FINANCIAL MATTERS: The Role of Microfinance Banks in Post War Sierra Leone

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By David M ARUNA

  The early warning signs of Sierra Leone’s eleven-year  civil war began when the rule of Sir Milton Margai in 1964, was increasingly distinguished by corruption, mismanagement, and electoral violence that led to a weak civil society, the collapse of the education system. And, unlike his half-brother, Sir Albert Margai did not see the state as a maniple of the public, but instead as a tool for personal gain and exaltation,  and even used the military to suppress multi-party elections that threatened to end his rule.

Siaka Stevens emerged into politics in 1968 when Sierra Leone was constitutionally democratic. When he declined after his seventeen years rule of the All People’s Congress Party, Sierra Leone was a one-party state. Stevens’ rule, which was called “the 17-year plague of locusts, left  every state institution in ruin , perversion and   drunkenly linked behind. The legislative wing of government was undermined, judges were suborned, and the treasury was financially bankrupt,not to mention the PET projects that supported insiders which crashed to natural death

When Stevens failed to integrate his opponents, he often resorted to state sanctions, executions and exile. Stevens transformed the government into a one-party state under the administration of the All People’s Congress Party in April 1978.

In 1985, Stevens gave up his authority and handed over power Joseph Saidu Momoh who was a general in the Sierra Leone Armed Forces. President Momoh was an ill-famed   leader who maintained the state of affairs of his predecessor president Stevens.

 During Momoh’s seven years of rule, there were no checks and balances in his administration which led to a wider spread of unchecked corruption and the state was unable to pay its civil servants which eventually led to the complete collapse of the economy

 By 1991, Sierra Leone was ranked as one of the poorest countries on the globe, even though the country is endowed with some many natural resources such as diamonds, gold, bauxite, rutile, iron ore, fish, coffee, and cocoa.

Rebel soldiers overthrew Stevens’s guy, Joseph Momoh, calling for a return to a multiparty system in 1992 and in 1996, there was another military coup which removed the country’s military leader and the president.

The establishment of microfinance banks both in the urban and rural, emanated in Germany some 200 years ago from a small informal beginnings as part of an emerging aid movement, with the first thrift society anchored in Hamburg in 1778 which was the first community bank in 1801.

Also, the first urban and rural cooperative credit associations in 1850 and 1864, respectively. The provision of legal status, prudential regulation, and effectively delegated supervision played a crucial role in their further development, starting with the Prussian Savings Banks decree in 1838 and the Cooperative Act of the German Reich in 1889, the first cooperative law in the world.

Their successful operations  has been speculated with  39,000 branches.These two types of microfinance institutions now comprise 51.5% of  all banking assets in Germany and seem far healthier than the big national banks.

  Eventually, a multiparty presidential election was held in 1996, and the Sierra Leone People’s Party candidate Tejan Kabbah emerged the victor, becoming Sierra Leone’s first democratically elected president.

 His first term of administration was better wherein he established state institutions like, NASSIT, NRA, and NACSA etc.

 The lucrativeness of these  institutions gave almost 75% of his cabinet ministers to soil their hands in corrupt practices  and  the country  was now  engulfed  into  the highest pinnacle of corruption  during his last term of governance.   

Declaring the end of the war in January 2002 by the late President Kabbah,   opens up the economy to international NGOs, local NGOs, Microfinance Banks and other Financial Institutions to migrate and began full scale operation in the battered state to savaging the economy.

 Procredit as a microfinance bank was licensed to operate in 2007 but was acquired  by Ecobank Microfinance due to Non-Performing Loans (NPL), followed  by  BRAC and LAPE whose operations started 2008 and  42 and 24 branches nationwide.  

  The advent of Micro finance banks and institutions in  Sierra Leone has been  pleasant  and has  caused  great improvement in  the lives of  Sierra Leoneans by mingling  their objectives  and operation  through   Community Based  Organization  (CBOs), Cooperative Society, Small and Medium Enterprises (SMEs), because these institutions do not deal with individual  persons but corporation

 One of the prominent characters  play by microfinance banks or institutions in war affected nation is access to finance. The UK Department for International Development is one of the several development partners for whom access to finance is highly derived from and it gives as one of the headline results of its private sector approach, helping more than million people to access savings, credit and insurance Access to finance is now popularly referred to as financial inclusion and has gained particular prominence in recent years and includes but is not limited to microfinance alone

 The access to Eco bank MUNAFA fund has an impact on SMEs performance on business in Sierra Leon. The utilization of such fund had assisted the growth of the beneficiaries businesses and had also lead to the increase in the number of employees, and can meet family challenges and needs.

 The provision of financial services through microfinance banks and institution adhere to the needs of poor people which contribute to poverty alleviation, social justice, quality of life and human dignity

 These services also contribute to the economic growth and stability of emerging markets. For these reasons, microfinance has emerged as a leading strategy in sustainable economic development.

Microfinance bank and Institution can also provide support services for SMEs in the form of business, financial and managerial training. As most SMEs lack the requisite knowhow and some have little knowledge in financial management, this sort of training help their business to sustainable and deviate from collapsing

The commercial banks create wealth by given out loan base on collateralization but microfinance institutions   require a guarantee for loans. Therefore, poor people cannot access loans facility from any conventional banks which has created this credit gap between these two financial institutions.

Apart of the above reason , there are  other reasons why  banks are not willing to facilitate business with the  poor, such as lack of experience ,   cost incur in training of  the poor, high cost on the process of small loans,  illiteracy of poor and low profit margin of in their business.  In this regard, bank deals with more of high net worth customers instead of investing in the poor. This situation raised the reason and idea for microcredit through the microfinance institutions. Those who have no guarantee or any assets to present as guarantee, for them microfinance is a way to access finance to run businesses, to alleviate their poverty level, get social benefits in a sustainable manner.

 Finally  microfinance create  the platform for people to generate income to support their family, reduce  the unemployment rate, serves as an engine for economic growth and help community people to become self-employed in post war nations

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