AMUYAN CREDIT UNION

OFFICIAL LAUNCHING CEREMONY

WEBBO QUARTER, ZWEDRU CITY, GRAND GEDEH COUNTY
Liberia, West Africa

FEBRUARY 12, 2007

KEYNOTE SPEECH:
“MICRO-FINANCE/CREDIT INSTITUTION: ITS PRINCIPLES, AND RELEVANCE IN
LIBERIA’S POST-WAR RECONSTRUCTION”

PRESENTED BY:
MR. GLEH HUSTON APPLETON (BBA)
NATIONAL COMMUNITY DEVELOPMENT ASSISTANT
COMMUNITY-BASED RECOVERY PROGRAMME, ZWEDRU
UNITED NATIONS DEVELOPMENT PROGRAMME-LIBERIA
Mr. Superintendent, and Other Government officials here present;
Members of the United Nations Family and International Non-
Governmental Institutions; The Grand Gedeh Business Community and
Members of The AMUYAN Credit Union. Other Credit Unions here
present, Distinguished Guests, My very important Audience, fellow
Liberians; Ladies and Gentlemen.

I bring you greetings from the UNDP-Resident Representative: Mr. Jordan

Rhyne, UNDP Country Director: Mr. Steve Ursino, UNDP-Zwedru County
Coordinator: Madam Vivian Bruce-Tetteh as well as from the Staffs
Association of the UNDP Liberia. They congratulate you for your noble
initiative as a major step forward aimed at promoting private sector
contribution toward Post-war Liberia Reconstruction with specific emphasis
on Grand Gedeh County.

My very important Audience, having being invited to address this all-

important occasion, I wish to present to you today for our discussion:
“MICRO-FINANCE/CREDIT INSTITUTION: ITS PRINCIPLES AND
RELEVANCE IN LIBERIA’S POST-WAR RECONSTRUCTION”. During
this brief time of presentation, I ask your very close participation as we
discuss the above topic and theme for our understanding.

Definitions:
As we discuss the above topic, it is important that we understand what is
Micro-finance and Micro-Credit. There are several definitions of micro-
finance and micro-credit, but for our context, Micro-finance is “any small
and short-term loan, which administrative circle is usually within 3-months
per application, that helps poor people who wish to start or expand their
small businesses but, are not able to get banks to lend to them”. This
contextual definition, with great emphasis on women, is usually
administered to individuals formed in solidarity groups with the group
commitment serving as a base for loan administration. While, Micro-Credit
is the extension of small loans to individual small-business entrepreneurs too
poor to qualify for traditional bank loans. In developing countries especially,
micro-credit enables very poor people to engage in self-employment projects
that generate income. Micro-credit is the most important part of the micro-
finance field, which can comprise all other financial products such as micro-
insurance, micro-savings, etc. These micro-credit loans are usually applied
for longer periods between 3-months and 1-year respectively.

Historical Context:
It is probable that there is no definite “18th Century or earlier” origin of
micro-finance thoughts fully documented and that can be referenced as in
the case of many of our conventional disciplines such as Accounting,
Economics, Agriculture, Sociology, etc. But counting from the early
historical framework of financial practices, the concept of micro-finance can
be very closely related to the emergence of banking activities during the
“Financial Revolution in England at the second half of the 17th century,
when London's goldsmith-bankers (whose traditional role was the
fabrication of jewellery and plate) formed a system of banking through
mutual debt acceptance and inter-banker clearing which was than largely
viewed as an essential part of the formal business sector” .1 This was when
business merchants and traders, for security purposes of capital, began
micro-savings schemes of surplus bars of gold (than the medium of
exchange) with the Gold Smith for deposit in his “Vault”. Then, with the
increase in the demand from poor people for money either for emergency
consumption or trading purposes, the Gold Smith Bankers soon found
themselves able to lend as well. And from this, they became the middlemen
(intermediaries) in a developing market and began the practice of lending
for interest on borrowed capital. (You can visit the official government site of the USA's public
debt (http://www.publicdebt.treas.gov/opd/opdpenny.htm)

In recent years however, the evolution of Micro-finance thought, as has been

accepted and practiced the world over, was formally coined under the
famous, Grameen Bank Concept of Micro-finance “ which is our center of
discussion. Grameen Bank (GB) has reversed conventional banking practice
by removing the need for collateral and created a banking system based on
mutual trust, accountability, participation and creativity. Today, GB
provides credit to the poorest of the poor in rural Bangladesh, without any
collateral. At GB, credit is a cost effective weapon to fight poverty and it
serves as a catalyst in the over all development of socio-economic conditions
of the poor who have been kept outside the banking orbit on the ground that
they are poor and hence not bankable. Professor Muhammad Yunus, the
founder of "Grameen Bank" and its Managing Director, reasoned that “If
1
Department of Economics, Texas Christian University; Research article, Copyright 1997 Academic Press.
financial resources can be made available to the poor people on terms and
conditions that are appropriate and reasonable, these millions of small
people with their millions of small pursuits can add up to create the biggest
development wonder". 2

In one Bangladeshi Scenario: “…a very poor woman was allowed to borrow
$50 to buy chickens so she could sell eggs in one local community. As the
chickens multiply, she was able to produce more eggs to sell. Soon she was
also able to sell the chicks. Each expansion pulled her further from the
devastation of poverty to recovery and self-sustainability”. 3

Basic Principles of MFIs:

My Very Important Audience, as it has served as one of the most important
tools for lifting communities socio-economically in practiced places the
world over especially developing countries including post-war communities;
the formation, operations and assumptions toward success of any MFI,
which intends to positively impact lives of the poorest of the poor in the
process of post-war reconstruction of Liberia, like in the case of the Amuyan
Credit union, must be based on the following “Guiding and integrated
principles” 4 (as originally coined under the Grameen Bank Concept accepted universally):

1. Poor people need a variety of financial services, not just loans. Like
everyone else, the poor need a range of financial services that are
convenient, flexible, and affordable. Depending on circumstances, they
want not only loans, but also savings, insurance, and cash transfer
services.

2. Micro-finance is a powerful tool to fight poverty. When poor people

have access to financial services, they can earn more, build their assets,
and cushion themselves against external shocks. Poor households use
micro-finance to move from everyday survival to planning for the
future: they invest in better nutrition, housing, health, and education.

3. Micro-finance means building financial systems that serve the poor. In

most developing countries, as in the case of Liberia and specifically
2
19 75: Professor Yunus; Muhammad, founder and Managing Director of "Grameen Bank".
3
Micro-finance: An effective poverty reduction strategy; Grameen Bank Concept, 1975.
4
CGAP is a consortium of 31 public and private development agencies working together to expand access to financial services for the poor,
referred to as micro-finance. These principles were developed and endorsed by CGAP and its 31 member donors, and further endorsed by the
Group of Eight leaders at the G8 Summit on 10 June 2004.
 Grand Gedeh County, poor people are the majority of the population,
yet they are the least likely to be served by banks or bigger Financial
institutions. Micro-finance is often seen as a marginal sector—a
“development” activity that donors, governments, or social investors
might care about, but not as part of the country’s mainstream financial
system. However, micro-finance will reach the maximum number of
poor clients only when it is integrated into the financial sector. This
means, that the introduction of this initiative in the Grand Gedeh
Common Market System must be welcomed, nurtured and integrated
as an important component of the local financial system to reach a vast
scale of poorest of the poor.

4. Micro-finance can pay for itself, and must be able to do so if it is to

reach very large numbers of poor people and remain in the medium
and long runs. Most poor people cannot get good financial services that
meet their needs because there are not enough strong institutions that
provide such services. Strong institutions need to charge enough to
cover their costs. Cost recovery is not an end in itself. Rather, it is the
only way to reach scale and impact beyond the limited levels that
donors can fund. A financially sustainable institution can continue and
expand its services over the long term. Achieving sustainability means
lowering transaction costs, offering services that are more useful to the
clients, and finding new ways to reach more of the unbanked poor
people in Grand Gedeh County.

5. Micro-finance is about building permanent local financial institutions.

Finance for the poor, requires sound domestic financial institutions
that provide services on a permanent basis. These institutions need to
attract domestic savings, recycle those savings into loans, and provide
other services. As local institutions and capital markets mature, there
will be less dependence on funding from donors and governments,
including government development banks. If Amuyan Credit Union
must be a sustainable institution, it must build its capacity enough so
as to attract domestic savings and donor confidence and stand out to
the challenge of extending loan and financial opportunities to the very
poor in her communities even under the “risky” conditions.
 6. Micro-credit is not always the answer. Micro-credit is not the best tool
for everyone or every situation. Destitute and hungry people with no
income or means of repayment need other kinds of support before they
can make good use of loans. In many cases, other tools will alleviate
poverty better—for instance, small grants, employment and training
programs, or infrastructure improvements. Where possible, such
services should be coupled with building savings.

7. Interest rate ceilings hurt poor people by making it harder for them to
get credit. It costs much more to make many small loans than a few
large loans. Unless micro-lenders can charge interest rates that are well
above average bank loan rates, they cannot cover their costs. Their
growth will be limited by the scarce and uncertain supply of soft
money from donors or governments. When governments regulate
interest rates, they usually set them at levels so low that micro-credit
cannot cover its costs, so such regulation should be avoided. At the
same time, a micro-lender should not use high interest rates to make
borrowers cover the cost of its own inefficiency. And

8. Micro-finance works best when it measures and discloses its

performance. Accurate, standardized performance information is
imperative, both financial information (e.g., interest rates, loan
repayment, and cost recovery) and social information (e.g., number of
clients reached and their poverty level). Donors, investors, banking
supervisors, and customers need this information to judge their cost,
risk, and return.

Sustainability: The Role of Government and Donor Institutions

To the Government Liberia and Development Partners, in ensuring that the
local communities be effective participants in the recovery process and gain
self-sufficiency, we must realize that in this initiative however, Micro-finance
Institutions must never be left alone to float in any given economy under the
pretext of promoting free enterprising. The role of government must be to
enable financial services, not to provide for them directly. The Liberian
Government should set policies that stimulate financial services for poor
people at the same time as protecting deposits. This requires the need to
maintain macroeconomic stability, avoid interest rate caps, and refrain from
distorting markets with subsidized, high-default loan programs that cannot
be sustained. They should also clamp down on corruption and improve the
environment for micro-businesses, including access to markets and
infrastructure.

While on the other hand, our donor funds should complement private
capital, not compete with it. Donors like UNDP, UNCDF, IMF, World Bank,
and other development partners should provide grants, loans, and equity for
micro-finance. Such support should be temporary. It should be used to build
the capacity of micro-finance providers; to develop supporting
infrastructure like rating agencies, credit bureaus, and audit capacity; and
to support experimentation. In some cases, serving sparse or difficult-to-
reach populations can require longer-term donor support. Donors should
try to integrate micro-finance with the rest of the financial system. They
should use experts with a track record of success when designing and
implementing projects. They should set clear performance targets that must
be met before funding is continued. Every project should have a realistic
plan for reaching a point where the donor’s support is no longer needed.

My very important Audience, let us also recall here that a key bottleneck to
the viability of micro-finance services is the shortage of strong institutions
and managers. Micro-finance is a specialized field that combines banking
with social goals. Skills and systems need to be built at all levels: to include
managers and information systems of micro-finance institutions, the central
bank of Liberia that regulates micro-finance activities, other government
agencies, and donors. Public and private investments in micro-finance
should focus on building this capacity, not just moving money.

MFIs Relevance in Post-War Liberia Reconstruction:

“In the mid 1970s, micro-finance practice emerged to become one of the
most high profile poverty reduction and local economic development
interventions in the developing countries. The World Bank, IMF, bilateral
institutions (especially USAID and the UK’s DFID assistance arm), and the
wider non-governmental international development assistance community
(e.g. Oxfam, CARE International), have all become convinced that
establishing micro-finance institutions represents the most important
breakthrough in poverty reduction for decades.” 5 Poor individuals just
5
Keynote paper; Milford Bateman and David Ellerman: MICRO-FINANCE: POVERTY REDUCTION BREAKTHROUGH OR NEOLIBERAL
DEAD-END?, 2005.
require access to small amounts of loan capital via micro-finance
institutions, and they will be able to start their own micro-business and
eventually lift themselves and their communities out of poverty.

Fellow participants, indeed Micro-finance remains one of the most effective

and flexible strategies in the fight against global poverty and in Post-War
Liberia because it is sustainable and can be implemented on the massive
scale necessary to respond to the urgent needs of those living on less than US
$1 a day, the World’s poorest. Reports show that at least 80% of Liberians
at the labour age are unemployed. And so, to bridge this gap, Micro-finance
activities must be one of the strategic tools for poverty reduction as adopted
under the Millennium Development Goals.

Micro-finance has a positive impact far beyond the individual client. The
vast majority of the loans go to women because studies have shown that
women are more likely to reinvest their earnings in their businesses and in
their families. Let us also remember here that women still remain the most
vulnerable in every sphere of Liberian life and must be given the 1st priority
this time around along these lines. As families cross the poverty line and
micro-businesses expand, their communities benefit. Jobs will be created,
knowledge will be shared, civic participation will increase, and women will
be recognized as valuable members of their families and communities. If
these are upheld, the relevance of Micro-finance, as I strongly believe, will
be met in the shortest possible time playing a very significant role in
Liberia’s Post-War Reconstruction Process.

My Very Important Audience, I wish to state here that a number of efforts

have also started in realizing this dream at the National level. As the
Liberian Government strives to follow these conventional practices owning
from the many successes and relevance this practice has brought to
developing economies around the world, UNDP Liberia and other partners,
including IMF, World Bank, etc. have been working very closely with the
Government and people of Liberia to formalize this small but very
important sector as a vital component of her financial system in her
Governance Reform Strategy. On 10 March 2005, the micro-finance
programme document of UNDP was officially signed by the partners, and in
May of the same year, UNDP signed an agreement with the Dutch NGO,
Cordaid. Included in the micro-finance initiative is the establishment of the
National Micro-finance Task Force (NMTF), comprising of the government
of Liberia, banking institutions, micro-finance institutions, credit unions
and international organizations. Its membership includes the Ministry of
Planning and Economic Affairs (MPEA), Ministry of Finance (MF), the
Central Bank of Liberia (CBL), the Liberian Bank for Development and
Investment (LBDI), the Liberia Credit Union National Association
(LCUNA), the Local Enterprise Assistance Programme (LEAP) and UNDP
Liberia/UNCDF.

To promote national ownership of the micro-finance scheme and ensure its

sustainability, eight Liberians representing the members of the National
Micro-finance Task Force (NMTF) underwent in-depth training on micro-
finance at the International Training Center of the International Labor
Organization in Turin, Italy (25 July – 12 August 2005).

At the local Grand Gedeh level, UNDP, under her Small Arms Programme
and Community-Based Recovery Programme in conjunction with local
communities and the County Authorities launched, on January 26, 2007, the
Tchein Menyean kenneh Chiefdom Community-Based Cooperative Credit
Union with initial administrative and financial training conducted for 15
elected officials. UNDP has also provided start-up package for this initiative
as a pilot programme to introducing the concept at the County level. We like
to assure here that the initiative is purely community-based, community
driven and participatory. And that while we encourage increased private
sector involvement and participation in the socio-economic development of
Liberia, let us base our efforts on building sustainable Micro-Finance
Institutions that would attract Increased Domestic Savings, promote social
outreach to meet the needs of the poorest of the poor and as well as attract
donor confidence for capacity building.

I thank you.