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Taking part in Catch Up: Credit score Entry in Guinea-Bissau

SEATTLE — The story of Africa within the 2000s has largely been a narrative of development. Africa is at the moment one of many fastest-growing areas on this planet, and 6 of the fastest-growing international locations on this planet are situated in sub-Saharan Africa.

Guinea-Bissau is a uncommon exception to this phenomena. The World Financial institution declared close to the start of 2015 that “Guinea-Bissau is likely one of the few international locations in Africa the place poverty has stagnated and even elevated over the previous few years.”

The query is: what holds Guinea-Bissau again from having fun with the expansion of its neighbors?

Lack of Credit score Entry in Guinea-Bissau

The reply is sophisticated, however at the least one factor is the dearth of credit score entry in Guinea-Bissau. When interviewed in 2006, roughly one-fifth of enterprise homeowners within the nation claimed that financing was the best impediment to their success. The identical survey revealed that solely 2.7 % of companies in Guinea-Bissau had entry to financial institution credit score, versus 20.7 % of companies in Sub-Saharan Africa as an entire.

With out dependable entry to credit score, the nation’s companies have struggled. Small companies depend upon credit score to open and increase. Even when credit score is obtainable in Guinea-Bissau, it often shouldn’t be prolonged to small companies. As an alternative, credit score is commonly solely granted to corporations taking part within the nation’s largest trade — cashew farming — which makes up 80 % of all of the nation’s exports.

There are at the least two main causes for the dearth of credit score entry in Guinea-Bissau.

Entry to Credit score Info

To ensure that a financial institution or different establishment to supply credit score, it must have dependable data concerning the folks or enterprise to which it’s lending. In lots of locations, this information is held and distributed by credit score registries and credit score bureaus.

One main impediment to credit score entry in Guinea-Bissau is the truth that there are so few main credit score companies within the nation. Solely 0.2 % of the nation is roofed by a credit score registry and solely 0.5 % by a credit score bureau. That is a lot decrease than sub-Saharan Africa as an entire, the place 7 % of individuals are coated by a credit score registry and eight.9 % are coated by a credit score bureau.

Whereas microfinance lenders have decrease boundaries for credit score, Guinea-Bissau additionally suffers from a dearth of those establishments. There are six microfinance establishments within the nation, and Guinea-Bissau has the least whole microfinance deposits of any nation in Sub-Saharan Africa.

Regardless of these obstacles, credit score entry in Guinea-Bissau is slowly however steadily rising. Between 2003 and 2013, credit score to the non-public sector rose from under 1 % of GDP to 13.eight % of GDP. Between 2007 and 2013, the variety of financial institution accounts within the nation greater than doubled. Regardless of all of this variation, one thing stands in the best way of continued progress: political instability.

Political Instability

One important reason for the relative development of credit score entry in Guinea-Bissau over the previous decade has been the intervention of overseas governments and worldwide companies just like the IMF and World Financial institution. Nevertheless, political disruptions have led these lending establishments to carry applications to a screeching halt. The nation skilled coups in 2003, 2009 and 2012. Although there was no coup since 2012, 4 prime ministers have been changed between 2015 and 2016, growing the sensation of unrest within the lending neighborhood.

Massive lending organizations additionally pulled in another country in 2016 after the Bissau-Guinean authorities tried to secretly bail out its banks. Since Bissau-Guinean officers have promised to undo the financial institution bailout, organizations just like the World Financial institution agreed to restart their credit score initiatives in 2017.

USAID additionally has a variety of applications which offer credit score entry in Guinea-Bissau and different African nations.

Attributable to quite a lot of elements together with improvements by Bissau-Guineans, overseas investments, political stabilization and growing demand for cashews, credit score entry in Guinea Bissau is turning into extra widespread. Many individuals hope that the unfold of credit score entry will, in flip, result in a flourishing of small companies and financial development.

– Eric Rosenbaum
Picture: Unsplash

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