Study of Microfinance Sector Capacity Building in Sierra Leone

Study of Microfinance Sector
Capacity Building in Sierra Leone
June 2008

Assignment 2007/146094
Country : Sierra Leone
Study of Microfinance Sector
Capacity Building in Sierra Leone
Prepared by :
Andrew Obara (Team Leader)
Poul Iben Hansen (Financial Sector Expert)
Submitted by
ADE in association with Grontmij Carl Bro
"This report has been produced with the assistance of the European Commission. The contents of this report is
the sole responsibility of ADE and can in no way be taken to reflect the views of the European Commission."

Table of Contents
LIST OF ACRONYMS ................................................................................. 1
EXECUTIVE SUMMARY ............................................................................. 1
PART I: OVERVIEW OF THE SECTOR ASSESSMENT ................................... 3
1. INTRODUCTION...................................................................................... 3
1.1. Country Context ........................................................................ 3
1.2. Rationale for the Study............................................................... 4
1.3. Approach and Methodology Used ................................................. 5
1.4. Possible Limitations and Challenges ............................................. 6
2. THE MICROFINANCE SECTOR IN OTHER ACP COUNTRIES ......................... 7
3. THE MICROFINANCE SECTOR IN SIERRA LEONE...................................... 8
3.1. State of the Rural/ Pro-poor Financial Sector................................. 8
3.2. Consumer characteristics............................................................ 8
3.3. Supplier characteristics .............................................................. 9
3.4. Products and delivery methodologies ......................................... 11
3.5. Professionalism in managing MFIs.............................................. 12
3.6. Level of awareness of key sound practices .................................. 12
3.7. Stage of growth....................................................................... 12
4. ACCESS TO FINANCIAL SERVICES IN SIERRA LEONE ............................. 15
5. EXISTING INSTITUTIONAL FRAMEWORK .............................................. 17
5.1. Overview and structure ............................................................ 17
5.2. Government and its programs ................................................... 17
5.3. Registrars, supervisors/ regulators ............................................ 17
5.4. Apex Organizations (Loan Funding & Capacity Building)................ 17
5.5. Training and technical assistance service providers ...................... 17
5.6. Development partners.............................................................. 18
5.7. Lessons learnt to date .............................................................. 18
6. POLICY AND REGULATORY ENVIRONMENT ........................................... 19
6.1. Financial sector laws & their enforcement ................................... 19
6.2. Government’s stated policy....................................................... 19
7. GAP/ SWOT ANALYSIS....................................................................... 19
7.1 Strengths and weaknesses........................................................ 19
7.2. Opportunities and Threats ........................................................ 22
7.3. Strategic Gaps in the sector ...................................................... 23
PART II. FIVE YEAR STRATEGY [2010-2014]...................................... 24
1. CAPACITY BUILDING STRATEGIES ...................................................... 24
1.1. Overall Goal............................................................................ 24
1.2. Objectives and outputs............................................................. 24
1.3. Strategies to Achieve the Objectives .......................................... 27
1.3.1. Fund raising for microfinance capacity building ......................... 30
1.3.2. Establishment of a wholesale fund for microfinance................... 31
1.4. Continuity Strategy of SMART-Cap............................................. 32
2. RECOMMENDATIONS......................................................................... 33

APPENDICES ......................................................................................... 35
APPENDIX 1: LOGICAL FRAMEWORK FOR THE STRATEGY............................... 37
APPENDIX 2: ACTIVITY MATRIX FOR THE STRATEGY ..................................... 41
APPENDIX 3: GROWTH OF UGANDA’S MICROFINANCE SECTOR....................... 47
APPENDIX 4: ASSESSMENT OF NSOS .......................................................... 52
APPENDIX 5: POLICY, LEGAL AND REGULATORY ENVIRONMENT ..................... 73
APPENDIX 6: LIST OF DOCUMENTS REVIEWED ............................................. 83
APPENDIX 7: LIST OF PERSONS INTERVIEWED............................................. 87
APPENDIX 8: MFI PERFORMANCE SUMMARIES.............................................. 91

LIST OF ACRONYMS
Short
ACP
ADE
AfDB
ARC
ARD
AROA
BizClim
BoSL
CARE
CB
CBFI
CCF
CEDA
CoP
CORDAID
DEC
DFC
EC
ECD
EDF
EU
EUR
FS
FSS
GoSL
HM
IC
IDB
IFAD
KfW
MarMCB
MatMCB
MDGs
MFI
MFP
MIS
Long
African, Caribbean and Pacific Group of States
Aide au Développement Economique
African Development Bank
American Refugee Committee
Association for Rural Development
Adjusted rate of return on assets
Business Climate Facility
Bank of Sierra Leone
Cooperative Assistance Relief Everywhere
Community Banks
Community Based Financial Institution
Christian Children’s Fund
Community Empowerment and Development
Agency
Chief of Party
Catholic Organisation for Relief and Development
AID
Delegation of the European Commission
Strategy Advisors and Project Managers for the
Financial Sector
European Commission
European Commission Delegation
European Development Fund
European Union
Euro, currency
Finance Salone
Financial Self Sufficiency
Government of Sierra Leone
Hope Microfinance
Investment Committee
Islamic Development Bank
International Fund for Agricultural Development
Kreditanstalt für Wiederaufbau
Marampa Masimera Community Bank
Mattru Masimera Community Bank
Millennium Development Goals
Microfinance Institution
Microfinance Programme
Management Information System

MITAF
MOFDEP
NaCSA
NCRRR
NDB
NGO
NSO
OFSA
OSS
PrCB
PRIMED
ROSCA
SAPA
SC
SCB
SLAMFI
SME
SMT
TA
TOR
UNCDF
UNDP
UNHCR
USAID
USD
VSLA
WB
WH
YCB
RTA
PC
Microfinance Investment and Technical Assistance
Facility
Ministry of Finance, Planning and Economic
Development
National Commission for Social Action
National Commission for Reconstruction,
Resettlement and Rehabilitation
National Development Bank
Non Governmental Organization
Network Supported Organisation
Other Financial Services Act
Operational Self Sufficiency
ProCredit Bank
Promoting Initiations for Micro Enterprise
Development
Rotating (Osuso) Savings and Credit Associations
The Social Action and Poverty Alleviation
Programme
Steering Committee
Segbwema Community Bank
Sierra Leone Association of Microfinance
Institutions
Small and Medium Sized Enterprises
Sierra Leone Microfinance Trust
Technical Advisor
Terms of Reference
United Nations Capital Development Fund
United Nations Development Programme
United Nations High Commission for refugees
United States Agency for International
Development
United States Dollar, currency
Village Savings and Loan Associations
World Bank
World Hope
Yoni Community Bank
Resident Technical Advisor
Paramount Chief

EXECUTIVE SUMMARY
This report articulates and concludes a five month assignment for the
government of Sierra Leone under the coordination of ADE in association
with Grontmij|Carlbro as participants in the BizClim framework contract.
The assignment was to study the microfinance industry and develop a
national capacity building strategy for it. In line with the Terms of
reference, the consultants accomplished the following:
Document reviews to assess the policy/legal/ regulatory environment
and meso level support structures
Field visits to MFIs and chiefdoms
Interviews with key players
Study of a successful ACP country in MF
Analysed the demand survey report (done by DFC under another
contract)
Microfinance industry gap/ SWOT analysis
Draft strategy
Stakeholders’ workshop and regional conference
The key strategic gaps identified and addressed in this strategy are:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Absence of an institutionalised, lasting capacity building
framework
Inadequate knowledge and skills at all levels
Over-ambitious and less than effective laws on non-bank
financial regulation
Limited rural/ geographical outreach
Limited diversity of products and their delivery methodologies,
severely limiting growth in all the other areas
Very low business aptitude and financial services awareness
among most of the population
(vii) Weak national network support organizations
(viii) Lack of stakeholder agreement on fundamental industry issues.
(ix)
Lack of adequate funding, both for capacity building and loan
portfolios
To address the above gaps, the National Capacity Building Strategy
(2010 – 2014) seeks to:
Establish an effective, institutionalised national capacity building
centre for MF with distinct windows for MFI strengthening &
inculcation of sound practices 1 , product development, outreach
deepening/ broadening, and for business capacity enhancement
1
Including training & sensitization of NSOs, government and other public officials whose
roles impact on the MF industry,
page 1

Support member-initiated and member-sustained growth of
SLAMFI for lobby, advocacy and industry dialogue
Implement an effective, systematic fund raising for microfinance
sector capacity building
Recommend the setting up of a wholesale lending function to
finance MFI loan portfolios on a market responsive and sustainable
way
Point out the key constraints and problems, not directly related to
the microfinance sector, which unless addressed will check the
success of the strategy.
This report also makes recommendations on the following strategic level
gaps, weaknesses and threats which cannot be addressed fully by the
strategy because responsibility and authority for their implementation
falls outside of the sector:
Review of the relevant legislation and regulatory provisions
Physical and ICT infrastructure
Inadequate regulation of community banks under the current
legislation
Illiteracy
Public expectations on fast outreach by MFIs
page 2

PART I: OVERVIEW OF THE SECTOR
ASSESSMENT
1. Introduction
This report presents the findings and analysis from the microfinance
industry assessment of Sierra Leone, explains the strategic gaps
identified and proposes strategies to address them. The strategies focus
on critical areas that need to be addressed for microfinance capacity
building to become more effective during and after the five years.
The assignment followed a request for assistance filed by the National
Commission for Social Action (NaCSA) on behalf of the Government of
Sierra Leone. NaCSA, a Government Commission in Sierra Leone, works
on reconstruction, social welfare initiatives and microfinance capacity
building. Following the request, ADE in association with Grontmij|Carlbro
won the bid (under the BizClim framework contract) to undertake the
industry assessment and develop a strategic development plan for Sierra
Leone’s microfinance industry.
This document is the final assignment outcome. It embraces both an
assessment of the country’s microfinance industry capacity building and a
strategy/ recommendations for more effective and efficient microfinance
capacity building. Because detailed reports on industry assessment have
already been sent 2 to the client and contracting entity during the first
phase of the assignment, the first part of this report is presented in a
succinct and concise way. This allows the actual strategy, which is the
key deliverable, to take more prominence in the document.
1.1. Country Context
Sierra Leone emerged out of a vicious civil war in 2002. By the time it
ended, the war had destroyed the country’s infrastructure, economic life,
social structures and people’s morale immensely. Government has since
then embarked on a phased recovery, rehabilitation and reconstruction
programme.
A few facts and observations highlight the country’s economic and
demographic characteristics, and thus provide some insight into the
broader context of the microfinance industry in the country:
The population is about six million people of whom just under 50
per cent are over 20 years old (working age)
By 2003, the country had about 935,800 households – which could
have grown to 1.01 million by now 3
2
3
In line with the ToR
If we apply an estimated growth of 2%, one third of the overall annual population
growth
page 3

The informal sector (which has the bulk of potential microfinance
clientele) accounts for about two thirds of the labour force
65 per cent of the population lives in rural areas
Annual economic growth (GDP) is around 6%
Over 80 per cent of the population lives below the international
poverty line of US$ 1 per day
Largely illiterate or semi-literate population
Annual rate of inflation is below 10% and the national currency 4 is
fairly stable
The country has 20 ethnic groups, with Krio as the national lingua
franca, English as the official language and a number of local
dialects
In international trade, exports are dominated by diamonds
accounting for over three quarters of the export value
The country has a negative trade balance not likely to be closed up
soon
Over 80% of imports are consumer goods.
The above aspects strongly suggest that purposive promotion of rural
development and inclusive economic growth is necessary. Government is
committed to doing this and prioritization of microfinance outreach is a
relevant strategy contributing to its realisation.
1.2. Rationale for the Study
Government of Sierra Leone’s economic development strategy points out
development of microfinance (for increased access to financial services
by rural and poor people) as one of its priorities. To some extent, the
microfinance industry, which is still young in the country, has shown a
potential to fulfil this. In context, the rationale for this undertaking 5 lay in
the following aspects:
The vital place of microfinance in the national development
priorities
Microfinance, as an emerging vital sector, needs a comprehensive
and coherent capacity building strategy as a basis for its
accelerated development
The comprehensive sector assessment done in 2003 recommended
some strategic initiatives including implementing a Pro-Poor
Financial Sector Development as a project (PPFSD, which is in
place). These initiatives and other developments have provided
lessons learnt which, together with lessons learnt elsewhere in the
ACP, should appropriately inform the next microfinance capacity
building strategy for the country
The current phase of the PPFSD, under MITAF 6 ends in 2009 and a
grand strategy needs to be developed for the years after that
4
5
6
The Leone
Microfinance industry assessment and development of a comprehensive capacity
building strategy for the sector
Which focuses mainly on strengthening microfinance retail institutions
page 4

The political will, national policy, current limited supply of financial
services and vivid market potential all seem to favour microfinance
development, yet the industry outreach, though quite impressive in
growth over the last four years, remains modest
A majority of people in the country do not have access to financial
services, and this can be a check on overall economic growth
In the context of all the above, the key gaps, weaknesses and
threats needed to be identified for the strategy to be well
formulated.
1.3. Approach and Methodology Used
The approach taken in the assignment, which was highlighted in the ToR,
followed a logical process in which each subsequent activity was informed
by a preceding one and eventually all the activities contributed towards
the findings and strategy. Using this approach the consultants undertook
the following broad activities in sequence:
(ii)
(iii)
(iv)
(v)
(vi)
Review of numerous key documents to get a broad
understanding of the industry structure, operations, issues and
dynamics, and to assess the policy/legal/ regulatory
environment as well as the meso level support
Development of guiding interview/ survey tools followed by field
visits to MFIs and chiefdoms
Interviews with key players (non-MFIs)
Study of the relevant capacity building aspects of an successful
ACP that has a well developed microfinance sector 7
Analysis of the demand/supply survey report by DFC under
another contract, to get more facts and opinion for the industry
assessment and strategy development
(vii) Conducting the industry/ sector gap analysis, using information
from all the above processes
(viii) Drawing up a list of key strategic gaps, threats & weaknesses
to be addressed in the strategy
(ix)
(x)
(xi)
Development of overall goal, key objectives, desired outputs
and a detailed activity matrix
Draft of capacity building strategy
Planning for and conducting the national stakeholders’
workshop and regional conference, to get more input from
various stakeholders
(xii) Production of the final report (industry assessment report and
capacity building strategy).
7
Uganda
page 5

1.4. Possible Limitations and Challenges
The following are the possible limitations and challenges to the smooth
realization of this strategy:
Assignment looked at the microfinance industry, which is
heavily affected by developments external to it. Although
recommendations have been made on some of these, events
and circumstances outside of the industry could affect the
success of the strategy
At the time of completion of this assignment, there doesn’t
seem to be an obvious, strong and effective institution to
champion the implementation of the strategy after the PPFSD
project ends. MFP-NaCSA, the requestor of the assignment, has
since been significantly weakened by way of reduced
professional staff, continued absence of operational funds and
inadequate logistics
There are considerable fundamental differences among
stakeholders 8 that unless resolved are likely to affect the
implementation of this strategy.
8
On their strategic thinking on key aspects of the industry
page 6

2. THE MICROFINANCE SECTOR IN OTHER ACP COUNTRIES
This subsection briefly presents the wider context and dynamics of
microfinance in other ACP countries, putting the specific case of Uganda
that shares a lot with Sierra Leone. The ToR required consultants to look
into this wider context so as to complement the local lessons learnt in
developing a suitable industry sector strategy for Sierra Leone.
Microfinance as an industry has risen from incognito to worldwide
recognition in less than 20 years. In many poor and middle income
countries, it has played a key role in providing financial services for the
poor, marginalized or remote rural people that the banking sector
previously found “unbankable”. Among the ACP countries, the
microfinance industry is at various stages of maturity – ranging from the
very mature ones at the financial sector integration stage like Bolivia,
Bangladesh and Uganda to those at the growth stage like Sierra Leone
and to those at start-up stage like Liberia. In many ACP countries,
especially in Africa, the formal banks have for long had limited interest in
serving the low income people. The banks have tended to concentrate
around urban and peri-urban centres to the relative neglect of rural areas
where in most cases the masses live. Microfinance institutions are making
headway in providing financial services for such people, although a lot
still needs to be done. 9
Institutions offering microfinance services in ACP countries now range
from some commercial banks to prudentially regulated MFIs in special
tiers, non-regulated microfinance institutions, village banks, community
banks, savings and credit cooperative organizations (SACCOs) and small,
local community based organizations. Whereas the industry structure
differs from one country to another, all these various institutional
categories or their equivalents exist in most ACP countries that have a
microfinance industry.
Of the ACP countries that have developed a mature microfinance
industry, Uganda has the closest similarities to Sierra Leone and thus
offers the closest parallels (location in Africa, emergence from civil
conflict in 1986 to establish economic structures to induce growth, and
predominance of subsistence farming as the source of livelihood, large
informal sector). In the work plan, the consultants agreed with the client
to review the microfinance industry of one other ACP country and to get
some lessons there from.
The growth of microfinance in Uganda has shown that adaptation of
international sound practices, active government support in creating a
suitable environment, focus on sustainability, industry cohesion and a
holistic approach to capacity building all play vital roles in promoting
development of the industry. Appendix 4 to this report gives some
details on the growth of Uganda’s microfinance.
9
In areas such as developing suitable products, more affordable pricing, broadening and
deepening outreach
page 7

3. THE MICROFINANCE SECTOR IN SIERRA LEONE
3.1. State of the Rural/ Pro-poor Financial Sector
Among the adverse effects of the war in Sierra Leone was a destruction
of rural finance. Banks that had upcountry branches closed them. Some
bank branches in the provinces were burnt or otherwise destroyed. The
result is that currently, commercial banks are only concentrated in
Freetown the capital and Bo, the second city. Outside of these, there are
no bank branches. Following the worsening of rural infrastructure and
rural economy, nearly all savings and credit cooperative organizations
have been rendered non functional and even their financial apex, the
National Cooperative Bank, closed. Former rural banks have also all
closed down.
Some NGOs have started microfinance programs and a number of them
are showing very encouraging potential. From December 2005 (when the
Pro Poor Financial Sector Development project managed by MITAF
started working with MFIs) to September 2007, for instance, the 10
MFIs 10 in aggregate realised the following overall improvement:
TABLE 1: COMPARATIVE OVERALL PERFORMANCE OF MFIS
PERFORMANCE MEASURE DEC 2005 Sep 2007
Number of borrowers 24,251 48,115
Total loan portfolio (US$ millions) 2.8 4.9
Total number of savers 3,383 8,688
Total Savings/ deposits (US$ millions) 0.28 1.33
Additionally, BoSL also helped four communities to open up community
banks as pilots to provide a demonstration effect to the other
communities to open their own. One community bank is doing well, one
is doing averagely well and two are doing critically badly. Apart from in a
few large cities like Freetown, therefore, there is inadequate supply of
financial services in most of the country.
3.2. Consumer characteristics
The following characteristics were identified by the Microfinance Demand
Survey and the assessment leading to this strategic plan. The demand
survey sampled households representative of all the relevant
characteristics of the country’s population.
10 ProCredit Bank(new and not an MFI in the strict sense), Finance Salone(FS), Hope
Microfinance HM), Community Empowerment and Development Agency(CEDA),
Association for Rural Development(ARD), Christian Children’s Fund/ Sierra Leone
Microfinance Trust (CCF/SMT), Yoni Community Bank, Marampa Masimera Community
Bank, Matru-Jong Community Bank and Segbwema Community Bank
page 8

High level of illiteracy; overall, 62% of household heads reported
to have no formal education, more so in the rural (73%) than in
the urban areas (36%).
Agriculture is the most common source of income (55% of
households). In rural areas it accounts for 74% of household
income.
Overall the lowest income region is the North, followed by East,
South and then Western in that order
Level of education impacts on usage of formal financial services:
75% of the households where the household head has no formal
education uses informal services, which only 5% of those with
post-secondary education use
Only 8% of households without formal education but 76% of
households with post-secondary education are banked.
For the majority of respondents the reasons for not borrowing are
related to access.
Current MFI clients are the poor and/ or low income people in
urban & peri-urban locations 11 : rarely the very rural dwellers
For many of those that have little or no access to financial services,
the mention of “microfinance” reminds them of the defunct
government credit (chiefdoms and NGO schemes), prompting them
to ask questions like “when will the money come” or “how will it
be distributed). They therefore need a lot of sensitization and
education to become suitable consumers of sustainable financial
services.
Most of those who approach MFIs seek loans rather than savings
or any other financial services
There is general lack of business acumen and financial awareness
among the existing and potential MFI clientele
3.3. Supplier characteristics
The table below is a summary of supplier characteristics, compiled after
assessing the 10 institutions currently aided by the Pro-poor Financial
Sector Development project managed by MITAF as well as some informal
set-ups. The assessment included field visits, performance reviews and
detailed questionnaires which the MFIs filled and returned to the
consultants.
11 Including some trading centres in rural areas.
page 9

TABLE 2: FINANCIAL SERVICE SUPPLIER CHARACRTERISTICS IN
SIERRA LEONE
NGOs
COMMUNITY
BANKS
OTHER
BANKS
INFORMAL
GROUPS
Ownership
Fluid
structures
with no
concrete
ownership
Companies
limited by
guarantee with
share capital;
owned by
users who
have paid for
shares
Distinct
owners for
each bank
User-owned
and informal,
in many
cases not
formalized
Governance
Governance
and
oversight by
a board of
directors,
most of who
are of good
profile and
need MF/
governance
related
training
Board
members from
the local
communities
and a BoSL
representative;
most
significantly
need MF/
governance
training
Boards of
directors
oversee
management;
BoSL
regulates
No formal
governance
but in some
cases quite
effective
because
members all
know one
another
Management
Senior
managers
are mainly
from the
welfare
background;
a few from
banking
Managers,
mainly
nationals,
supported by
RTAs and staff.
They critically
need further
technical
training
Professional,
experienced
management,
including
expatriates
Group self
management;
no hired or
independent
managers
Technical
aptitude
Overall, fair
aptitude
which has
improved
with MITAF
training, and
could be
improved
with more
training and
TA
Management
and board
members in
need of
training; RTAs
doing some
good job of
technical and
mgt training
Management
is technically
apt and very
technically
skilled
No technical
aptitude. In
their modest
way,
members
govern and
manage their
affairs
Products
Mainly group
based
lending,
backed by
collateralized
savings, with
limited
product
variety
Group and
individual
savings, group
& individual
loans, current
accounts.
Better product
variety than
NGOs
Full range of
conventional
banking
products
Collective
savings and
merry-goround
types
of lending
page 10

Profitability/
sustainability
Asset quality
Outreach
Poverty
focus
NGOs
OSS around
or above
100% in
most, and
profitability
is improving
In some
cases good
(below 5%);
in others
less healthy.
Overall,
better than
community
banks.
Far more
numerical/
geographical
outreach
than
community
banks,
though still
modest.
6,000 to
over 20,000
clients per
institution.
COMMUNITY
BANKS
Some at
around or just
above break
even, others
far below
break even. In
3 of them,
poor portfolio
quality could
threaten
Sustainability
Generally poor,
PAR >30 days
ranging from
12% to 92%,
and they do
not take it as
emergency
Limited
outreach to the
immediate
catchments
area. From
just over 1,000
to just over
2,000
OTHER
BANKS
Operating
profitably
Very good,
with PAR >30
days near
zero
Target the
economically
active,
monetized
sector. Little
rural or
poverty
outreach
INFORMAL
GROUPS
Don’t aim at
institutional
profitability
Usually
excellent,
though
limited in
growth
Limited to
nucleus
communities
in villages.
High High Not much Very high
3.4. Products and delivery methodologies
Sierra Leone’s microfinance industry is at the start of its growth stage.
Normally at this stage, product ranges are limited. During the first phase
of this assignment (visits, interviews and surveys) it was ascertained that
for microfinance (which is the subject of the report), there are broadly
group and individual loans, mandatory, collateralised and voluntary
savings and money transfer services, mainly through sub agency of
Western union. Substantial product development usually takes place
during the consolidation and integration stages. In the case of Sierra
Leone, the bigger MFIs are just getting to grips with group methodologies
(which are very popular during the start-up, growth and early
consolidation stages but begin to wane in popularity during the later
consolidation and integration stages).
page 11

The NGOs offer basic individual and/ or group loans, with group
guarantees backed by collateralised or “mandatory” savings. Community
banks have a number of loan and savings products. The loan products of
community banks are very similar in their features, making them variants
of the same product rather than distinct products. Delivery
methodologies are also quite limited, involving (in most cases) clients
coming to the MFI premises or other designated location to get the
services.
Overall, there needs to be significant efforts at product development and
innovation over the next five years. Potential areas of product
development are asset finance/ micro leasing, micro housing/ mortgage
loans, special purpose savings deposits, agricultural loans, energy
equipment finance (like end-use finance for photovoltaic equipment), and
longer term loans for agro processing/ agribusiness value chain.
3.5. Professionalism in managing MFIs
As can be inferred from table 1 above, some MFIs are very professionally
managed and others are in dire need. Generally, the NGOs are doing
better in adopting and adhering to sound practices. The community
banks generally have a longer way to go.
Professionalism of the industry in Sierra Leone has in the last four years
been facilitated and in a sense driven by MITAF. Although by design
MITAF had a well defined and limited mandate, the project has
undertaken activities which have helped the MFIs to become more
professional and improve their operations.
3.6. Level of awareness of key sound practices
The 10 MFIs working with MITAF are very aware of international sound
practices and have imbibed them to varying degrees. Their management,
staff, board members have also been trained on key areas of sound
practices. Other institutions offering microfinance and other stakeholders
have, however, not been exposed adequately.
3.7. Stage of growth
Microfinance sectors/ industries that have matured into integration
(where microfinance is an integral part of the financial sector) have
generally gone through the following broad stages:
page 12

Figure 1:
Stages of Microfinance industry growth
start up
Growth
Consolidatio
n
Maturity/
Integration
1. Start-up: During which there are just a couple of institutions involved,
country industry standards are not yet set, outreach is minimal, portfolio
quality not very healthy, there is some confusion whether microfinance is
a business or charity, the MFIs are generally not profitable and have little
aspiration to be.
2. Growth: During which there are upcoming MFIs which are growing
rapidly in asset volume and clientele, more institutions are coming up to
provide microfinance, country industry standards start to be discussed
but are not yet very firmly adhered to, geographical outreach starts to
increase significantly but is still modest overall, portfolio quality of the
older MFIs show signs of sustainable improvement but asset quality in
the industry is overall still not very healthy, it is generally agreed that
microfinance is a business and not charity, some of the MFIs turn
profitable and most other MFIs develop the aspiration to become
profitable/ sustainable.
3. Consolidation: During which the sound practice MFIs have
enormously grown in asset volume and clientele, more institutions are
maturing, country industry standards have been set and are cherished,
the network organisation is fully institutionalised, substantial outreach
has been attained, portfolio quality of the older MFIs is continually very
good, it is obvious to all stakeholders that microfinance is a business and
page 13

not charity, MFIs source most of their funding from the money market
and some from concessional lenders, the institutions are continually
improving their profitability and sustainability.
4. Integration: During which most MFIs have embraced sound
practices, some MFIs have grown into regulated financial institutions
without significantly changing their major client characteristics,
commercial banks start to downscale their lower end market into
microfinance clients (and develop suitable products for these), MFIs in
their diversification also take up some of the commercial banks’ lower
end market. Most MFIs get their money from the local or international
money market, the institutions no longer yearn for grants to fund the
loan portfolio, outreach is deep and wide, product development and
innovation is widespread, competition comes from both other MFIs as
well as the more formal banks, country industry standards are taken as
a given, the network organisation plays the role of high level advocacy
and custody of sound practices, there are codes of conduct for MFIs,
profitability and sustainability are obvious targets, not just promoted by
professionals but which the institutions keenly work towards.
Sierra Leone is currently at the early period of the growth
stage, and therefore would benefit a lot from the
implementation of a well formulated industry capacity
building strategy.
page 14

4. ACCESS TO FINANCIAL SERVICES IN SIERRA LEONE
According to the survey report done by the consulting team (DFC and
Statistics Sierra Leon) that undertook a parallel statistical survey at
the time of this assignment:
90% of households are currently not served by any lending
institutions or groups
Well over half of the respondents are financially illiterate, more so
in rural (65%) than in urban areas (36%).
The country is severely under-banked. 96% of households receive
regular income from their most important source in cash.
Only 13% of households are currently saving, more so in urban
(24%) than in rural areas (8%).
Only 13% of households have an outstanding loan while the vast
majority has no access to loans
Of the households that currently have a loan, 81% received it from
an informal lender, 10% from a semi-formal lender or group and
only 9% from a formal institution such as a commercial,
development and community bank or an MFI
The incidence of never being banked decreases with an increase in
the level of education and financial literacy
The unserved households are particularly found where the head
has no formal education and is financially illiterate.
The key reasons given for not saving relate to lack of funds to
save, inaccessibility to financial institutions, low financial literacy
(translating into discomfort with financial institutions),and
irregularity of household income
The key reasons given for not borrowing relate to lack of access to
financial institutions, lack of information about the financial
institutions and their loans, lack of formal education (making it
difficult for people to approach and talk to financial institutions),
lack financial literacy, religious influence (Moslem households
tended not to borrow compared to Christians), loan conditions like
interest and collateral requirements by some financial institutions.
There are about one million households in Sierra Leone currently.
According to the findings summarised above, 90% of the households are
unserved by financial services in any form. Extrapolated to the
population, this means about 900,000 households are unserved. If we
assume that only one third of these constitute demand for financial
services and that in a household only one person effectively demands
financial services (both being very conservative assumptions), unmet
demand would presently be 300,000 potential clients.
page 15

5. EXISTING INSTITUTIONAL FRAMEWORK
5.1. Overview and structure
Key institutions in the industry are the MFIs ( NGOs, community banks,
companies) supported by MITAF, BoSL Microfinance and Community Bank
units, MFP of NaCSA and a few other institutions. There is also the
network organization, SLAMFI, in its embryonic stage.
5.2. Government and its programs
Government, through the microfinance unit in MOFDEP, provides macro
level support to the industry. MITAF is managed by a private consulting
firm on behalf of Government, and has to date produced the most
notable and consistent positive results in microfinance capacity building.
The others are the MFP at NaCSA which faces a challenging institutional
context as well as the microfinance unit of BoSL (with two sections: one
for community banks and the other for other MFIs). For now, government
related meso level support needs rationalizing in a clear institutionalised
framework.
5.3. Registrars, supervisors/ regulators
Resulting from the existing laws, there is some bit of confusion at the
moment. NGO, registered by Government, can in practice do
microfinance business while companies and cooperative societies in the
same business are in principle subject to regulation under the Other
Financial Services Act. BoSL reports to be working on draft legislation for
microfinance, and hopefully this anomaly will be dealt with therein.
5.4. Apex Organizations (Loan Funding & Capacity
Building)
Appendix 5 to this report is an assessment of the meso level
organization. As already mentioned, MITAF has to date had the most
significant impact by way of capacity building. The others have various
capacity challenges (especially technical know-how and institutional
context) which need to be addressed. SLAMFI, very vital for industry
cohesion and information dissemination, is yet to become a working
institution.
5.5. Training and technical assistance service providers
For a growing national microfinance sector, it is necessary to have well
informed trainers, consultants and other providers of technical assistance
with broad and deep knowledge of how the industry works and
international sound practices. This is largely lacking in Sierra Leone
(which is to be expected at this stage). Most microfinance consultants
presently come from outside the country. As part of this strategy,
page 17

purposeful assistance needs to be given to potential local consultants to
come up.
5.6. Development partners
The most notable donors to the industry’s capacity building and loan
capitalisation are the UNDP, UNCDF, KFW and CORDAID. All of these
work through MITAF, the project managing the Government’s Pro-poor
Financial Sector Development project. There are other donor
organisations that have funded or founded specific MFIs, but they do not
actively work with any others. The strategy for capacity building seeks to
appeal to other development partners to fund capacity building of the
microfinance industry.
5.7. Lessons learnt to date
Within the country, the following lessons have been learnt with regard to
the microfinance industry:
Directly delivered or closely directed micro credit from
Government usually fails and creates confusion in the
market for sound-practice microfinance institutions.
Institutional arrangements need to be suitable for
microfinance capacity building to be effective
Pooling capacity building funds and management into a
basket is helpful and efficient, especially if contracted to a
competent management agency
For outreach to increase significantly, institutional
capacity building is a vital necessity
Savings, credit and other financial services need to be
equitably emphasized and promoted; not just credit
Sound-practice based training and capacity building can
move the industry forward significantly
Contracted and accountable capacity building project
management can work well and deliver good results, if
well directed
Market responsive and business oriented outreach is
the most sustainable and reliable way to expend the
microfinance industry
page 18

6. POLICY AND REGULATORY ENVIRONMENT
Appendix 6 to this report is a full assessment of the relevant laws and
policy documents related to microfinance in the country. This section
gives a summary of the key relevant aspects.
6.1. Financial sector laws & their enforcement
Four laws related to the financial sector have been reviewed and enacted
since 2000. Two of them impact on microfinance and have many suitable
provisions. The few provisions pointed out by consultants as need in
review should be re-examined. Particularly, regulation should focus on
deposit safety and overall systemic stability. Registration, licensing,
regulation and supervision of licensed MFIs need to be made clearer and
more effective.
6.2. Government’s stated policy
Government’s policy on microfinance as a tool for poverty alleviation is
clear. It will provide support and create a conducive environment for
private sector led microfinance services to grow. The Microfinance Policy,
drawn by Government, its development partners in the microfinance
industry, is well formulate and if maintained, will supports the industry’s
orderly growth if adhered to.
7. GAP/ SWOT ANALYSIS
7.1 Strengths and weaknesses
From the industry assessment that formed the first phase of this
assignment, the consultants identified the country’s gaps in microfinance
capacity building by conducting a SWOT analysis. This section presents
the SWOT summary.
page 19

TABLE 3: INDUSTRY STRENGTHS AND WEAKNESSES
STRENGTHS
Good groundwork/ structure
for coordination is in place,
although actual coordination
is yet to mature
Some industry collaboration
started and continuing
Evident ability and potential
by MFIs to effect more
outreach to rural areas and
to the poor
Improving performance of
some MFIs, indicating that
with good TA and/ or
management, MFIs can
improve further
In some community banks,
PAR is coming down
(portfolio quality is
improving) – thanks to the
secondment of resident
technical advisors
WEANESSES
Inadequate local/ national supply of capacity
building services to MFIs in areas like accounting,
financial management, internal controls, product
development, business planning and others
Inappropriate institutional context of the MFP unit
(being part of NaCSA)
Poor loan portfolios, reflecting inability to manage
loans
Severe understaffing among NSOs, posing the
challenges of shortage of both numbers of staff and
critical skills needed
The member-based industry network, as an
institution, is yet to be established. Board
members have full time jobs in their own
institutions, which take priority over nurturing
SLAMFI
The association (SLAMFI) is financially weak
Owing to the rather narrow definition of
microfinance, community banks and other
institutions outside of NGOs do not take
themselves to be MFIs, thus weakening industry
cohesion
Current initiatives address the supply side and
there is no initiative that addresses the demand
side capacity needs.
The proposed MITAF exit strategy, by
strengthening SLAMFI to take over some key
MITAF activities, does not appear very suitable
Lack of a systematic and complete training/ TA
needs assessment before developing solutions
In some cases (NGO and community banks),
unclear ownership structures
A very narrow product range and minimal product
development/ innovation by the institutions –
perhaps meaning product features are unsuitable in
many cases for specific client needs
Inadequate double bottom-line focus; past
interventions exclusively focused on giving credit to
the poor. This was done to the relative neglect of
institutional sustainability. The current main
initiative, the Pro-Poor Financial Sector
Development under MITAF, focuses heavily on the
reverse.
page 20

Limited numerical and geographical outreach by all
types of microfinance institutions in comparison to
the market potential
Limited opportunities within the country for quality
training and technical assistance in diverse
performance areas
Lack of an all-embracing national framework for
microfinance capacity building.
The current capacity building framework is not
inclusive: MITAF deals only with fairly mature MFIs
and BoSL only nurtures community banks and gets
only minimally involved with other MFIs.
Weak network support organizations
Modestly knowledgeable and trained management
& staff of the MFIs
Overall poor loan portfolio management especially
among community banks.
Lack of industry knowledge among the board
members/ directors of MFIs
Promotion of loans/ credit as “microfinance” and
savings as only a means to getting the loans. This
reflects inadequate knowledge among MFI clients,
staff, management, board members and local
leaders.
Weak internal controls and management
information systems (MIS) among the institutions,
in some cases resulting into fraud
Community banks are weak, with little capital and
not capable of attracting investments, and yet they
are licensed to take savings from the public.
Low outreach and weak linkages with mainstream
financial institutions
Inadequate external financial support of MFIs for
fixed assets, initial salaries and other
establishment costs to effect rural branching out
Limited funding for innovation, research and
development, exacerbated by low capacity for
product development among MFIs
page 21

7.2. Opportunities and Threats
TABLE 4: INDUSTRY OPPORTUNITIES AND THREATS
OPPORTUNITIES
Supportive Government
policies, documented in a
clear way
Vast, unexplored/ unsupplied
national market for
microfinance
Government’s active
commitment to work towards
developing the industry
Available development
partners with financial means
to finance the development of
the microfinance industry
Vast demand for microfinance
services compared to current
coverage
THREATS
Lack of adequate funding, which has halted
activities of some NSOs like MFP-NaCSA
Possible adverse effects of politicizing microfinance,
like has happened elsewhere in Africa
A largely illiterate populace that forms the potential
clientele of microfinance; the demand survey shows
that the illiterate minimally use formal financial
services
Modest or poor business aptitude and culture
among the population, coupled with lack of basic
understanding of financial services.
Stakeholder disagreements arising from
dissimilarity of focus among them, which could
potentially check industry progress
Popular but unrealistic expectations that the
outreach (poverty and geographical) of
microfinance programs should be rapid, covering
the whole country in one or a few years. This often
leads to development of parallel government
programs or abandoning the market-led expansion
in favour of a more populist approach.
Lack of business supportive infrastructure – roads,
telecommunication, internet linkages, postal system
etc
Prudential regulation of all MFIs could turn out to be
counter-productive
Over-influence by donors could further fragment,
duplicate and complicate MF capacity building
efforts
No regulation guidelines for prudential regulation of
deposit taking MFIs
Scepticism within the population because of the
rural banks that existed before the war, failed and
people lost their money; to them, community banks
are a resurrection of the same. This is further
fuelled by there being no deposit insurance scheme
at the BoSL or anywhere else
Regulatory risk: under-regulation at present puts
MFIs that take deposits at risk of violating
prudential limits, and future imposition of full
prudential regulation could stifle their activities, if
commercial bank regulations are applied.
page 22

7.3. Strategic Gaps in the sector
From all the above weaknesses and threats, the consultants extracted/
identified the strategic gaps that are to be addressed in the five year
capacity building strategy. For this purpose, a gap is considered to be of
a strategic nature if;
(i)
(ii)
Non-attendance to it would impair or check progress/ effects of
the industry’s capacity building in a material way and,
Addressing it would result into a solution to several key
weaknesses and threats identified in section 7.2 above.
The following are the key gaps identified by the consultants and agreed
to by the stakeholders in the regional workshop:
Absence of an institutionalised capacity building
framework
Inadequate knowledge and skills at all levels
Limited rural/ geographical outreach
Limited diversity of products and delivery methods
Low business and financial services awareness among
the population
Weak MFIs and their national network support
organizations
Fundamental stakeholder differences on issues
Lack of adequate funding for capacity building and loan
portfolios
page 23

PART II.
FIVE YEAR STRATEGY [2010-2014]
1. CAPACITY BUILDING STRATEGIES
1.1. Overall Goal
To substantially enhance performance of the Sierra Leonean microfinance
sector by establishing a growing, vibrant and sustainable market of
microfinance product/ service users, providers, and suppliers of capacity
building support.
1.2. Objectives and outputs
The strategies are recommended with the key objectives of:
(i) Increasing outreach (depth and breadth)
(ii) Increasing product development/ innovation
(iii) Building the internal capacities of MFIs to grow sustainably
(iv) Enhancing the business and financial awareness of the
population
(v) Enhancing beneficial industry cohesion/ collaboration.
(vi) Securing coordinated financial support for the industry.
Accordingly, by the Dec 2014, the following results are expected:
Objective 1: Geographical & rural outreach by MFIs increased
Output 1.1: The number of rural 12
tripled.
clients served by beneficiary MFIs
Output 1.2: At least 150,000 are new 13 clients served by beneficiary MFIs
in rural Sierra Leone.
Output 1.3: At least 60 new branches of beneficiary MFIs or stand-alone
community based financial institutions established and serving lowincome
people in rural areas. At least two of these will be established in
every district.
12 For this strategy, rural should be any location outside a 10 km radius of Freetown and
Bo
13 Incremental numbers of clients since the institution started benefiting from the scheme
page 24

Objective 2: Product ranges of the beneficiary institutions
broadened
Output 2.1: At least four suitable agricultural/ agribusiness finance
products researched, and at least two of them developed, tested and
replicated to a minimum of 13 participating MFIs operating in rural areas.
Output 2.2: At least three other forms of productive-asset financial
products (such as micro-leasing, micro-mortgage, asset loans), suitable
for rural people, researched and two of them developed and replicated to
13 participating MFIs.
Output 2.3: At least one of the existing MF service delivery
methodologies for working capital/ trade finance further refined for
suitability to rural areas, and replicated to at least 10 participating MFIs
that are active in rural areas.
Objective 3: Internal capacities of MFIs built for sustainable
growth.
Output 3.1: Salone Microfinance And Rural Trades Capacity Enhancement
(SMART-Cap), the capacity building coordination institution, established
and operationalised by Dec 2009.
Output 3.2: At least 10 beneficiary MFIs that were not operationally or
financially sustainable at the start of scheme attain full financial
sustainability.
Output 3.3: At least 10 other beneficiary MFIs that were not operationally
sustainable at the start of the scheme attains full operational
sustainability.
Output 3.4: Each of the other beneficiary MFIs that will not have attained
full operational sustainability by the end of strategy period will have at
least doubled the level of operational sustainability since the start of the
scheme.
Output 3.5: Each beneficiary MFI at least triples its client numbers,
doubles its loan portfolio and maintains its portfolio at risk (PAR) below
5%.
Output 3.6: At least 20 Sierra Leonean actual and potential microfinance
consultants and trainers identified and trained in Microfinance Best
Practices and two other general microfinance related disciplines.
Output 3.7: All managers of MFIs, public officers who work on
microfinance related functions and MFI board members fully appreciate
microfinance sound practices. 14
14 Having been trained or sensitized through programs implemented as part of this
strategy
page 25

Objective 4: Industry cohesion and collaboration promoted
Output 4.1: SLAMFI secretariat established with a CEO, staff, its own
office and the necessary facilities.
Output 4.2: SLAMFI takes the initiative and leads other MF stakeholders
in lobbying to better laws, policies and regulation of microfinance;
frequently disseminates international and local microfinance information
and engages member-MFIs in industry “self-regulation”.
Output 4.3: SLAMFI conducts regular microfinance forums, at which
stakeholders freely share and work for common industry good.
Objective 5: Business and financial awareness of the population
enhanced
Output 5.1: Clients/ members of MFIs able to articulate their key rights
and responsibilities as consumers of financial services (having been
trained through programs under this strategy)
Output 5.2: A comprehensive rural business capacity needs assessment
done and report as well as a clear plan of action to address them
prepared and executed
Output 5.3: Rural business sensitization materials 15 developed in English,
Krio and local languages for rural business training/ sensitization,
educative radio programmes and visual displays.
Output 5.4: At least 50 rural business trainers/ TA providers trained on
the usage and message in the materials, to be able to train/ sensitize in
business basics and to help rural people to cluster up for access to
markets.
Output 5.5: At least 240,000 rural people sensitized through rural,
community level 5-day training seminars on basic business skills – at
least 3 seminars per district – and assisted to form enterprise clusters for
easier access to markets.
Objective 6: Coordinated financial support for the industry
secured
Output 6.1: Adequate funding for MF capacity building under this strategy
secured
Output 6.2: Microfinance wholesale fund established with a reliable and
experienced institution, independent of all capacity building concerns.
15 Informative flyers, posters, flipcharts and other informative visual/ audio/ literary aids
page 26

1.3. Strategies to Achieve the Objectives
The first phase of this assignment aimed at identifying strategic gaps in
Sierra Leone’s microfinance sector. On the basis of these strategic gaps,
six strategic objectives were derived for industry capacity building (sec
8.1 above). Under each strategic objective, a number of key desirable
outputs or results have been identified. To attain the five objectives, four
broad strategies have been developed. The following table summarises
the four strategies and the objectives they each address. Appendices 1
(logical framework) and 2 (activity matrix) to this report are vital parts of
the strategy. They expand the strategy and detail it out into an
implementable plan.
TABLE 5: SUMMARY OF THE STRATEGY
PROPOSED STRATEGY
Establish a well staffed capacity
building institution 16 (SMART-
Cap) by Dec 2009, to manage/
coordinate activities
implemented under the different
windows as recommended.
Establish SLAMFI as a strong,
member-based institution 17
Raise funds for all-round
microfinance capacity building,
and for running SMART-Cap
Establish an effective MF
wholesale fund – operated in a
commercially viable and socially
responsive way
TO ADDRESS OBJECTIVE.
1: Increase in geographical/ rural
outreach by MFIs
2: Broadening the product ranges of the
beneficiary institutions
3: Building the internal capacities of MFIs
for sustainable growth.
5: Business and financial awareness of
the population enhanced
4: Industry cohesion and collaboration
promoted
6: Funding for the industry (to support all
the five objectives)
6: Funding for the industry (Growth of
MFI portfolios, for them to extend their
services, attain greater outreach and
grow sustainably).
1.3.1. Establishment of SMART-Cap
In a sense, the most important strategy proposed in this report is the
establishment of SMART-Cap. This will be a program managed
independently by a competitively procured consulting or project
management firm, and whose head reports to a well constituted board
comprising of representatives from the Government, development
partners and some independent technocrats in the microfinance area. It
is vital that both Government and the funding development partners take
equitable part in governing SMART-Cap, and thus the board will function
like a normal corporate board. Strategic board decisions will be reached
by consensus and not a weighted voting procedure.
16 Proposed name: Salone Microfinance And Rural Trades Capacity Enhancement (SMART-
Cap)
17 For advocacy, lobby and information dissemination
page 27

The proposed structure of SMART-Cap is depicted by the chart below.
Figure 2: Proposed SMART-Cap structure
BOARD
SMART-Cap
CONTRACTOR
(COORDINATION, OVERALL MGT)
Window 1: CAPACITY DEVT
1. Institutional capacity
2. Business Capacity
Window 2: SERVICE EXTENSION
1. Outreach enhancement
2. Product development
The four strategy areas addressed by SMART-Cap are grouped into 2
windows: one managing institutional capacity building and business
capacity development functions (Capacity Development) and the other
managing the outreach and product development functions (Service
Extension).
Ideally, SMART-Cap should be managed under a framework arrangement
in which a lead firm takes overall responsibility for running the program
and achieving results, and subcontracts two other competent firms each
to undertake technical management and running of one window.
Owing to the scarcity of experience and skills within the country, overall
management positions of SMART-Cap and its two windows will most likely
be held by non-nationals. For each senior position, there should be a
substantive deputisation by a Sierra Leonean. Particularly, staff of current
government programs like MFP and MITAF should be part of SMART-Cap.
The local staff will deputize and understudy the expatriates as one option
for continuity after the five years.
To ensure Government’s support and ownership is recognized while
allowing for efficient movement of and accountability for SMART-Cap
funds, MoUs or contracts will be signed by the funding donors,
government and SMART-Cap management under which:
page 28

Funds committed by each donor and the purpose thereof are
known by all
SMART-Cap management requests for funds and gets them
directly from the donors, each time with copies of documents
submitted to Government for information and updates
Accountability is submitted by SMART-Cap management to the
Board and to each donor, with copies to Government.
SMART-Cap should start by sensitizing and training 18 all MFIs of all sorts,
and then proceed with them on a self-selection basis; the self selection
being based on the extent to which the institutions adopt and entrench
sound practices in their governance, management and operations.
In principle, the SMART-Cap design should allow for a donor to put
money into the general SMART-Cap pool, target only one window or even
narrowly target one cause/ activity to finance within a window.
This subsection is only a recommendation, albeit a very crucial one. It is
not a full design. The logical and very important first step in
implementation will be to do a comprehensive and detailed design of
SMART-Cap, covering but limited to the following aspects:
Institutional structure/ framework
Internal personnel and organisational structure
Operational policies for the coordination unit and procedures for
(administration, procurement etc) and for each window
Appraisal, processing and reporting policies and templates
Target clientele
Monitoring and evaluation provisions
Financing/ concentration limits
SMART-Cap relationships with stakeholders
Fund receipt and disbursement modalities
Resource allocation to windows and to strategic objectives therein
Reporting requirements
Eligibility and selection criteria of beneficiary institutions and
activities
Matching contributions
Publicity
It is essential and crucial that the design of SMART-Cap is done by
persons with proven experience in designing microfinance capacity
building funds or projects.
18 Mainly on Sound Practices in Microfinance
page 29

1.3.2. Establishment of SLAMFI
For a microfinance sector at its growth stage, the institutions need an
active network organisation that is well equipped to handle the
networking, lobby, advocacy and information dissemination roles. This
needs to go on without substantial dedication of time by managers of
MFIs who have their own targets to meet.
The logical first step of establishing SLAMFI will be to review its strategic
plan in view of this national strategy. The SLAMFI board should then seek
funding both from within and outside of this proposed framework, for
establishment of SLAMFI (rent for the first 12 months, salaries of the
manager and core staff for the first 2 years, and core operational funds).
The board should then hire a manager and one or two staff, task them
and hand over the management and operations of the network to them,
under keen oversight and monitoring by the board.
It will be essential that SLAMFI does not try to compete with trainers and
TA service providers in offering paid consulting or training services to
MFIs, and that it excels in effecting industry cohesion, spearheading
advocacy and disseminating information regularly.
1.3.1. Fund raising for microfinance capacity building
A vital aspect that is likely to convince donors/ development partners to
support this strategy is that SMART-Cap is designed and the strategy
adopted as the Government’s five-year plan for the microfinance
industry. This should give all stakeholders a clear sense of the direction
the Government is taking to support the industry. It will also
communicate a clear capacity building framework chosen by the
Government, and which development partners can work with.
As part of the SMART-Cap design, a review the costing and pricing of
initiatives under this strategy (that are at this stage only broad
estimates) will need to be conducted. The reviewed costing will then form
part of the basis for fund raising for capacity building.
As part of the SMART-Cap design, the alternative modes of participation
by donors should be articulated. Out of this, Government should later
construct a clear summary of SMART-Cap and further articulate the
different participation options the development partners have for funding
the initiative. Effectively, this brief should be a selling document that
Government uses to promote the cause of microfinance capacity building
and to attract funding for it. With it, Government should proactively talk
to donors and solicit their support (both within and outside SL). This
popularization of SMART-Cap and the strategy should be accompanied by
solid assurances by Government that when the donors put money into
the strategy, Government will not seek to micromanage or redirect
activities of SMART-Cap from what was agreed in the design.
Once SMART-Cap is in place, part of the management agency’s task
should be to continually seek and attract further funding for microfinance
page 30

capacity building from development partners, whether or not they have a
presence in the country.
1.3.2. Establishment of a wholesale fund for microfinance
Although this assignment was purely for capacity building (thus
precluding business/ loan funding for MFIs), the consultants know from
experience elsewhere that strengthening institutions when they do not
have reliable sources of loan funding can sometimes have limited effect.
It is therefore recommended that as part of this strategy but parallel to
the capacity building initiatives, Government works with its development
partners to establish a proper wholesale fund for microfinance. This
should be done outside all the capacity building initiatives for two
reasons:
(i)
(ii)
Capacity building projects/ initiatives are usually not structured
for a lending function
Quite often, the lending and capacity building roles would come
into conflict.
To set up the fund, Government will need to hire consultants who should
undertake key activities, including but not limited to the following:
Compile the lessons learnt from the previous programs in
the country
Compile lessons learnt from successful and failed attempts
elsewhere
Articulate the rationale for the need to establish a market
responsive wholesale fund
Design the wholesale fund, complete with policies/
procedures manuals and templates for application,
appraisal, contracting and monitoring
Assess development partners’ willingness to support the
fund
Appraise possible institutions that could operate the
wholesale fund and recommend at least two and at most
three.
Government and development partners will then need to negotiate with
the chosen institutions, work out modalities for operations and
operationalize the fund.
page 31

1.4. Continuity Strategy of SMART-Cap
For a five year strategy starting when the industry is just starting to
grow, it would be inappropriate to stipulate the exit or continuity strategy
of SMART-Cap from the start. To ensure that continuity elements are
built-in, however, each key position should have a local counterpart that
understudies it. Professional staff currently under MITAF and MFP should
particularly be part of SMART-Cap since perhaps they have the most
potential to take over SMART-Cap after the five years.
During the first half of the fourth year of this strategy, Government and
its development partners should agree on what to do with SMART-Cap as
they develop a continuity or exit plan. At that time, it might be useful to
evaluate the following and any other options before taking a decision:
1. Just wind up SMART-Cap if there is evidence that enough capacity
building has been done to develop a market of willing and able
consumers and providers of microfinance capacity building
services.
2. Identify a private sector entity to take over all assets and functions
of SMART-Cap, under certain conditions.
3. Extend the program into SMART-Cap II.
4. Set up a semi-autonomous government corporation to take over
from SMART-Cap.
5. Establish a permanent Trust to take over from SMART-Cap.
page 32

2. RECOMMENDATIONS
The following recommendations relate to aspects broader than or outside
of the microfinance industry that need to be addressed for the strategy to
succeed:
Review the Other Financial Institutions Act to clearly
differentiate between the institutions that are to be
prudentially regulated and those that are subject to
non-prudential regulations. In doing this, non-deposit
taking institutions and small, user owned institutions
should not be subjected to prudential regulation
For qualifying institutions, prudential regulations
should be applied without discrimination or favour.
Laxity in prudential regulation of any deposit taking
institution can undermine public confidence in the
financial sector through institutional failures in which
people lose their deposits
Implement an effective deposit insurance scheme for
deposit taking MFIs, probably run by the central
bank. This is necessary for restoring public
confidence in the financial sector when institutional
failures happen
Implement an all-inclusive Universal Primary and
Secondary Education, to increase the level of literacy
and exposure of the population over the longer term
Implement an all-inclusive Functional Adult Literacy
Program. This has proved to be a powerful tool for
poverty alleviation elsewhere, and it would also
ensure that with time, more people appreciate and
use financial services to improve their household
incomes and welfare
Speed up the rebuilding of infrastructure (like roads,
power grid, rural communication and produce
marketing infrastructure).
page 33

APPENDICES
page 35

APPENDIX 1: LOGICAL FRAMEWORK FOR THE STRATEGY
(All objectives and outputs are for Dec 2014 unless otherwise specified)
Strategic
objective
Geographical &
rural outreach by
MFIs increased
Outputs/
Indicators
The number of
rural 19 clients
served by
beneficiary MFIs
tripled.
At least 150,000
new 20 clients
served by
beneficiary MFIs in
rural Sierra Leone.
At least 60 new
branches
beneficiary MFIs
or stand-alone
CBFIs 21 opened;
at least two in
every district.
Means of
Verification
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
4. Field visits
Important
Assumptions
1. Country-wide
road, water and
other transport
infrastructure will
be significantly
improved by the
Government.
2. Government
maintains the nodirect-provision
policy on
microfinance
3. No prohibitive
regulation of non
deposit taking
institutions
Product ranges of
the beneficiary
institutions
broadened
Two suitable
agricultural/
agribusiness
finance products
developed,
replicated to 13
participating MFIs
Two other rural
focused
productive-asset
financial products
developed and
replicated to 13
participating MFIs.
1. MFI perf’
reports
2. Product
manuals of MFIs
3. SMART-Cap
reports
4. Field visits to
verify
1. MFI perf’
reports
2. Product
manuals
3. Field visits to
verify
1. Development
partners will be
keen to finance
product
development and
innovation
2. MFIs will have
more competent
management 22 to
deliver several
products
efficiently and
effectively
19 For this strategy, rural should be any location outside a 10 km radius of Freetown and
Bo
20 Incremental numbers of clients since the institution started benefiting from the scheme
21 Community based financial institutions
22 Following further targeted training or hiring of new, more experienced managers

Strategic
objective
Outputs/
Indicators
Means of
Verification
Important
Assumptions
One existing MF
service delivery
methodology
refined to suit
rural areas and
replicated to 13
participating MFIs
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
Internal capacities
of MFIs built for
sustainable
growth.
SMART-Cap
established and
operationalised by
Dec 2009.
1. Smart-Cap
design document
2. Office location
& address info
3. SMART-Cap
inception report
1. Government,
development
partners and all
key stakeholders
embrace this
strategy and
commit resources
to implement it
10 beneficiary
MFIs attain full
sustainability.
10 other
beneficiary MFIs
attain operational
sustainability.
Each beneficiary
MFI not attaining
operational
sustainability has
doubled its the
level of
operational
sustainability
Each beneficiary
MFI at least triples
its client number,
doubles its loan
portfolio and
maintains its
portfolio at risk
(PAR) below 5%.
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Terminal
evaluation report
4. Field visits to
the participating
MFIs
2. OFSA reviewed
to exclude
prudential
supervision of
non-deposit
takers, and to
provide for
prudential
regulation of
mature MFIs that
want to take
public deposits.
3. Property
ownership
structures (e.g.
popularization of
land title deeds)
will be improved.
4. There will be
enough willing
qualified
professionals
willing to set up
microfinance
consulting as a full
time business,
with no direct
external aid to
them.

Strategic
objective
Outputs/
Indicators
Means of
Verification
Important
Assumptions
20 Sierra Leonean
actual and
potential
microfinance
consultants and
trainers identified
and trained
1. List &
particulars of local
MF consultants
2. SMART-Cap
monitoring reports
3. Terminal
evaluation report
4. Interviews with
the consultants.
All managers of
MFIs, public
officers who work
on microfinance
related functions
and MFI board
members fully
appreciate
microfinance
sound practices. 23
1. MFI perf’
reports
2. SMART Cap
monitoring reports
3. Interviews with
MF managers,
directors & public
officers
Industry cohesion
and collaboration
promoted
SLAMFI secretariat
established with
staff, own office,
budget & facilities.
SLAMFI takes the
initiative and
leads other MF
stakeholders in
lobbying,
disseminates MF
related
information
regularly
1. Office location
& address
2. SMART-Cap
reports
3. Interview with
SMART-Cap mgt
1. Other Financial
Services Act
reviewed to suit
mF
2. Lobby memoirs
and minutes
1. Government
and its
development
partners are
willing to fund
SLAMFI
establishment and
operation, without
unduly controlling
its governance
and operations.
SLAMFI conducts
regular, scheduled
microfinance
forums.
Minutes of MF
forum meetings
Business and
financial
awareness of the
population
enhanced
Clients/ members
of MFIs able to
articulate their
key rights and
responsibilities as
consumers of
financial services
1. Interviews with
people in
chiefdoms
2. SMART-Cap
monitoring reports
1. Government
takes this
(massive
sensitization of
the population of
business aptitude
& responsible
23 Having been trained or sensitized through programs implemented as part of this strategy

Strategic
objective
Outputs/
Indicators
Means of
Verification
Important
Assumptions
A comprehensive
rural business
capacity needs
assessment done,
report & action
plan executed
Rural business
sensitization
materials 24
developed in
English, Krio and
local languages
1. Needs
assessment report
2. SMART-Cap
reports
3.
Copies of the
various materials
consumption of
financial services)
up as a national
priority.
2. The chiefs and
other local leaders
cooperate in
mobilising people
for sensitization/
training
240,000 rural
people sensitized
through rural,
community level
5-day training
seminars on basic
business skills
1.Training reports
2. SMART-Cap
reports
3. Interviews with
people in the
chiefdoms
Coordinated
financial support
for the industry
secured
Adequate funding
for capacity
building available
throughout the
five years
A MF wholesale
established and
accessible by all
qualifying MFIs
1. SMART-Cap
reports
2. Funding MoUs
between
Government or
SMART-Cap &
funders
3. Interviews with
beneficiary MFIs
1. Funding MoUs
between
Government &
wholesale funders
2. Wholesale fund
portfolio reports
1. Government
prioritizes this
strategy as its MF
capacity building
framework
2. MF
stakeholders buy
into this strategy
as the right
institutional
framework for
capacity building
3.Interviews with
beneficiary MFIs
4. Interviews with
host institution of
the wholesale
fund
24 Informative flyers, posters, flipcharts and other informative visual/ audio/ literary aids

APPENDIX 2: ACTIVITY MATRIX FOR THE STRATEGY
The table below summarizes the main activities for the strategy. The
budgets are preliminary estimates that will need to be reviewed as part
of SMART-Cap design. “J” in the table means the activity is to be
accomplished by 30 th June of the relevant year while “D” means it is to be
accomplished by 31 st December.
ACTIVITY
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Output 1.1: Number of rural 25 clients served by beneficiary MFIs tripled.
Budget
(US$
‘000)
Detail out the Outreach
window of SMART-Cap
SC 26
Designer
n/a 27 .
Support MFI 40 new
branches
-do- 2,400
Support 20 new CBFIs -do- 600
Output 1.2: At least 150,000 new 28 clients served by beneficiary MFIs in rural Sierra
Leone.
Three activities in (1.1)
above
Support MFI branches
& CBFIs to increase
clientele
SC
Designer
800
Output 1.3: At least 60 new branches beneficiary MFIs or stand-alone community
based financial institutions established
As in (1.1) above
Subtotal
for
objective 1 3,800
25 For this strategy, rural should be any location outside a 10 km radius of Freetown
26 SC+ SMART-Cap
27 Part of SMART-Cap design
28 Incremental numbers of clients since the institution started benefiting from the scheme

ACTIVITY
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Output 2.1: Two suitable agricultural/ agribusiness finance developed replicated
Detail out the Product
Development window
of SMART-Cap
Hire consultant,
develop Ag product 1
SC
Designer
Budget
(US$
‘000)
n/a 29
SCM 30 40
Hire consultant
develop Ag product 2
Test & roll out the 2
products
SCM 40
SCM/MFIs 10
Output 2.2: Two other productive-asset financial products for rural people developed
and replicated.
Hire consultant,
develop Asset product
1
Test & rollout Asset
product 1
Hire consultant,
develop Asset product
2
Test & rollout Asset
product 2
SCM 40
SCM/MFIs 5
SCM 40
SCM/MFIs 5
Output 2.3: One existing MF delivery methodology refined for suitability to rural areas
and replicated
Hire consultant,
reengineer
methodology
Rollout improved
methodology
Subtotal for
objective 2
SCM 30
SCM/MFIs 10
220
29 Part of SMART-Cap design
30 SMART-Cap Manager

ACTIVITY
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Output 3.1: SMART-Cap established and operationalised
Hire consultant to do a
detailed design of
SMART-Cap
Adopt SMART-Cap
institutional framework
Procure project
management firms to
run SMART under a
framework
arrangement
Set up SMART-Cap
office, staff, start
operations
Sustain SMART-Cap
operations –
management fees +
admin exp.
Budget
(US$
‘000)
Govt 31 200
Govt
n/a
Govt 32 90
SCM 100
SCM 11,520
Output 3.2: 15 beneficiary MFIs attain full financial sustainability.
Detail out Institutional
Capacity window of
SMART-Cap
SC
Designer
Support at least 60
15,000
MFIs’ cap build’ 33
Output 3.3: 20 other beneficiary MFIs attain full operational sustainability.
As in 3.3 above
Output 3.4: Each beneficiary MFI below full operational sustainability has doubled its
OSS
As in 3.3 above
Output 3.5: Each beneficiary MFI at least triples its client numbers, doubles its loan
portfolio and maintains its portfolio at risk (PAR) below 5%.
As in 3.3 above
Output 3.6: 20 microfinance consultants and trainers identified and further trained
n/a
Advertise an EOI for
consultants
SCM 10
Select qualified
consultants
SCM
n/a
Train qualified
consultants
SCM 120
31 With support of its development partners
32 With support of its development partners
33 Involving relevant training and technical assistance

ACTIVITY
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Budget
(US$
‘000)
Output 3.7: All MFI managers, board members, public officers with MF responsibility
fully appreciate microfinance sound practices.
Advertise for EOIs in
the training
Identify key targets for
the training
Hire trainers & conduct
trainings
Subtotal
objective 3
for
SCM 10
SCM
n/a
SCM 120
27,170
Output 4.1: SLAMFI secretariat established
Review
strategy
SLAMFI
Secure funds for
SLAMFI establishment
& operations
Hire SLAMFI manager
& staff
Support
operations
SLAMFI
Maintain manager &
staff
SLAMFI
members
SLAMFI
board
n/a
n/a
As above 10
Output 4.2: SLAMFI leads MF stakeholders in lobbying, frequently disseminates
microfinance information
Monitor SLAMFI on
strategy
implementation
SLAMFI
board &
members
Output 4.3: SLAMFI conducts regular microfinance forums, at which stakeholders
freely share and work for common industry good.
As in 4.2 above
Subtotal
for
objective 4 1,030
600
420
n/a
Output 5.1: Clients/ members of MFIs able to articulate their key rights and
responsibilities
See 5.4 below

ACTIVITY
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Output 5.2: Rural business capacity needs assessment done
executed
Budget
(US$
‘000)
and action plan
Hire consultants to SCM 5
undertake CNA 34
Conduct CAN
Prepare a suitable
action plan to address
gaps identified in CAN
SCM/
100
Cons 35
SCM
Output 5.3: Rural business sensitization materials 36 and radio programmes developed
Procure consultants to
develop materials&
programmes
Develop sensitization
info materials
Develop training
materials
n/a
SCM 10
SCM/
240
Cons 37
SCM/
240
Cons 38
Output 5.4: 240,000 rural people sensitized through community training
Prepare a grand plan
for community
training/ sensitization
Run educative
programmes on radio
Recruit rural business
trainers, conduct ToT
for them
Hire consultants/
service providers &
conduct rural business
training
SCM
n/a
SCM,
936
SPs 39
SCM 400
SCM 2,710
Output 6.1: Adequate funding for MF capacity building under this strategy secured
Popularise this strategy
to devt partners as
Government’s MF
strategy
Do a more concrete
costing of strategy
activities
Govt
SCM
n/a
n/a
34 Capacity needs assessment
35 Consultants
36 Informative flyers, posters, flipcharts and other informative visual/ audio/ literary aids
37 Consultants
38 Consultants
39 Service providers (hired by SMART-Cap)

ACTIVITY
Solicit donor funding
for different
components of SMART-
Cap
RESP’ 2009 2010 2011 2012 2013
J D J D J D J D J D
Govt +
SCM
Budget
(US$
‘000)
n/a
Output 6.2: Microfinance wholesale fund established
Outside of SMART-Cap,
design a wholesale
fund for MFIs
Govt,
consultant
45
Appraise available
institutions and
determine a home for
the fund
Govt+DPs 10
Secure wholesale
funds from
development partners
Contract the chosen
institution to
administer the
wholesale fund
Govt
Govt
n/a
n/a
Operationalize and run
the wholesale fund
WSF
50
Mgr 40
Subtotal for objectives 5&6
OVERALL TOTAL
4,746
36,966
40 Wholesale fund manager

APPENDIX 3: GROWTH OF UGANDA’S MICROFINANCE
SECTOR
Brief Economic History That Gave Birth to the Microfinance
Industry
Uganda suffered a complete economic breakdown from 1971 to 1979
during the harsh regime of the then president Idi Amin. The declaration
of Economic War 41 , disruption of linkages in the main cash crop value
chains, insecurity, disintegration and mismanagement of several sectors
of the economy, breakdown of law and order all took their toll on the
economy. Financial infrastructure, like other basics for a functioning
economy, broke down in the country. All the while, intermittent wars
raged with Ugandan groups in exile. The regime was overthrown in 1979
by a combined force of Ugandan guerrillas and the Tanzanian army. The
early to mid 1980s was for Uganda a period of wars and military coups.
The country degenerated further economically till by 1986, the whole
country was completely run down.
Government’s preoccupation from 1986 to the early 1990s was
reconstruction and recovery. This was followed by emphasis on provision
of an enabling environment for private businesses to thrive, private
sector-led growth and poverty alleviation/ eradication. In its economic
growth development planning which has since 1997 focused on poverty
alleviation, Government of Uganda has right from the start identified lack
of financial services for rural and poor people as a priority challenge for
national development. Accordingly, it supported the growth of the
microfinance sector. This is the stage at which Sierra Leone seems to be
– starting to support market-led, poverty focused provision of
microfinance.
The microfinance industry in Uganda was a natural offshoot of the
general historical dynamics of the country’s economy briefly explained
above. The economic breakdown left rural and other low income people
lacking financial services. Many banks closed their upcountry branches.
Cooperatives, including SACCOs, also closed down. Attempts to reverse
this trend in the mid and late 1980s through massive rural branch
opening by the then Uganda Commercial Bank (UCB) in the 1980s was
not successful as many of the branches made perpetual losses and were
closed down.
In their bid to alleviate poverty through a social agenda, a number of
NGOs and other aid organisations started developing some form of
microcredit as departments or side activities in the 1980s and early
1990s. At about the same time, a few specialized MFIs also started
delivering microcredit backed by compulsory savings. 42 Owing to the real
need for financial services by low income people, these microfinance
41 Expulsion of enterprising Asians and introduction of other decrees that made private
sector productive business extremely difficult
42 used as collateral substitutes

programmes grew fairly fast in number and size. They also helped to fill
the void left after Bank of Uganda in the late 1990s closed four banks 43
for insolvency including Cooperative Bank, then Uganda’s second largest
bank in terms of branch network.
In the early and mid 1990s, some of the NGO-type microfinance
functions were spun off into fully fledged MFIs or stand-alone
microfinance programmes. The mid and late 1990s was also a time of
increased interest and education in microfinance internationally. Through
a combination of donor programmes, Government support and keen
interest to learn on the part of the MFIs, a lot of fully sponsored training
and technical assistance based on “Microfinance Best Practices” was
provided during the late 1990s and early 2000s. This resulted into:
• The MFIs and other stakeholders broadening their understanding
of microfinance from microcredit to a full range of financial
services
• Appreciation by most stakeholders that microfinance should be
delivered in a sustainable and businesslike way
• Many MFIs and microfinance programmes developing long and
short term plans with a focus on operational and financial
sustainability, which when implemented enabled them to attract
increasing numbers of clients while adopting a more business
oriented focus.
Move Towards Commercialising and Mainstreaming Microfinance
The adoption of sustainability/ profitability alongside the social mission by
MFIs (which came to be referred to as the dual mission or double bottomline)
meant that sponsors and management of MFIs moved from seeing
microfinance purely as a social service to running the institutions with a
focus on profitability and long term commercial viability. The dual mission
drove the MFIs to seek greater outreach and the MFIs grew the numbers
of their clients significantly from the mid 1990s onwards.
At the same time, stakeholders of the microfinance industry (MFIs,
Government, donors, development partners and other people with
interest in the industry) started the Microfinance Forum (MFF), an
informal but very effective information sharing mechanism. Among other
developments, the MFF started discussions on how to mainstream
microfinance into the formal financial sector and create conducive
conditions for MFIs to become sustainable, thrive and grow. 44
The challenges
Commercialization and growth of microfinance in Uganda came with
some challenges. As MFIs grew in size and outreach, they started seeking
ways of becoming formal (regulated) financial institutions. With
43 Cooperative bank, Greenland bank, Trust Bank and International Credit Bank
44 For further details of microfinance in Uganda from the early years until 2004, see
Goodwin-Groen (CGAP-2004): UGANDA Microfinance Sector Effectiveness Review.

participation of the industry practitioners, MFIs, Government and other
stakeholders, BoU in 2002 drafted the MDI Bill from an earlier Financial
Sector Policy that had been approved by Government. In November
2003, Parliament passed the MDI Bill into law, creating opportunity for
large, mature MFIs to apply for BoU license under which they could
accept and intermediate savings from the public.
Government supported the commercialization, growth and transformation
of microfinance partly because of the belief that market led penetration
of microfinance services would deliver rapid expansion in the
geographical and poverty outreach and while lowering the interest rates
and other relevant costs significantly. Neither of these has happened
since the licenses were issued in 2004 and 2005. Outreach in increasing
at a reasonable pace but not rapidly while overall MF product pricing has
hardly reduced, despite increasing competition. Government, frustrated
by the inability of market forces to deliver what it desired to see as fast
as it wanted, has now decided to concentrate its microfinance support to
SACCOs. Under the Rural Financial Strategy, Government will assist one
SACCO per Sub County with capacity building and loan capital in order to
create an extensive financial infrastructure for inclusive development.
Thus it now appears that Government’s former enthusiastic support for
the industry has waned off, and it is going back to government-financed
microfinance. This was attempted and it failed twice before.
In the mean time, the MDIs, progressive SACCOs and other MFIs are
running growing and sustainable microfinance business.
Current Financial Sector Structure
The financial sector regulatory framework in Uganda currently categorizes
institutions into four tiers as follows:
TIER
TYPE OF INSTITUTIONS
1 Commercial banks that are part of the central bank’s
clearing house; they engage in unlimited financial
services as long as they are legally provided
2 Also known as “credit institutions”. These are non-bank
financial institutions, some of which offer only loans plus
savings accounts. They cannot operate current accounts
and are not part of the clearing house.
3 Micro Deposit taking Institutions (MDIs) – these are
MFIs that are licensed to accept deposits from the public
and intermediate them. They are prudentially regulated
and supervised by Bank of Uganda under the MDI Act
4 Credit only MFIs, SACCOs and other informal/
semiformal institutions offering micro loans to their
clients.

Because of significant commercialisation, microfinance is today provided
in Uganda largely as a business. Donors have stopped giving grants for
loan funds and many MFIs borrow from either specialised wholesale
lenders at near-market rates or from the wider money market at market
rates, or both.
Some Lessons
Exhaustive explanation of Uganda’s experience in microfinance is beyond
the scope of this report. There are, however, some vital lessons for Sierra
Leone to be learnt from Uganda’s experience. These will be adequately
considered in developing the microfinance capacity building strategy for
Sierra Leone. Some of the lessons are:
- Systematic, sector-wide capacity building is key to growth; and
the more organised, focused and tailored the capacity building
initiatives are, the faster the institutions grow
- Industry collaboration by different stakeholders creates a healthy
climate for cross-learning, which vital for this young industry
- Government’s direct participation is necessary as an enabler but
neither as a direct lender nor as the regulator/ supervisor of MFIs
- The industry association/ network organization like SLAMFI is
necessary and should be allowed to evolve from the needs of the
MFIs rather than being induced externally
- MFIs grow naturally like other businesses and should not be
expected to deliver sudden, quantum outreach. Over-expectations
from Government often leave it frustrated when MFIs do not meet
unrealistically high speed of outreach. In such cases, Government
often needlessly becomes a foe or disinterested stakeholder in
microfinance
- Generally, MFIs 45 can achieve better rural outreach than
commercial banks if they actively develop a variety of suitable
products, innovate cost-effective and outreach-focused delivery
methodologies and professionally manage their assets 46 and
liabilities
- Adherence to internationally recognised sound practices is the
only way that market-led microfinance can grow into a stable,
sustainable industry serving masses of rural/ poor people
- Direct government credit or closely controlled credit lines often
pollute the market for sound-practice institutions and then
eventually fail, having done the harm. Such populist, quick-fix
initiatives eventually harm the poor more than it benefits them
- For legislators, never legislate what cannot be effectively
regulated and for financial sector regulatory authorities, never
regulate what you cannot effectively and keenly supervise.
Capacity of the regulator/ supervisor needs to match the sector
regulatory requirements
45 MFIs in a broad sense, including NGOs, companies, SACCOs, community banks and
other providers of financial services for low income people
46 Especially the loan portfolio

- Prudential regulation is not necessary for non-deposit taking
institutions, and laxity in prudential regulation of any deposit
taking institution case can undermine public confidence in the
financial sector through institutional failures in which people lose
their deposits
- An effective deposit insurance scheme, probably run by the
central bank, is necessary in restoring public confidence in the
financial sector when institutional failures happen.

APPENDIX 4: ASSESSMENT OF NSOs
1. MICROFINANCE PROGRAM (MFP)- A COMPONENT OF
THE NATIONAL COMMISSION FOR SOCIAL ACTION
(NaCSA)
A. Introduction
This brief institutional assessment report presents the findings of
the microfinance capacity building study/ strategy development
team on MFP of NaCSA. The institutional assessment of MFP-
NaCSA was carried out as part of the assessment of the network
support organizations (NSOs) available in the country. As several
institutions had to be appraised and the overall national
microfinance sector examined in depth, the report on each
institution is concise and focused on aspects that are directly
relevant in the context of overall national microfinance sector
capacity needs. The assessment was done using an abridged and
adopted version of the CGAP Guidelines for the Assessment of
Network Support Organizations.
B. Objectives and Institutional Capacity
MFP is a component of NaCSA that in the past worked both as a
financial and capacity building apex for microfinance. Presently,
the component’s key focus is supposed to be on training, technical
assistance, industry coordination and dissemination of sound
practices. The areas of focus are similar to those of MITAF, a multidonor
funded MF capacity building program whose management is
contracted to a private consultancy firm. MFP has accordingly
reached an understanding with MITAF to work together in order to
avoid role duplication and ensure mutually beneficial work. For
over 18 months, MFP has had no funds for operations and has thus
not been very active.
Among the activities undertaken by MFP and MITAF in the past
were:
- MF Best Practices course for board members and managers of
MFIs
- Distance Learning Microfinance Course for Sierra Leone and
Liberia
- Delinquency Management course
- Information Sharing Seminar for stakeholders
Other courses offered by MFP in the past include:
- HIV/ AIDS awareness seminar, conducted in association with an
AIDS focused NGO
- Accounting for MFIs
- Financial Management for MFIs

- ToT for MFOs in delivering microfinance to people with
disabilities
Most of the courses above were delivered in 2005 and 2006. The
accounting and finance related courses were delivered by the long
term technical assistant who has since left the country after his
contract period. The courses were quite good in content although
some of them (Delinquency Management and Best Practices) could
have been better structured. MFP has had a funding problem that
reportedly arose from a mis-procurement by another NaCSA
component, as a result of which ADB has put conditions precedent
to further disbursement that had to be fulfilled. Consequently, MFP
for more than one and a half years had no funds for operation.
More lately, the officer in charge reports that ADB has agreed to
resume funding.
With the TA out, MFP Director having left in Jan 2007 and no funds
for operations, MFP’s capacity to deliver is at present significantly
impaired. There is only one professional staff in the component at
present: the Program Officer in Charge. A continuing challenge is
that MFP is part of a structured Government bureaucracy that
might not necessarily look at microfinance in the context of its
peculiarity.
In a broad sense, MFP does not appear to have gone through a
period when they enough money for all operations and were
focusing exclusively on capacity building. Whereas in the past MFP
had considerable capacity (when the Director 47 , Program Manager
and Technical Assistant 48 were around), it did not have the money
to fully engage in offering training and TA to the industry outside
of the courses run with MITAF and the accounting/ financial
management courses run by the Technical Assistant.
In terms of internal procedures for executing assignments, MFP
appears to be structured for efficiency. It is, however, part of a
larger Commission of Government, and is bound to face challenges
of policies, procedure and bureaucracy. The suspended funding of
the component is reported to have arisen from a procurement
problem attributed to another component. This highlights how
vulnerable MFP can be as part of NaCSA. Some autonomy would be
good for any capacity building program that Government might
come up with.
MFP’s main weaknesses and challenges at the moment are:
- Inadequate capacity to build MFI capacity in areas like
accounting, financial management, internal controls,
reporting
- Lack of funding, which has halted activities
47 The MFP Director left Jan 2007 to work for UNDP in Liberia
48 The Technical Assistant’s contract expired and he went back to Uganda

- Challenging institutional context (being part of NaCSA)
- Severe understaffing, posing the challenges of shortage of
both numbers of staff and critical skills needed
C. Impact and Value Addition to Partners
Owing to the fact that MFP has not had a long enough period as a
busy institution with an exclusive focus on microfinance capacity
building, it has not yet made a notable impact in this area. MFIs
talk of MFP in terms of being an associate to MITAF in delivering
some courses, and they emphasize that MITAF has impacted more
on them.
D. Contribution to Broader Sector Growth
MFP, in its earlier existence as SAPA, administered two
government funded micro-credit programs: the NGOs program (in
which funds were passed through NGOs to disburse to borrowers in
their communities) and the Chiefdoms scheme (in which money
was delivered directly to people through their Chiefdoms). The
latter seems to have been a complete failure and the former a
moderate one with a 90% repayment rate. 49 From both these
programs, the lesson generated by MFP is that Government funded
programs, when publicized and delivered as such, have slim
chances of succeeding. This agrees with experience elsewhere in
the ACP and the rest of the world.
Within its present limits, MFP cooperates with other meso level
organizations in promoting good practice microfinance. The
courses delivered jointly with MITAF, collaboration with BoSL and
participation in industry meetings are examples of this.
E. Summary Conclusions and Recommendations
Focusing MFP away from credit administration to MF capacity
building was a good move whose effectiveness was severely
checked by absence of funding for the component. This was not
helped by the departure of the component’s director, technical
assistant and program manager. MFP’s present human resource
and skill capacity would critically need enhancing for effective
delivery of services. Owing to all these factors, the component’s
contribution to sector growth has so far been modest.
In view of the current challenges and the fact that this assignment
is to come out with a national capacity building strategy for
microfinance, it is recommended that MFP challenges should not be
addressed in isolation. The grand MF capacity building strategy
should take care of all the current issues faced by MFP, without
necessarily leaving MFP in its current institutional context.
Accordingly:
49 Information verbally given by MFP

A semi-autonomous secretariat should be set up for
microfinance capacity building, industry coordination and
information dissemination. This could be a continuation of the
merged roles of MITAF and MFP, in the context of the Capacity
Building Strategy
Critical attention should be paid to developing local skills,
through training and understudying expatriates
The head of the secretariat should report to a committee or
board, not to a single donor, group of donors or Government
ministry/ department.
2. SIERRA LEONE ASSOCIATION OF MICROFINANCE
INSTITUTIONS (SLAMFI)
A. Introduction
This brief report presents the findings from the assessment of the
Sierra Leone Association of Microfinance Institutions (SLAMFI) by
the team undertaking the microfinance capacity building study/
strategy development assignment. The institutional assessment of
SLAMFI was carried out as part of the assessment of the network
support organizations (NSOs) available in the country. The
assessment was guided by an abridged and tailored version of the
CGAP Guidelines for Appraisal of Network Support Organizations.
The Sierra Leone Association of Microfinance Institutions (SLAMFI)
is supposed to be the national member-based network organisation
for MF stakeholders in Sierra Leone. At the time of this
assignment, SLAMFI had been registered 50 but in terms of
operations, was still only an idea. It has no office, no staff and all
the institutional structures are still concepts within the newly done
strategic plan. SLAMFI has 8 ordinary and 2 honorary members
and as a young institution in a young and weak market, it has had
no impact yet.
SLAMFI’s vision and mission are:
Vision:
“Existence of a sustainable microfinance sector fully integrated into
the formal financial system driving poverty reduction in Sierra
Leone”.
Mission:
“To promote the development of a vibrant and sustainable
microfinance sector in Sierra Leone primarily through advocacy,
information sharing, capacity building and dissemination of best
practices”
50 Registered under the Friendly Societies Ordinance (1924) of the Laws of Sierra Leone

B. Objectives and Institutional Capacity
The objectives of SLAMFI, according to its recently completed
strategic plan, are to:
• Liaise with the Government of Sierra Leone to improve the
regulatory and policy environment to ensure safe operations
and an efficient microfinance sector;
• Lobby and advocate on pertinent issues and concerns
relating to the institutional development needs of members;
• Provide a constructive, collaborative network for dialogue
among microfinance institutions (MFIs), donors, the private
sector and other stakeholders;
• Provide a forum for exchanging experiences and
information, lessons learned and networking with a view to
prevent disruption of the young industry.
• Promote performance standards, norms and ethics that
encourage efficient operations and high quality financial
service delivery among its membership;
• Coordinate and/or facilitate capacity building services to
improve financial intermediation for members and other
MFIs;
• Promote integration between the formal and informal
financial sectors;
• Develop linkages and strategic partnerships at the local and
international levels;
• Undertake research, publications and dissemination of Sierra
Leonean microfinance industry information, innovations,
evaluations, and best practice tools and systems.
The objectives came out more elaborately and clearly in the
strategic plan than it did in interviews with the Board members.
The reason could be that there was technical assistance in doing
the strategic plan, which could raise questions whether SLAMFI at
the moment enjoys adequate patronage and ownership from its
direct stakeholders – the ordinary members.
The establishment of SLAMFI has so far been significantly
spearheaded by MITAF, partly as MITAF’s own exit strategy. The
business plan proposes that SLAMFI takes over some key roles of
MITAF at the end of 2009 51 . The strategic plan is very well done
and conceptualized except for a few issues that could raise debate.
Notable among these are the proposals that:
- SLAMFI should take up fee based training and TA provision after
MUTAF;
- SLAMFI reports to the donors that fund it.
51 The strategic plan specifically says “The development of SLAMFI within the next 18
months should therefore be the centre piece of MITAF’s exit strategy and all other
plans for the future development of the sector…”

On the first proposal, experience elsewhere shows that a memberbased
network like SLAMFI does better if it participates on the
consumers’ side of training and TA. The network organization
should check and control the quality of services that trainers/
consultants deliver to its members. If it delivers market based,
paid-for services to its members, SLAMFI would quickly find itself
in a conflict of interest situation. On the second proposal, SLAMFI
should in its governance structure report to its council, which in
turn reports to the AGM. On the side, SLAMFI should submit
reports to its donors as obligated by agreements.
SLAMFI is very weak financially, as might be expected of a young
network. The strategic plan states:
SLAMFI’s current sources of funding are membership
subscription and assistance in kind provided by MITAF.
In July 2006 the annual membership subscription was
set $33.33
(Le100, 000). Total subscription collected from five
members amounted to $166.65. This is patently
inadequate for any meaningful network operations…
There has been no income or expenditure to reflect in
that statement since that date.
The strategic plan has very optimistic revenue projections, based on
comparatively high annual subscription fees. It further projects that
after three years, SLAMFI’s financially self-sustaining. Experience
elsewhere shows that this is overly optimistic. In Uganda, AMFIU
which has over 120 paying members and a fair amount of earned
income is not yet 60% financially sustainable, yet it has lean staffing
and cautious overheads.
C. Impact and Value Addition to Partners and the Industry
As already explained, SLAMFI has as yet made no significant impact
on the industry. Strategic objectives related to advocacy,
information dissemination, custody of MF Best Practices and industry
cohesion, explained in the strategic plan, will make it valuable.
In the microfinance industry elsewhere in Africa, the network
institutions that have made an impact and attracted high levels
patronage are the ones that have concentrated their efforts on:
- Advocacy and lobbying for suitable regulatory and macroeconomic
environments
- Information dissemination to members and other industry
stakeholders
- Sensitization of regulators, legislators and other armslength
stakeholders on the vital basics of microfinance
- Development and implementation of comprehensive
industry-wide performance monitoring systems

- Developing and administering industry ethical standards to
membership
- Assisting member institutions to get funding for technical
assistance, and to ensure that the right training and TA is
offered to them.
SLAMFI’s plan already focuses on most of the above areas. As
SLAMFI gets established and seeks to have increasing impact on the
industry, it would be helpful for it to consider continually putting
most of its efforts in the above areas.
D. Summary Conclusions and Recommendations
In any microfinance industry, a member-based network organisation
plays a crucial role. SLAMFI, therefore, has a vital and potentially
challenging role in areas mentioned under section “C” above.
Strengths
SLAMF’s current strengths are:
All major MFIs in the country (save for community banks) are
members and are likely to remain so, as long as the network
continues to provide useful, value adding services
A good strategic plan has been developed for SLAMFI, which
forms a suitable starting point for the execution of its roles
There are already strategic alliances with other network
organizations even during SLAMFI’s formation –an aspect that
indicates SLAMFI’s broad focus.
Weaknesses
The institution is yet to be established and the board members
have full time jobs in their own institutions, which take priority
over nurturing SLAMFI
Governance and management of the association is for the time
being ad hoc and weak.
SLAMFI’s affairs are not adequately attended to in a timely
manner because it has no full time staff, no office and
structures.
The association is financially weak. Membership subscriptions
are dismal and there is hardly any other funder outside of
MITAF (which offers fully funded technical assistance to
SLAMFI).
Owing to the rather narrow definition of microfinance,
community banks do not take themselves to be MFIs and thus
are not SLAMFI members. They have also formed an

association of community banks to which they have stronger
allegiance.
Recommendations
The work being done by MITAF and other stakeholders to
establish SLAMFI is good and should be continued
In the context of the overall national strategy, more effort
should first be put in strengthening the microfinance
institutions and then critical attention should turn to
developing the network
Right from the beginning, SLAMFI should be set up as a
member-based network organization that does not sell
training and TA to MFIs
SLAMFI should look at funding by donors/ development
partners rather than from fees for providing services.
SLAMFI should be positioned not just as an association for
narrowly defined “MFIs”, but as one for all the institutions
providing financial services to low income people in Sierra
Leone.

3. MICROFINANCE INVESTMENT AND TECHNICAL ASSISTANCE
FACILITY [MITAF]
A. Introduction
This brief institutional assessment report presents the findings of
the microfinance capacity building study/ strategy development
team on the Microfinance Investment and Technical Assistance
Facility (MITAF). The institutional assessment of MITAF was carried
out as part of the assessment of the overall microfinance industry
in the country. The assessment followed an abridged and tailored
version of the CGAP Guidelines for Appraisal of Network Support
Organizations. Because the overall assignment was broad, the
reports on individual institutions are concise and limited to the key
aspects relevant to overall industry assessment.
MITAF supports training, technical assistance, grants and loans to
MFIs in Sierra Leone by working as an investment vehicle for
donors who want to assist the sector, disseminating sound MF
principles and aiding industry coordination. The partner donors of
MITAF are UNDP, UNCDF, Cord Aid and KfW. These, together with
representatives from the Ministry of Finance, Economic Planning
and Development (MoFDEP) and Bank of Sierra Leone (BoSL) form
the Investment Committee of MITAF, which acts as a board but
with non-funding members (Government, BoSL) having no votes
on the decisions.
Among the meso level organizations in Sierra Leone, MITAF has to
date had the most vivid impact on the development of the
microfinance industry. According to the financial institutions
interviewed, MITAF is the program that has combined training,
technical assistance and financial assistance to create impact and
growth to their organizations. It offers services such as:
Training in the fields of delinquency management, best
practices, financial management, accounting and reporting,
financial analysis, human resource management, internal
controls, training of trainers, and due diligence
Improvement of reporting by MFIs through training, design
of a reporting format and requirement of all the affiliated
MFIs to submit accurate periodic reports
Helping other NSOs to establish or do their work more
effectively: notably MFP, BoSL Microfinance Unit and SLAMFI
Industry coordination, discussion forums
Loans and grants from donors to the MFIs.

B. Objectives and Institutional Capacity
MITAF is the embodiment of the project titled: Development of a
Sustainable Pro Poor Financial Sector in Sierra Leone. – a
programme of the Government of the Republic of Sierra Leone.
The programme was designed with four outputs as summarized
below:
PROGRAMME OUTPUTS AND PROGRESS
DESIRED OUTPUT
Output 1: Potential
leaders in the
microfinance industry
have reached
sustainability and
considerably increased
their outreach to develop
a pro-poor financial
sector
Output 2: Strategic
partnerships built with
other donors and the
private sector in joint
support of a pro poor
financial sector
Output 3: A professional
microfinance unit at the
BoSL is operational and
is capable of ensuring an
optimal enabling
environment for the
microfinance industry
and its eventual
integration into the
broader financial sector.
SUITABILITY OF
FOCUS
This was suitable in the
design. Sound-practice,
progressive & sustainable
market leading MFIs in
other African countries
have provided
demonstration effect for
industry growth
Very suitable for
maximizing impact and
reducing duplication
Probably appropriate for
the then level of industry
development and
absence of alternative
apex institution; but in
the long term BoSL might
more suitably retain the
supervision/ regulation
role and transfer the
capacity building role
elsewhere
CURRENT STATUS/
REMARKS
At least five affiliated
MFIs (Hope Micro,
Finance Salone,
CCF/SMT, MM
Community Bank and
MCB) are fully
operationally selfsustainable
while three
(Finance , Hope Micro
and MCB) are financially
sustainable as well.
Before the programme
started, only two MFIs
had full OSS and none
had full FSS.
Done to a good extent.
Four donors 52 now
finance MFI capacity
building and loan
portfolio funds under the
programme
The unit has been set up
but still appears to be
significantly in need of
capacity building. 53 It
was not realistic to
expect the BoSL to
“ensure an enabling
environment…” - a
complex result of many
layers assigned to an
upstart unit.
52 UNDP, UNDCF, KFW and Cordaid
53 In areas like performance management, institutional health analysis, microfinance
methodologies, international trends in sound practices, issues related to governance
and regulation, and more staffing

Output 4: Microfinance
sound principles
disseminated, and widely
accepted and adopted.
Very suitable. At a
nascent stage of MF
industry, this needs to be
most important focus for
capacity building
There has been a fair
attempt, though a lot
remains to be done. 54
From the above table, the programme has made a remarkable
headway that will need to be taken account of in the
implementation of the follow-on strategy.
Through training, technical assistance, grants, loans and
dissemination of best-practice information, MITAF aims at
supporting the development of the microfinance sector in Sierra
Leone and creation of an enabling environment for it. To do this,
MITAF works with all the other industry stakeholders at the macro,
meso and micro levels.
MITAF has a lean professional staff structure that has so far
delivered a good service to the industry: the Chief of Party and two
other professionals in the program area. It is expected that the
program will continue in its current focus and strength till end of
2009, when it ends.
Judging from the number of training courses, seminars, grants and
loans that have been delivered to MFIs, MITAF has been quite
effective. Working in a post conflict situation with financial services
direly lacking, there are bound to be high and varying expectations
among stakeholders, some of which have not been fulfilled. Top
among these is a well founded (though often premature)
expectation, usually by Government, of rapid outreach of
microfinance to the poorest people in remote rural areas.
Experience elsewhere in Africa shows that market driven outreach
of microfinance services starts with cities and towns, spreads to
other urban and peri-urban areas and finally to rural areas. This
process can take as long as twenty years.
MITAF’s basic training in areas that most affect performance and
sustainability appears to have triggered a logical first step in
building a sound-practiced based microfinance sector. Whereas
MITAF has only worked with 10 financial institutions, there is need
to extend sound-practice based training and technical assistance to
all providers of microfinance, whoever and wherever they are in
the county.
MITAF’s internal procedures appear to be speedy and free of
excessive bureaucracy, which makes it responsive to industry
needs.
54 There’s need to make the Sound Practices more comprehensive, update them and
disseminate them to more immediate and remote stakeholders. Among MFIs, sound
practice seminars & training need to be done indiscriminately.

C. Impact and Value Addition to Partners
In all assessments of this type, one of the most difficult things to
do is to actually prove impact. The cause, at least in part, is the
missing counterfactual – we cannot accurately tell how the
institutions would have done if they had not received assistance
from MITAF. Another cause is that MITAF has not been around for
long enough for a clear trend to emerge that would objectively
contrast the pre and post MITAF period performance of the partner
institutions. All this notwithstanding, there are some fairly clear
indications of MITAF’s accomplishments. The following table
summarises them.
PERFORMANCE
AREA
Governance
Strategic focus
Management
Operations
BEFORE MITAF PRESENT 55
Board members in
some cases not trained
in MF related
governance
Hardly any strategic
plans
Low financial literacy
among some MFI
managers, having
come from a welfare
background
Focus mainly on
poverty alleviation with
clients as “beneficiaries
Subjective or no
progress monitoring of
institutional
achievements
Lending done with
inadequate due
diligence
Board members trained in
both Sound Practices and
MFI Governance,
presumably making them
more informed and better
boards for their institutions
With MITAF’s training and
requirement for ongoing
assistance, most partners
have developed and are
following a systematic
strategic plan
Improved financial literacy
after training by MITAF
and/ or MFP in accounting,
financial management,
financial analysis,
performance monitoring
and delinquency
management
Balanced focus on the
double bottom-line;
financial sustainability and
poverty alleviation
More objective monitoring/
evaluation based on
business/ strategic plans
done with help of MITAF
More due diligence on
borrowers, after the Due
Diligence course facilitated
by MITAF
55 With MITAF’s assistance or following their training

Financial
endowment
Poverty/ rural
outreach
Little focus on
delinquency and
portfolio quality
Product information
and knowledge was
very scanty, and
delivery methodologies
not well understood by
a number of the MFIs
Acute lack of funding
for loan portfolio
growth and capacity
building
Poverty and rural
outreach quite limited
compared to the
potential clientele.
PAR, an internationally
recognized portfolio quality
measure, is now used by all
MITAF assisted MFIs to
monitor their portfolio
quality. In most of the
institutions, the portfolio
quality has significantly
improved, though in others
a lot still remains to be
done.
The MFIs now understand
the group lending
methodologies quite well,
although lack of product
variety in the market still
means a lot needs to be
done in the area of product
development.
Still there is serious lack of
funds, but this is somehow
being addressed by MITAF
using funds from its
partners; hopefully the
demonstration effect will
ensure continued
advantages for MFIs in the
future. MITAF grant funding
has been used for capacity
building of all the 10
affiliated MFIs.
Additionally, grants and
loans have been disbursed
to qualifying MFIs.
Outreach still modest but
evidently growing
MITAF has a scheme of selection criteria for different kinds of
assistance to MFIs, which cascades with the maturity of the
institution. Although the scheme itself is subject to improvement 56 ,
this in principle should ensure that MFIs affiliated strive to
increasingly adopt sound practices.
D. Contribution to Broader Sector Growth
MITAF cooperates with other NSOs, especially MFP, Bank of Sierra
Leone and SLAMFI. With MFP, MITAF jointly runs seminars and
courses. This is done in synergistic ways which also enable crosslearning
between the officers of the two institutions. MITAF
supports the establishment of SLAMFI and strengthening of the
56 As an example, requirements should be cumulative and incremental from lower to
higher levels of relationship or needs.

Microfinance Unit at BoSL. It also collaborates with other
stakeholders like donors and Government through their
representation on the MITAF Steering Committee. By getting
involved with these, MITAF contributes towards meso level
industry growth to improve cohesion, networking, MFI nurturing,
regulation and an overall enabling environment for microfinance
business.
E. Summary Conclusions and Recommendations
MITAF’s strengths and accomplishments have already been
elaborated. MITAF is being run the way it was designed – to
develop market leaders that the rest of the industry could look up
to, and thereby inculcate sound practices among MFIs. From the
point of view of the need to engage in industry-wide capacity
building, the program has the following challenges and
shortcomings:
- Lean professional staffing in comparison to the vast
industry needs;
- Addresses the supply side and there is no initiative that
addresses the demand side. This could cause market
disruptions or disadvantages to the clients due to lack of
information
- The proposed exit strategy, by strengthening SLAMFI to
take over some key MITAF activities, does not appear very
suitable
- Unfavourable opinion by some stakeholders that MITAF
favours MFIs with international linkages, to the relative
neglect of indigenous ones
- Dissatisfaction by some stakeholders with the pace at
which MITAF is helping MFIs to reach out. This arises from
the common 57 but unrealistic expectation that a
programme like this should help the MFIs to attain rapid
rural outreach in its first few years.
- Lack of consensus among key stakeholders on critical
issues 58 of project focus
- Lack of a systematic and complete training/ TA needs
assessment before developing solutions (though the
solutions developed largely addressed industry needs so
far)
The Development of a Sustainable Pro Poor Financial Sector
programme has provided a good starting point in capacity building
for microfinance in the country. It has also generated some
57 It has also happened in other countries that Government and politicians have such
high & unrealistic expectations
58 Like which types of institutions should be funded, massive & rapid outreach viz first
helping the institutions to be more sustainable, grant/ loan recipient selection criteria

positive and negative lessons learnt which the Government and its
development partners should consider in implementing an overall
capacity building strategy. As the MITAF contract draws to a close,
preparations should start to put in place a successor programme,
which should be broader in scope 59 , larger and more inclusive of
MFIs. The follow-on programme should, at the minimum address
all the following aspects:
i. Wider coverage/ dissemination of information on sound
practices; through seminars, print media, bulletins,
information sharing events etc
ii.
iii.
iv.
Equitable focus on both institutional strengthening and social
performance
More inclusive basic training in microfinance, to reduce the
chances of market spoilage by the institutions that have not
embraced sound practices
A distinct window for institutional strengthen (infrastructure,
MIS, financial & support management systems, training, on
the job technical assistance,
v. A distinct window for product development and innovation
vi.
vii.
viii.
ix.
A distinct window to aid increased/ accelerated rural
outreach (branching out to more rural areas)
A distinct window for inculcating more business orientation
into the population (thereby boosting the demand side of
the microfinance market)
Development or adaptation of a more comprehensive
reporting system for all MFIs
Strengthening of SLAMFI as a truly member-based industry
network organization with roles hinging on advocacy, sound
practice assurance, information dissemination and industry
cohesion
x. Separation of wholesale funding from capacity building;
leaving the follow-on programme with only functions of
capacity building and grant funding
xi.
xii.
xiii.
A window for capacity building of meso level institutions to
give them the necessary competencies for a growing MF
market
Provisions for donors to directly fund MFIs within the
framework of the strategy (to cater for those donors who by
policy would not put their money in a basket)
Systematic training of regulators, Government officials and
even politicians; especially through exposure visits.
59 Embracing solutions to the triple problems of institutional capacity building (including
training, TA etc), promotion of remote rural outreach and product development/
innovation

3. BANK OF SIERRA LEONE
A. Introduction
This brief institutional assessment report presents the findings of
the microfinance capacity building study/ strategy development
team on the Microfinance Unit of the Bank of Sierra Leone (BoSL).
The institutional assessment of BoSL was carried out as part of the
assessment of the overall microfinance industry in the country. The
assessment was guided by an abridged and tailored version of the
CGAP Guidelines for Appraisal of Network Support Organizations.
Because the overall assignment was broad and aimed at the
overall national scene, the reports on individual institutions are
concise and limited to the key aspects relevant to overall industry
assessment. This is therefore not an assessment of the whole of
BoSL, neither is it a detailed assessment of BoSL’s Microfinance
Unit.
Bank Sierra Leone’s Microfinance Unit was set up as part of the
Sierra Leone Government’s strategy for the Development of a
Sustainable Pro-Poor Financial Sector, with roles of monitoring/
strengthening MFIs. There is also the Community Banks section in
the Bank that pilots and nurtures community banks.
B. Objectives and Institutional Capacity
BoSL is the country’s central bank, with full roles such as banks’
supervision, issue and redemption of currency, monetary poly
implementation, banker for banks and collection/ dissemination of
financial and related information. In addition, the bank has a
Development Coordination Department with roles such as
promoting the establishment of the stock exchange, establishment
of community banks and overseeing of microfinance institutions.
The Microfinance Unit of the BoSL seeks to:
- Strengthen the governance of community banks through Board
representation on the their boards
- Help the community banks to do business legally and to comply
with the relevant laws and regulations
- Monitor of the four pilot community banks to help them identify
areas where they need t improve
- Assist community banks to consolidate their businesses through
construction of bank premises
- Assist community banks to source suitable funding, like the
current long term debenture loan from BoSL which is intended
to be replaced with equity from shareholders soon
- Help MFIs with guidance and TA in products, operations and
performance monitoring

- Improve the human resource competence of the community
banks through training staff and management of the community
banks
- Monitor the performance and business of MFIs which are not
community banks.
- Guide community banks through technical assistance in the
areas of governance, management, operations and financial
management.
- Work with development partners/ donors to finance an apex
that will take over all the community banks and some of the
roles currently played by BoSL MF Unit.
BoSL is committed to establishing six community banks (two more
after the existing four) as a pilot project. After that, it is hoped
that demonstration effect should take over and communities
establish community banks for themselves.
The BoSL Microfinance Unit has five professional staffs, who work
on community banks and “microfinance”. Given the volume of
work that the unit is supposed to do, the consultants agree with
the Director (Development Coordination) that there are not enough
staff to go round. Since BoSL’s role is meant to be transitory and
MITAF’s work largely complements BoSL’s in these areas, however,
the arrangement should suffice.
The community banks are supposed to be weaned of from the
BoSL parentage soon. This will give way to private ownership and
complete self governance of the institutions. If BoSL’s Microfinance
Unit were the to be long term nurturing partner of the community
banks and MFIs, it might have needed to enhance its capacity in
the areas such as:
- Broadness of TA coverage, to ensure that it addresses all
capacity building needs of community banks and MFIs
- Practical knowledge of microfinance capacity building through
further training, exposure visits to other markets and perhaps
resident TA
- Planning, monitoring & evaluation of microfinance institutions
- Guidance in effective advocacy for more suitable legislation and
regulatory arrangement (for BoSL as a whole, this role could pose
a conflict of interest.
Since the BoSL and other stakeholders agree that this role is
transitory, BoSL might still need capacity building in the above
areas, but not for the purpose of continually nurturing community
banks or MFIs
C. Impact and Value Addition to Partners
As already explained BoSL’s Microfinance Unit promotes
microfinance institutions (including community banks) through

nurturing, market making, research and development, monitoring
and evaluation. Through BoSL’s efforts and initiative, four
community banks have been set up, of which two are operationally
sustainable.
Although it might be argued that the central bank is not the right
place to offer TA and nurturing to financial institutions – and the
community banks still need significant levels of nurturing/ TA -
BoSL has played a significant role and produced a replicable
demonstration effect by starting and nurturing community banks.
D. Contribution to Broader Sector Growth
The BoSL Governor chairs MITAF Investment Committee, which
makes decisions on all capacity building, grant and loan
investments by MITA under the strategy for Sustainable Pro-Poor
Financial Sector. The BoSL Director (Development Coordination) is
also a member of the MITAF Investment Committee. This way,
BoSL collaborates with Government, donors and project managers
in moving the industry forward.
By promoting community banks, BoSL has proved to the industry
that there is at least one explorable option for enhancing rural
outreach with microfinance while the industry grows.
E. Summary Conclusions and Recommendations
The Microfinance Unit at the BoSL has been set up, is working but
still needs considerable capacity building. The role of BoSL in MF
capacity building should remain transitional and at the earliest
suitable opportunity, its MF capacity building role should be
transferred to a more suitable institution. This will leave BoSL, the
supervisor and regulator of the financial sector, with no conflict of
interest in this area. One recommendation from a 2006 medium
term review, which said the MF capacity building role should be
transferred to the Bank Supervision Department, should be
critically examined for suitability and possible impact. 60
60 Transferring this role to Banks Supervision would make the stated conflict of interest
more immediate and more severe.

MININSTRY OF FINANCE, DEVELOPMENT AND PLANNING
(MOFDEP) -MICROFINANCE UNIT
A. Introduction
MOFDEP Microfinance Unit is not a network support organization,
but a Government unit meant to work on policy level issues of
microfinance. By interacting and working with other industry
stakeholders, the unit participates in the shaping of the industry
for enhanced service delivery. The unit has a seat on the MITAF
Investment Committee and actively participates in macro and
meso level industry forums.
B. Objectives and Institutional Capacity
The MOFDEP Microfinance Unit looks at microfinance mainly from a
human rather than institutional development perspective. This is
the view most popular with governments since it is their rightful
role to require that microfinance impacts positively on human
development, particularly poverty alleviation. The unit’s objectives
for involvement in microfinance therefore revolve around the
perceived need to:
Include poverty focus and impact more prominently in the
criteria for assessing and continuing to work with MFIs
Extend education on microfinance sound practices to the
political, administrative and opinion leaders in the country
and communities
Ensure more equitable competition for capacity building and
loan portfolio funds by institutions, based on their focus on
poverty
Have purposeful rural outreach promoted through
Government and donor involvement
Increase the sound-practice based absorptive capacity of
the population by raising their business awareness/ aptitude
through training and grassroots technical assistance
Educate political and civil service authorities to desist from
pushing money for outreach with loan funds before the
institutions and their existing and potential clients are ready
Overall, shaping a new direction which is more inclusive,
easily understood and effective for microfinance capacity
building in the country.
MOFDEP has one main and two other professional staff. The lead
officer is well versant with the policy and meso level issues of
microfinance capacity building in the country. The other officers do
not appear to be as informed. The unit would greatly benefit from
more overall exposure of its staff to practical issues of
microfinance policy making and capacity building in other
countries, as well as technical issues on the sector. Well informed
staff in the unit would play a critical role of professionally informing

MF policy making and liaising between private sector providers,
development partners and MFIs.
C. Impact and Value Addition to Partners
The MOFDEP MF Unit sits on the Investment Committee of MITAF,
and participates in various policy level forums in the country. Its
main contribution so far has been through arguments for bringing
human development issues at the forefront of microfinance
capacity building. This has at times seemed to counteract the
institutional enhancement focus of some other stakeholders. Both
sides need to come to middle ground on this because the two are
both necessary and do not have to be mutually exclusive.
D. Summary Conclusions and Recommendations
It is desirable that the MF Unit at MOFDEP is maintained and that
its staff are adequately trained and exposed to the real workings of
microfinance policy making, regulation, capacity building and
private-public sector partnerships in other countries . Experience
elsewhere in Africa has shown that when technical staffs in
Government come to understand the workings, issues, success and
failure drivers in microfinance, they become better advocates for
good policy, legislation and regulation. They also help the other
industry players to understand Government’s viewpoint better, so
that they can synergistically work with rather than contend with
other stakeholders.
CARE INTERNATIONAL IN SIERRA LEONE
CISL is not a MF network support organization, and either is it in the
mainstream business of microfinance capacity building. As part of its
work in empowering communities to undertake self initiated family and
individual economic development and the micro level, CISL assists
communities to start and run independent Village Savings and Loan
Associations (VSLAs). These are local informal financial set ups by
women living and working in a locality. It is run and governed by the
members, whose main purpose of association is to save money regularly
for investing in business and for a variety of other reasons.
Currently, CISL assists VSLAs in Tonkolili, Koinadugu and Bombali in the
NW of Sierra Leone. There are 30 VSLAs with a total of 900 members.
The program (CISL’s assistance with capacity building of VSLAs) runs for
a period of 12 months after which the VSLA is weaned of to continue
sustainably. The current phase or cycle will benefit the 900 client after
which the scheme plans to widen support and geographical area to help
6,000 people in about 200 VSLAs elsewhere in the country.
Under the VSLA support scheme, CISL gives no grants or loans but just.
It just offers technical assistance to help people come together, develop
cohesion, buy a safe box and start savings and later lend to themselves.

The concept trains the people to be self reliant from right from the start,
and empowers them to develop their own financial solutions. CISL’s exit
strategy is simply to pull out after 12 months, which can be a problem if
the VSLA’s member capacities are not developed enough during this
period.
As the Sierra Leonean economy recovers and the financial sector grows,
VSLAs could eventually give way to SACCOs, which can be excellent
community based financial organizations if well governed and run.
The VSLA scheme is a good innovation for remote rural people to
develop suitable financial services for themselves. It is, however, not
likely to be the right model for massive outreach or for a pro-poor
financial sector that integrates into the mainstream financial services
industry.

APPENDIX 5: POLICY, LEGAL AND REGULATORY
ENVIRONMENT
A. INTRODUCTION
As part of the assignment to study the microfinance sector in Sierra
Leone, the consultants reviewed the relevant legal and regulatory
environment for the financial sector, and their suitability for the
development of a pro-poor microfinance sector. The following are the
financial sector related laws and policy documents that the consultants
examined:
i) The Banking Act 2000
ii) Bank of Sierra Leone Act 2000
iii) Other Financial Institutions Act 2001
iv) Anti Money Laundering Act 2005
v) National Microfinance Policy (2003)
vi)
Relevant documents from other countries, included in the Annex to
this report.
A detailed review of the above documents and interviews with
stakeholders gave the consultants a good understanding of the country’s
legal, regulatory and policy environment for the microfinance sector in
Sierra Leone. In the sections below, concise critical analyses are
presented of the documents in the aspects that are relevant to
microfinance industry development. In the appropriate sections of the
tables, clauses to which the issues relate are cited and proposals for
adjustment, based on international sound practices or aspects that have
worked elsewhere to promote stability of the microfinance industry, are
presented.
B. THE BANKING ACT 2000
The Banking Act 2000 comprehensively provides for regulation and
supervision of deposit taking institutions by the BoSL. It has clear and
detailed provisions for application, licensing, supervision, financial health,
prudence in operations & financial management, reporting, restriction/
license variation, conservation, receivership, liquidation and termination/
closure of licensed institutions.
On the whole, the Act has adequate provisions consistent with the
internationally recognized roles of such a monetary authority in a
contemporary economy. There are, however, a few specific provisions
that the consultants think might not be favourable for the development of
a market based microfinance industry or the wider financial sector. The
table below summarizes them.

CLAUSE
ISSUE/ PROPOSAL
5 (4) BoSL to inspect suspected unlicensed institutions that
illegally take deposits only with a warrant from a
magistrate This might cause delays or leakages of
information to the culprit institutions. Better if BoSL has the
express legal mandate to inspect any suspected culprits
without warning or warrant.
8 (2) Irregular savings collection is not considered to be deposit
taking. In future, some institutions might take advantage
and engage in taking huge savings by creating irregularity
of pattern and artificial differences between savings taking
events. Better to prohibit any kind of deposit taking from
the public by non licensed institutions.
10 (1&2) Some financial service cooperatives to be licensed as banks
and others as “other financial institutions” 61 . Banks are all
better off as limited companies, separate from cooperative
financial organisations, which usually tend to be area or
occupation based.
19 (1) The Governor to determine the minimum paid up capital of
licensed institutions This can at critical times result into
well meant, lenient benchmarks which are unhealthy for the
sector. Better for the minimum paid up capital to be stated
in the Act itself, even if this has to be reviewed every few
years.
28 No daily/ weekly liquidity position reports among the
returns. A bank might be very solvent, very profitable but
face an impacting negative situation because of temporary
illiquidity. Better to include daily, weekly or bi-weekly
liquidity position reports among the returns.
33 (2) 5m and 1m Leones for an institution and an individual
(respectively) failing to implement a BoSL directive
Seems too low unless this is for every day of continuing
default.
34 (5-12) Not clear whether at the time of appointing the
conservator, the officers, directors and all other executives
of a licensed institution are ipso facto dismissed. If this is
not the case, then stubborn directors or executives could
make the work of the conservator very difficult.
37 (1-4) 62 Good provisions for minimum liquidity requirements,
although the relevant reporting requirement is not
stipulated in the Returns to be submitted by LIs. Better to
include specific liquidity reports, daily or at most weekly,
among the returns by LIs under Clause 28 of the Banking
Act 2000
61 Provided for in both the Banking Act 2000 and Other Financial Institutions Act 2001
62 In relation to Clause 28 of the Act

CLAUSE
ISSUE/ PROPOSAL
44 (1) Former director or executive of a LI, fully or partly
responsible for its mismanagement, to be prohibited from
becoming a LI director. This is good but limited. The
prohibition should be extended to even former directors or
executives responsible for the failure of non licensed
financial institutions and other companies outside the
financial sector.
44 (2) Governor to have discretion whether a former director/
executive of a failed institution can become a director of a
LI Better not to have this discretion and just have a clear
provision that such persons are ineligible to be directors of
LIs.
44 (3) Governor to have the discretion whether an individual can
be a director in two LIs For good practice, no persons,
even subject exceptional discretion, should be a director in
two LIs. BoSL should not have discretion to grant a person
permission to sit on the boards of two LIs
44 (4) Requires LIs only to inform rather than seek permission to
have a new director. Whereas Schedule 1 (1-3) under the
Act stipulates the “Fit and Proper” qualities of a bank
director, the requirement to “inform” appears weak in
terms of effectiveness in ensuring that every director of a
LI is fit-and-proper. Better for each LI to seek clearance of
BoSL for each director, including change or replacement of
directors.
C. OTHER FINANCIAL SERVICES ACT 2001
This Act provides for licensing, regulation and supervision of institutions
carrying out financial activities other than banking. It covers all other
financial service providers of whatever nature but by implication leaves
out those that are not cooperatives, companies or statutory bodies. Thus
financial institutions in the country must be regulated by BoSL if they are
coops or companies but those that are registered by MoFDEP as NGOs
are in principle outside the loop of BoSL supervision. This has created a
bit of confusion which could develop into a bigger problem: MFIs that are
cooperatives or companies are in principle regulated by BoSL while NGOs
are not, even when they are engaged in similar businesses
The overall challenge of this Act is that it seeks to regulate all institutions
engaged in financial services. It is doubtful if BoSL has the capacity, both
quantitative and qualitative, to effectively engage in prudential regulation
and supervision of all such institutions. 63 It is too broad in coverage.
Details of challenges arising from this as well as from other legal/
regulatory documents are summarised under section G of this report. The
table below summarises specific issues in the Other Financial Institutions
Act that might need re-examination.
63 Including new ones as they come up

CLAUSE
ISSUE/ PROPOSAL
2 Requirement for a license for all financial activities including
non deposit ones. Not necessary to regulate credit-only
institutions that lend out of their own resources and take no
deposits. On the contrary, this could limit early stage
growth of credit-only, pro-poor/ rural financial institutions.
3 (4) Requirement of a warrant from the magistrate might reduce
effectiveness of BoSL’s working this regard. Elements of
surprise and speed, which are vital in this respect, are to
some extent sacrificed. Better to give BoSL express
authority to hold surprise checks without any warrant
5 (a, b & c) Only companies, cooperatives and statutory bodies can
apply for a license under the Act. The problem is that
institutions can just choose an alternative form of
registration, like NGO, to escape licensing requirements.
8 (1&2)
“… The Governor may by statutory instrument exempt any
financial institution or group of financial institutions from
any requirements of this Act as to licensing…” This could
prove inappropriate. What one institution gets an
exemption from may also be claimed by others, who could
raise populist or political arguments of discrimination if they
are not granted. Better not to have this discretion clause
and to have the provision very clear as a “must” for all.
Unclear on regulatory differences between deposit taking
and non deposit taking financial institutions. Better to
differentiate between deposit taking and non deposit taking
institutions in regulation.
The above issues under both the Banking Act and the Other Financial
Services Act were discussed with the stakeholders in the first workshop
during the third week of February 2008 and the participants largely
agreed with the observations. A related and particularly important finding
is that the four community banks, created and overseen by BoSL’s
Development Coordination Department, are all licensed but not
effectively supervised. This goes against sound practices for bank
licensing and regulation. Community banks were originally meant to be
regulated under the Banking Act. Later, BoSL found the Banking Act “too
strong” for the community banks and it was decided that they be
regulated under the Other Financial Services Act. There are no officially
gazetted regulation or supervision guidelines under the Other Financial
Services Act. Inspection of community banks is not regular 64 . Two of the
community banks are doing so badly that under normal effective bank
regulation, they would by now be under a Conservator, receivership or
direct management of BoSL. The regulatory environment for
microfinance, therefore, needs significant improvements.
64 According to one community bank, they underwent a real inspection, followed by a
comprehensive inspection report for the first time in three years recently.

D. ANTI MONEY LAUNDERING ACT 2005
The Anti Money Laundering Act 2005 is in a sense a moral and legal
check on the transactional activities of financial institutions, to ensure
that they are not facilitating crime by keeping and transmitting money
obtained through criminal activities. Every country that wants to rid its
financial sector of this kind of “dirty money” now has similar legislation –
either within the banking laws or as stand-alone statutes. The provisions
of the Act are sound for the purpose, and if strictly implemented would
ensure that financial institutions, including MFIs, are not used to launder
criminally obtained moneys. The provisions thereof are suitable for
growth of the sector.
E. BANK OF SIERRA LEONE ACT 2000
The Bank of Sierra Leone Act 2000 provides for the legal status,
objectives, authority, responsibilities, governance, management and the
business/ operations, of the Central Bank. Specifically, the Act provides
for the following broad areas with regard to BoSL:
- Establishment and Objects of the Bank
- Governance structure, policy and procedures
- Internal management and administration
- Capital adequacy
- Operations and business
- Currency issuing authority
- Implementation of the monetary policy for macro economic stability
- Management of the national monetary system
- Relationship with Government.
If followed strictly by BoSL and the Government, the Act would enable
BoSL to work effectively as an overseer and regulator of the financial
sector, further creating the environment for safe and orderly growth of
the whole financial sector (including microfinance). By itself, this Act is
not of much effect to MFIs, save to the extent that it establishes BoSL as
the supreme monetary and supervisory authority over the whole financial
sector. The specific issues related to BoSL’s relationship with the financial
sector (including microfinance) are discussed under section B above.
F. NATIONAL MICROFINANCE POLICY 2003
The National Microfinance Policy (NMP) is a systematic policy document
developed by GoSL with its development partners and other
stakeholders. The policy aims at developing an enabling framework and
helping market led, poverty-responsive and largely accessible
microfinance services to flourish. Based on lessons learnt from earlier

Government microfinance programs 65 , Government initiated this policy
with the broad view of:
Reorganizing the microfinance sector for increased viability
and responsiveness
Aiding development of microfinance sector as a vehicle for
rural financial services in the short and medium term
Incorporating and entrenching Best Practices into the overall
microfinance policy
Promoting the evolution of a viable, market based, accessible
and sustainable microfinance sector
Stopping Government’s direct involvement in provision of
microfinance, and confining Government’s role to creating an
enabling environment for MFIs to grow.
Government’s vision in the policy is to develop and eventually integrate
microfinance into the formal financial sector. The overall goal is to
enhance the development of productive activities through effective
delivery of microfinance services to the economically active poor. The
stated objectives are to increase poor people’s access to financial
services, provide sustainable livelihood for unemployed citizens
(especially women), mobilize resources (savings, foreign capital, grants)
for investment in the sector and to strengthen the links between the
formal and informal sectors.
To achieve all the above, the Policy sets out the following principles to be
adhered to by all microfinance industry stakeholders:
i. Discipline among all stakeholders
ii. Transparency among all stakeholders
iii. Timely, accurate reporting and accountability
iv. Free pricing, unencumbered by controls
v. Effective portfolio management and delinquency control
vi. Promotion of appropriate products and techniques
vii. Gender consideration (especially women empowerment)
viii. Good governance.
The above principles are sound and well thought out. In practice,
however, not every stakeholder can be expected to always be disciplined,
transparent and prudent. That is why effective regulation and supervision
of institutions that take public deposits is a must. For the case of
community banks in Sierra Leone, this function is yet to be established
and doing so will be key to the safety and soundness of the microfinance
sector.
65 The NGO Program and the Chiefdoms Program, both administered by SAPA(a
component of NaCSA that was changed into MFP)

Broad strategies for policy implementation include:
a) Establishing a market oriented financial services policy
environment conducive for deepening and broadening
microfinance
b) Establishing a legal framework that promotes financial
intermediation
c) Implementing a national policy for review, design,
implementation, management, supervision and monitoring of
microfinance support programs
d) Coordinating the microfinance sector.
Development of the National Microfinance Policy was a very well advised
initiative, and the contents of the policy are based on tested and proven
sound principles in microfinance. Particularly, Government’s withdrawal
from direct microfinance provision and its commitment to create a
conducive environment and to aid the growth of a market based
microfinance sector are very good developments. There now needs to be
a review of the legal and regulatory provisions, to ensure that they are in
line with the goals, objectives and strategies of this policy. The regulatory
environment needs to be further improved by articulating and sanctioning
regulatory/ supervision guidelines for deposit taking microfinance
institutions and implementing effective supervision.
G. CONCLUSIONS AND RECOMMENDATIONS
Conclusions
i) Government policy
The stated Government policy fully agrees with internationally
established sound practices for microfinance at the macro/ policy level:
governments should not engage in direct provision of financial services
but should create conducive environment for the private sector to do so.
ii) Key sound practices of prudential regulation
Among the generally agreed sound principles of financial sector 66
regulation are:
- Do not legislate what you cannot regulate and do not regulate what
you cannot supervise
- Capacity of the regulator/ supervisor needs to be adequate to cover
effective supervision of all regulated institutions
- Prudential regulation is necessary basically to protect public
depositors and to prevent systemic breakdown of the financial
sector. Non prudential regulation can cover the role of ensuring
orderly growth of the financial sector. There is thus no need for
prudential regulation of non deposit taking institutions
- Small, localised/ community based, user-owned savings and credit
institutions, as long as they only take deposits from their members/
shareholders, need not be regulated by the central bank. In many
cases, supervision under the registrar of cooperatives or a
66 Especially for microfinance

delegated institution could suffice.
- The overall cost of regulation and supervision should be justified by
the benefits arising from it.
- MFI legislation has limited use as a promotional tool for
microfinance growth, but works to ensure that the sector is sound
and safe.
- Excessive coverage of institutions by the regulator has the risk of
licensing (giving legal authority to) weak institutions that cannot be
effectively supervised; licensing criteria should thus be a balance of
the ease of entry for financially sustainable MFIs and the capacity of
the supervisory authority to provide effective prudential regulation.
- MFI licensing/ prudential supervision works best when it is narrowly
focused on targeted to enabling mature, sustainable institutions to
take savings and mobilize capital
- While self governance mechanisms suffice for smaller financial
cooperatives, full prudential regulation is necessary as they reach
the financial size of licensed financial intermediaries
- Regulatory policy should have a single focus, while application of
the regulatory function can be delegated to different regulatory
units or institutions with specialised responsibilities
- Capacity building of regulatory authorities and development of
effective regulatory tools is essential for effective regulation of
microfinance
- Development of financial regulatory framework should be
accompanied by development of other business related laws and
regulations in areas like property rights(like land ownership),
contract enforcement, taxation, collateral security execution and
realisation, securities regulation and consumer protection.
It appears that because BoSL is supposed to supervise all financial
service providers in the country, it could find it very difficult to do this
while adhering to the above mentioned principles.
iii) Conflict of interest for BoSL
It is understandable that due to a shortage of suitable institutions to
implement the establishment and nurturing of community banks, BoSL’s
Development Coordination Department undertook this role. As an interim
measure, this was suitable. In the long run, however, the central bank is
better off with a distinctive supervisory role in its relationship to financial
institutions. Experience elsewhere in Africa has shown that as the
financial sector grows, the central bank’s nurturing and fund wholesaling
roles come into conflict with its regulatory roles –even when they are
done under separate departments.
iv) Opportunity for the growth and nurturing of community based
initiatives
Experience in several African countries shows that local people have a
tendency to initiating basic financial service set ups which grow with
time. Additionally, some welfare organizations and NGOs also often

develop basic microfinance as a sideline activity, which also grow and
mature with time.
v) Dual registration and related implications
NGOs are currently registered under MoFDEP. Companies and
cooperatives are registered under their respective legislations. According
to the Banking Act 2000 and Other Financial Institutions Act 2001, only
the companies and cooperatives engaged in financial services can apply
for BoSL licensing and subsequent supervision. This gives a silent escape
route for the NGOs engaged in a similar business.
vi) Deposit insurance
One of the benefits of financial sector regulation to the public is that they
can to some extent be shielded from losses when regulated institutions
fail. The Other Financial Institutions Act 2001 does not provide for a
Deposit Insurance scheme to cater for this.
Recommendations
1. Maintain the Banking Act 2000 and Other Financial
Institutions Act 2001 and the Other Financial Institutions Act, but
the latter should be amended to cater only for relatively large, nondeposit
taking financial institutions.
2. Non prudential regulation for sizeable, non deposit
taking institutions with total assets exceeding say a billion Leones.
This should be done under the Other Financial Institutions Act,
amended to exclude SACCOs and small MFIs with less than a billion
Leones in total assets.
3. Separate regulation for SACCOs (prudential but far
simpler and less stringent than the Banking Act) should be done
under the Cooperative Act 1977 (if need be, sufficiently amended to
cater for appropriate prudential regulation of cooperatives engaged
in financial services). Explore possibilities of bringing community
banks under this umbrella
4. Streamline registration of financial institutions so that
all those regulated under the Banking Act and Other Financial
Institutions Act 2001 are required to be registered as companies.
5. Apart from those institutions that should be subjected
to non-prudential regulations under the Other Financial Institutions
Act, leave out all the other organisations involved in credit only
operations
6. Nurturing work currently done by BoSL Microfinance
Unit should be eventually shifted to another institution (National
Development Bank)
7. Address all comments and issues raised in the two
tables under sections B and C of this report.

H. LIST OF DOCUMENTS REVIEWED
i) The Banking Act 2000 – Freetown, Sierra Leone
ii)
iii)
iv)
Bank of Sierra Leone Act 2000 – Freetown, Sierra Leone
Other Financial Institutions Act 2001 – Freetown, Sierra Leone
Anti Money Laundering Act 2005 – Freetown, Sierra Leone
v) National Microfinance Policy (2003) – Freetown, Sierra Leone
vi)
vii)
viii)
ix)
Regulating and Strengthening Tier 4 Microfinance Institutions in
Uganda (Compiled by the Tier 4 Working Subcommittee of the
Microfinance Forum), Published by AMFIU; 2005
Sound Practices in Microfinance – A compilation of National and
International Sound Practices in Microfinance AMFIU; 2005
Policy Statement on Microfinance Regulation – Bank of Uganda,
Kampala, 1999
Consensus Microfinance Policy Guidance: Regulation and
Supervision (CGAP, 2002)
x) The Rush to Regulate: Legal Frameworks for Microfinance
(Christen, Robert Peck, Richard Rosenberg – 2000)
xi)
xii)
Who Benefits from Regulation – Microfinance Regulatory Impact
Assessment in Uganda (Andrew Obara, Eva Mukasa and Stefan
Staschen – for DFID Uganda, Aug 2007)
How to Regulate and Supervise Microfinance: Key issues from an
International Perspective (Alfred Hanning & Edward Katimbo
Mugwanya, Kampala – 2000)

APPENDIX 6: LIST OF DOCUMENTS REVIEWED
Nb. Report/Document name,
date and author
1 Microfinance Sector
Development in Sierra
Leone – An Assessment –
June 2003
Peter Kooi and John Tucker
2 Development of a
Sustainable Pro-Poor
Financial Sector in Sierra
Leone (2004-2009).
UNCDF
3 Mid-Term Evaluation
September 2006
Development of a
Sustainable Pro-Poor
Financial Sector in Sierra
Leone. Project SIL/03/C01
Ann Duval and Franklin
Bendu
November 2006
4 Monitor reports received
from MITAF
5 MITAF: Business evaluation
and statement of
requirements.
Sep. 2007
6 MITAF donor break down
chart
7 MITAF: Commercial banks
in Microfinance (Taskforce)
8 MITAF narrative report and
performance reports for
July-September 2007 plus
annexes A-X
9 MITAF:MFI performance
summary June 2006
10 Microfinance Policy Review
Sierra Leone 2002 CGAP
11 The Anti-Money Laundering
Act 2005
Date
received
Before
mission 1
Before
mission
1
Before
mission 1
During
mission 1
During
mission 1
During
mission 1
During
mission 1
During
mission 1
Comment
ARD,CEDA, CCF, Hope,
MMCB, MCB, SCB,
YCB, ProCredit, Care,
Community banks
related, including IT
invitation to tender
Nb. of
pages
32
30
81
31
23
26
During
1
mission 1
During From Craig 50
mission 1
Download Elect. version 30
12 The Banking Act 2000 Download Elect. version
Deposit taking
13 The Bank of Sierra Leone Download Elect. version
Act 2000
14 Sierra Leone monetary Download Elect. version
survey
15 Sierra Leone National Download Elect. version 22
Microfinance Policy. October
2003.
16 NaCSA newsletter “Credit
Lines” Nb. 001, 002, 003,
004
During
mission 1
Hardcopy
4*20
80

17 MFIs nb. of clients During
mission 1
18 MITAF funding criteria During
mission 1
19 PrCB leaflets During
mission 1
20 MFP accounting training During
handouts A1-A10
mission 1
21 MFP finance training
During
handouts FA5-FA11
mission 1
22 MFP, Microfinance best During
practices training courses mission 1
for board members and
senior management of MFIs
23 NaCSA, HIV/AIDS training During
of trainers workshop
mission 1
24 NaCSA, Operations Manual During
mission 1
25 MFP, Delinquency
management and control
training workshop
26 MFP, Report on information
sharing seminar for
microfinance stakeholders
27 Appraisal for Microfinance
Institutions, a Technical
Guide, CGAP
28 Format for appraisal of
Network Support
Organizations, a Technical
Guide, CGAP
29 Other financial services Act,
SL 2001
30 MITAF training invitations
and agendas
During
mission 1
During
mission 1
During
mission 1
31 SLAMFI Business Plan During
mission 1
32 Segbwema Community During
Bank
mission 2
33 Marampa Masimera
Community Bank
34 Governance Needs
Assessment of MFIs in
Uganda (AMFIU, Kampala,
2005)
During
mission 2
Before
mission 1
Elect.version 25
Elect. version 3
Elect. version
Elect. version
Hard copy 2005 64
Hard copy 2005 42
Hard copy 2005 86
Hard copy 2005 81
Hard copy 2005 41
Elect. versions
Elect. version 50
Certificate of
Incorporation
Reports and Accounts
per 31 st Dec. 2005
Reports and Accounts
per 31 st Dec. 2004
Memorandum and
Articles of Association
Strategic Business Plan
2008-2010
Elect. Version
35 Sound Practices in
Microfinance – A
compilation of National and
International Sound
Before
mission 1
Elect. Version & hard

Practices in Microfinance
AMFIU; 2005
36 Matching Grant Facility for
Capacity Building (MCAP)
Design Document (Andrew
Obara & Eva Mukasa for
Government of Uganda,
2004)
37 Uganda Microfinance
Effectiveness Review (CGAP
) – Ruth Goodwin, Till Bruet
& Alexia Laortue 2004.
38 CAGP Focus Note 37:
Financial Inclusion 2015 –
Scenarios for the Future of
Microfinance. CAGP,
Washington DC
Before
mission 1
Before
mission 1
Before
mission 1
Elect. Version
Elect. Version
Hard copy

APPENDIX 7: LIST OF PERSONS INTERVIEWED
Number Institution Name and Title Contact details
1 NaCSA Sylvanus Joe
Jannah,
Executive Director
Mob: 076-620900/033-419392
Land: (232-22)228524
Email: sylfannah@nacsa-sl.org
sylfannah@hotmail.com
2 MITAF Alphonso Campbell
Deputy Director
(Also met in his
earlier capacity as
Acting NaCSA
Director) in Nov
2007)
Mob: 076-680726
Land: (232-22)226032
Email: olade8@yahoo.com
3 NaCSA Francess Kondoh Mob: 076-640096
Email:
kondohfrancess@yahoo.co.uk
4 NaCSA Mr. Conton Sesay
Commissioner
5 DEC Franklin Bendu
Project Officer
6 DEC Claudi Ferrer
Project Officer
7 BoSL Rosaline Gobio-
Lamin
Director
Development
Coordination
Department
8 MITAF Craig Feinberg
Outgoing Chief of
Party
9 MITAF Pearson
Kalungulungu
Incoming Chief of
Party
10 BoSL Mr. Mohammed
Massequoi
Na
Mob: +232 33 417 334
Land: +232-22-
234060/234061/236418
Fax: +232-22-236414/236416
Email:
Franklin.BENDU@ec.europa.eu
Tel: +232 22 236422/+232 30
543606
Fax: +232 22 236416
Email:
claudi.ferrersavall@ec.europa.eu
Mob: 076-607-981, 033-701
381
Land: 226 501 Ext. 1080
Direct: 223 695/290 484
Mob: +232 (0) 76 758 023
Land: +232 (0) 22 236 337
Email: cfeinberg@esglobal.com
craigfeinberg@hotmail.com
Mob: +232 (0) 76254595
0232 (0) 33 491 619
Land/Fax: +232 (0) 22 236 337
Email: pearsonk@esglobal.com
Mob: 033 480016
077 830423

Senior Manager,
Community Banks
11 BoSL Claudia Sam
Manager MFIs
12 MOFDEP James Romeo
Koroma
Principal Planning
Officer
13 MOFDEP Mohamed A.
Edmond
14 ProCB Thomas Lendzian
General Manager
15 SLAMFI Santigie D. Kanu
Chairperson
16 HOPE Santigie D. Kanu
Executive Director
17 FS Ben Noballa
Director
18 ARD Alie Forna
Director
19 ARD David Kamara
Operations Manager
20 ARD Sheik Ichriss
Korona
Finance Manager
21 CARE Mrs. Amani M´Bale
Poveda
Youth & Livelihood
Coordinator LINKS
22 UNDP Mr. Abdulrahman
Bob Conteh
National
Microfinance Officer
Mob. 033324631
Mob. 076 683 911
Email:
jamesromeokoroma@yahoo.com
Mob. 033-377 637
Mob. +232 (0) 76957376
Email:
t.lendzian@procreditbanksl.com
Mob: +232 76 611345
Land: +232 22 241 381
Email: kanu.sd@gmail.com
Mob: +232 76 611345
Land: +232 22 241 381
Email: kanu.sd@gmail.com
Mob: 076 654 729
Email: benn@archq.org
Mob: 076 626 489
Email:
ardsierraleone@yahoo.com
Mob: 076 489 991
Email: dkay73@gmail.com
Email: sheikichriss@yahoo.co.uk
Mob: 076 563 182
Land: +232 22 234
227/228/246
Fax: +232 22 234 280
Email: ambale@sl.care.org
Mob: +232 22 33 253885
Land: +232 22 231311 Ext. 224
Email:
abdulrahman.conteh@undp.org
23 MarMCB
Osman Sesay
Acting Manager
Michael Conteh
Senior loans officer
Sunil Khamal
Resident Technical
Advisor
Mob: 076-920670/077-881-965
Mob: 077-852-448
Mob: 076-761-874

24 Yoni
Chiefdom
25 MatMCB
26 Jong
Chiefdom
(Bonthe
District)
27 Kpenda
Kemo
Chiefdom
(Bonthe
District)
28 YCB
Mrs. Memumatu M.
Bangura
Chairlady, Womens
Wing
Mr. Osman
Mansaray
Court
Chairman/Elder
Paramount Chief Bai
Koblo Queen II
Mrs. Aminata S.
Kamara
Vice Chairlady,
Womens Wing
Vanty B. Jaa
(Manager)
Abdulai Juana (Loan
Officer)
Chief Syl B Goba
(Chiefdom Speaker
and Acting
Paramount Chief)
Samuel Serry -
Security Officer
Mamie Foday
resident
Lansana Pendema –
resident.
Edward S.A. Kargbo
General Manager
Lorisa Canillas
Resident Technical
Advisor
Mob: 076-607-984
Mob: 076-983-081
Email:
lorisa_canillas@yahoo.com
29 SCB Abdul Karim
Kamara
Accountant
Segbwema
Chiefdom
30 CEDA
Mr. Alhaji Sheku
Senesie
Permanent Chief
Mohamed E. Jalloh
Director
Mrs. Fatmata
N´Doinje
Operations Manager
31 BoSL Mrs. Fatmata
Sanlcoh
Banking Officer
Community
Development
Division
Mob: 076-219120/077-850613
Mob: 076-929-059
Email: cedabo2020@yahoo.com
Mob: 030-23 75 43

32 BoSL Mr. Davidson O.
Kormoi
Senior Manager
Microfinance
Division
33 MOFDEP Mr. Mohamed K.
Lebbie
Mob: 076-648-579
Mob: 076-516-845
Email:
lebbie_koutibie@yahoo.com
34 NaCSA Mr. Charles Rogers
Deputy
Commissioner
35 Jalahun
Chiefdom
36 Jong
Chiefdom
(Bonthe
District)
37 Kpenda
Kemo
Chiefdom
(Bonthe
District)
38 Marampa
Chiefdom
39 Calaba/
Allen Town
Chiefdom
40 Lumpa Via
Waterloo
Chiefdom
Mr. Alhaji Sheku
Senesie, Permanent
Chief
Chief Syl B Goba
(Chiefdom Speaker
and Acting
Paramount Chief)
Samuel Serry -
Security Officer
Mamie Foday –
Resident
Lansana Pendema –
Resident.
Chief PC Bai Koblo
Queen II
(Paramount Chief)
Mr. Usman
Manarray (Court
Chair of the
Chiefdom)
Mrs Memunah Maruf
Bengura (Women’s
Leader in the
Chiefdom)
Mrs. Aminata
Kamara (Deputy
leader of women in
the Chiefdom)
Chief Foday B.
Sama ( Tribal Head)
Chief Lansana
Seifua ( Deputy
Tribal Head)
Chief Alinsarry S B
Kabbu II (Tribal
Head)

APPENDIX 8: MFI PERFORMANCE SUMMARIES
MFI Performance Summary December 2005
Finance
Salone
Hope
Micro
ARD
CCF/SM
T
CEDA YCB MMCB MCB SCB TOTAL
Active Borrowers
for Group Loans
n/a
10,946 5,149 3,432 1,050 1,254 567 511 333 23,242
Outstanding
Loan Portfolio
$US
1,014,52
5
324,335 682,134 248,181 55,187 147,622 154,885 103,817 66,340 2,797,026
PaR > 30 days 0.77% 1.79% 12.65% 3.88% 0.69% 4.99% 3.70% 1.04% 0.35%
OSS 104% 90% 87% 90% 132% NA NA NA NA
Write-off ratio 0% 1.43% 0% 0% 0% 0% 0% 0% 0%
Operating
Expense Ratio
Active Borrowers
for Individual
Loans
# Active Salary
Loan Clients
44.71% 7.45% 5.10% 2.90% 2.40% NA NA NA NA
NA NA NA NA NA 107 154 64 40 365
- 30 - - - 456 23 29 106 644
# Active Savers NA NA NA NA NA 1,011 1,079 539 754 3,383
Outstanding
deposits $US
NA NA NA NA NA 107,667
134,001
NA 34,375 276,043

MFI Performance Summary September 2007
Finance
Salone
Hope
Micro
ARD CCF/SMT CEDA YCB MMCB MCB SCB ProCredit TOTAL
Active Borrowers for
Group Loans
13,990 17,846 4,328 4,625 1,168 689 1,057 814 1,699 - 46,216
Active Borrowers for
Individual Loans
Active Borrowers for
Salary Loans
Outstanding Loan
Portfolio US$
49 220 - - - 66 123 130 187 306 1,081
- - - - - 269 386 72 91 - 818
1,930,725 583,385 461,645 498,026 60,270 150,244 190,007 152,476 256,822 643,171 4,926,771
PaR > 30 days 5.04% 15.30% 2.71% 4.45% 3.91% 15.83% 30.39% 27.54% 87.00% 0.00% 2
OSS 112% 110% 89% 108% 73% 128% 105% 101% 32% 6% 9
FSS 112% 99% 68% 75% 63% 90% 100% 101% 26% 6% 7
Write-off ratio 0.00% 0.35% 9.76% 5.66% 0.64% 0.00% 0.00% 0.00% 0.00% 0.00%
Operating Expense
Ratio
Outstanding Deposit
Amount US$
52% 64% 37% 15% 80% 65% 39% 18% 133% %
- - - - - 248,219 268,282 187,719 410,177 213,120 1,327,517
Active Savers - - - - - 1,683 1,811 1,385 2,131 1,678 8,688