of businesses in Southern Sudan. Credit is rationed according to the high risk and the low ability to recover assets – excluding certain sectors and company types with low short-term cash flows and collateral.
Recommendations to enhance the provision of finance by commercial banks include (1) the entry of new banks in coordination with an escalated support to BOSS (for banking supervision) as well as to the local banks (in terms of capacity building), (2) the development of legal, regulatory and enforcement frameworks for lending technologies that match the client characteristics of businesses in Southern Sudan, and (3) the improvement in the financial transparency of businesses (audits, credit bureaus, business training) in coordination with the development of alternative lending technologies that are better suited to the client characteristics of businesses in Southern Sudan (guarantee/ subsidy provision, group lending structures, fixed asset lending, leasing models, factoring and asset based lending, etc). The establishment of an insurance commission might also heighten their ability to access loans from the commercial banks.
This report thus presents a set of recommendations to enhance the provision of finance of microloans by microfinance agencies, and individual loans as well as medium scale loans for trade finance (in terms of LOCs), as working capital for business expansion, and bridge finance to assist in the purchase of fixed assets (overdraw facilities). It is important to note that these recommendations would not enhance the provision of large-scale loans for agricultural finance, investment into manufacture, and real estate, and the demand for start up capital by local Sudanese firms. These would best be met by nor would be better addressed by public private partnership or through alternative support systems.
Given that some of the recommended actions will take several years to implement successfully (e.g. the availability of land as properly registered collateral), a short run strategy to address the financing needs of businesses would be ideal. Accordingly, an investigation into associated methods of reducing the lack of financial transparency of businesses in Southern Sudan (audits, credit bureaus, business training) as well as appropriate alternative lending technologies that are better suited to characteristics of businesses in Southern Sudan (lack of collateral, etc) would be timely. This report, as well as the subsequent investigation would thus pave the way for the development of innovative structures to address the specific access to finance issues in post conflict countries.
While a handful of microfinance institutions (MFI’s) currently provide microfinance services in Southern Sudan, these only service 1% of potential clients, offer a limited range of products, and do not as yet address the productive, rural and agricultural sectors effectively. Certain MFI’s suffer from a high default rate and feedback from the microfinance agencies detail limitations including unstable access to funds (particularly in terms of grant and equity), the lack of a regulatory framework that would enable them to better fund themselves through savings, and poor capacity (poorly trained staff, lack of IT systems, poor monitoring and controls, etc). Further issues that have been hindering the MFI’s provision of microfinance include low staff retention and the demolition of markets by local government entities, while their geographical and sectoral outreach is limited respectively by security concerns and client access to productive training.
The main measures with the potential to address these constraints include the better incentivised entry of further large international microfinance actors (attracted through the development of a regulatory framework, a more integrated approach to urban planning that takes into account the importance of building the informal sector as a source of income generation, the comprehensive training of the labour force, and the smoother and enhanced access to loan, equity, and grant funding), in coordination with the enhanced capacity building of the present actors (through the increased provision of technical support to the microfinance agencies). As there are now a number of organizations now involved in the provision of support to the microfinance industry in Southern Sudan, a better coordination between relevant organizations would be recommended to avoid duplication and address all gaps. Finally, given the acute need of recovering communities with little access to capital or finance, the development of agricultural and rural lending methodologies appropriate to the post conflict environment would key in enhancing livelihood possibilities.