Playing Catch Up: Credit Access in Guinea-Bissau

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SEATTLE — The story of Africa in the 2000s has largely been a story of growth. Africa is currently one of the fastest-growing regions in the world, and six of the fastest-growing countries in the world are located in sub-Saharan Africa.

Guinea-Bissau is a rare exception to this phenomena. The World Bank declared near the beginning of 2015 that “Guinea-Bissau is one of the few countries in Africa where poverty has stagnated or even increased over the past few years.”

The question is: what holds Guinea-Bissau back from enjoying the growth of its neighbors?

Lack of Credit Access in Guinea-Bissau

The answer is complicated, but at least one element is the lack of credit access in Guinea-Bissau. When interviewed in 2006, roughly one-fifth of business owners in the country claimed that financing was the greatest obstacle to their success. The same survey revealed that only 2.7 percent of businesses in Guinea-Bissau had access to bank credit, as opposed to 20.7 percent of businesses in Sub-Saharan Africa as a whole.

Without reliable access to credit, the country’s businesses have struggled. Small businesses depend on credit to open and expand. Even when credit is offered in Guinea-Bissau, it usually is not extended to small businesses. Instead, credit is often only granted to firms participating in the country’s largest industry — cashew farming — which makes up 80 percent of all the country’s exports.

There are at least two major reasons for the lack of credit access in Guinea-Bissau.

Access to Credit Information

In order for a bank or other institution to offer credit, it needs to have reliable knowledge about the people or business to which it is lending. In many places, this knowledge is held and distributed by credit registries and credit bureaus.

One major obstacle to credit access in Guinea-Bissau is the fact that there are so few major credit agencies in the country. Only 0.2 percent of the country is covered by a credit registry and only 0.5 percent by a credit bureau. This is much lower than sub-Saharan Africa as a whole, where 7 percent of people are covered by a credit registry and 8.9 percent are covered by a credit bureau.

While microfinance lenders have lower barriers for credit, Guinea-Bissau also suffers from a dearth of these institutions. There are six microfinance institutions in the country, and Guinea-Bissau has the least total microfinance deposits of any country in Sub-Saharan Africa.

Despite these obstacles, credit access in Guinea-Bissau is slowly but steadily growing. Between 2003 and 2013, credit to the private sector rose from below 1 percent of GDP to 13.8 percent of GDP. Between 2007 and 2013, the number of bank accounts in the country more than doubled. Despite all of this change, something stands in the way of continued progress: political instability.

Political Instability

One significant cause of the relative growth of credit access in Guinea-Bissau over the past decade has been the intervention of foreign governments and international agencies like the IMF and World Bank. However, political disruptions have led these lending institutions to bring programs to a screeching halt. The country experienced coups in 2003, 2009 and 2012. Though there has been no coup since 2012, four prime ministers were replaced between 2015 and 2016, increasing the feeling of unrest in the lending community.

Large lending organizations also pulled out of the country in 2016 after the Bissau-Guinean government tried to secretly bail out its banks. Since Bissau-Guinean officials have promised to undo the bank bailout, organizations like the World Bank agreed to restart their credit initiatives in 2017.

USAID also has a number of programs which provide credit access in Guinea-Bissau and other African nations.

Due to a variety of factors including innovations by Bissau-Guineans, foreign investments, political stabilization and increasing demand for cashews, credit access in Guinea Bissau is becoming more widespread. Many people hope that the spread of credit access will, in turn, lead to a flourishing of small businesses and economic growth.

Eric Rosenbaum
Photo: Unsplash

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