Macroeconomic Analysis

Sierra Leone is extremely poor and nearly half of the working-age population engages in
subsistence agriculture. The country possesses substantial mineral, agricultural, and fishery
resources, but it is still recovering from a civil war that destroyed most institutions before ending
in the early 2000s. In recent years economic growth has been driven by mining – particularly
iron ore. The country’s principal exports are iron ore, diamonds, and rutile, and the economy is
vulnerable to fluctuations in international prices1.
In 2014, rapid spread of the Ebola virus caused a contraction of economic activity in several
areas, including transportation, health, and industrial production. Iron ore production dropped,
due to low global prices and high costs, driven by the epidemic. A long-term shutdown of the
industry would badly hurt the economy because it supports thousands of jobs and creates about
20% of GDP.
Until 2014, the government had relied on external assistance to support its budget, but it was
gradually becoming more independent. The epidemic disrupted economic activity, deterred
private investment, and forced the government to increase expenditures on health care, straining
the budget and restricting other public investment projects. A rise in international donor support
will partially offset these fiscal constraints.
Regrettably, however, the closure of mining companies had drastically reduced the anticipated
Government income and currently has a daunting effect on the economy of the country, and by
extension, on the financial institutions.
The Sierra Leone government has in the past ten years introduced policies that support the
private sector growth, including the growth of the MSME sector, which is the target market for
microfinance institutions such as EML.
Table 8 below shows selected economic indicators for the past four years. GDP grew by 4.6% in
2014 before declining by -25.5% in 2015 largely as a result of the Ebola epidemic. GDP grew by
4.3 and 3.7% in 2016 and 2017, respectively. Agriculture contributed about 60.7% to GDP in
2017; industry contributed 6.5%; and services contributed 32.4%. Major agriculture products
include rice, coffee, cocoa, palm kernels, palm oil, peanuts, cashews, poultry, cattle, sheep, pigs
and fish. Labor force was estimated at 2.678 million in 2016. 61.1% of the labor force is
employed in the agriculture sector. Unemployment rate was estimated at 9.1% in 2014.
Table 8: Sierra Leone Selected Economic Indicators

2014 2015 2016 2017

GDP PPP (US$ billions) 12.92 10.6 11.1 11.5

GDP growth rate 4.6% -20.5% 4.3% 3.7%

Populations (millions) 6.21 7.08 7.12 7.14

GDP per capita (US$) 2,100 1,500 1,500 1,600

1
CIA Sierra Leone Fact Sheet, 2017
 Table 8: Sierra Leone Selected Economic Indicators

2014 2015 2016 2017

GDP composition by sector:

Agriculture N/A N/A 71.1% 60.7%

Industry N/A N/A 7.9% 6.5%

Services N/A N/A 21.0% 32.4%

Inflation rate, end of year 7.3% 8% 7.1% 18.0%

Commercial banks’ lending rate, end of year 19.4% 18.78% 18.9% 18.6%

Exchange rate (SLL/US$), end of year 5,080 6,289 6,289 7,396

Source: CIA Sierra Leone Fact Sheet

1.1 Financial Sector Overview The Sierra Leone financial system consists mainly of the banking and
insurance sectors, each under the supervision of a separate regulatory authority. Sierra Leone adopted a
comprehensive strategy for reforms of the financial sector in 2008, aimed at strengthening banking
supervision, enhancing competition, increasing access to commercial bank credit, and improving the
payment system. The Central Bank also raised the minimum capital requirements for all licensed
financial institutions in an effort to strengthen financial system stability. Despite significant
improvements and impressive expansion, the financial sector still remains constrained by high costs of
financing, high operating costs, a low share of credit to the private sector, limited bank branch
infrastructure, and lack of competition due to high concentration in the banking sector.

The Bank of Sierra Leone (BSL) supervises all banks and non-bank financial institutions. As of
end of 2018, there were: fourteen (14) commercial banks; fifty six (56) foreign exchange bureau;
seventeen (17) community banks; fifteen (15) credit only microfinance institutions; four (4)
deposit taking microfinance institutions; two (2) discount houses; one mortgage finance
company; one leasing company; fifty nine (59) financial service associations; one apex bank;
three (3) mobile financial service providers; and a stock market.

Table 9: Type and number of formal financial service providers

Type Number Number of branches
Commercial banks 14 106
Community Banks 17 17
Deposit Taking MFIs 4 41
Credit-only MFIs 15 96
Leasing Company 1 1
Housing Finance Company 1 1
Credit and Savings Unions 20 20
Financial Service Associations 59 59
Discount Houses 2 2
Total 133 343

Source: Banks of Sierra Leone and SLAMFI

Banks are generally small with assets averaging about USD 45 million; efficiency is low, with
non-interest expenses averaging about 10 percent of the total assets and interest rate spreads at
about 11 percentage points; concentration is high with the three largest banks holding about 54
percent of the total assets2.

The vast majority of Sierra Leone's population has no access to formal financial services, and the
microfinance industry is in its nascent stage of development. Rotating Savings and Credit
Associations (ROSCAs) are common throughout the country and serve as a mechanism for
people to save for medical, dowries, or school fees. Credit discipline is enforced by social
sanctions.

Capital market activity is limited in Sierra Leone with the newly created stock exchange yet to
obtain a significant number of listings.

The fixed income market remains relatively shallow. The government remains the only active
issuer, regularly issuing short-term treasury bills and some shorter-term bonds, and has recently
decided to gradually introduce long-term treasury notes to lengthen the maturity profile of its
debt instruments.

The investor base remains rather limited and is largely dominated by commercial banks, though
the National Social Security and Insurance Trust (NASSIT) and a few discount houses and
insurance companies also hold treasury bills.

The insurance sector is regulated by the Sierra Leone Insurance Commission. At present, ten
insurance companies are registered. Supervision of the sector is carried out by the Commissioner
of Insurance within the Department of Finance.

1.2 Microfinance Sub-sector Overview

The microfinance sector in Sierra Leone is regulated under the Other Financial Services Act.
Bank of Sierra Leone issued guidelines for the operations of credit only and deposit taking
microfinance institutions in 2009. Prudential requirements for deposit taking institutions include:
liquid assets not less than 20% of total deposit liabilities; minimum paid up capital of SLL
1,500,000,000 (US$197,368); and minimum capital adequacy ratio of 8%.
There are about fifteen (15) microfinance institutions that are licensed by BSL and eleven (11)
that are members of the Sierra Leone Association of Microfinance Institutions (SLAMFI),
including: A Call to Business (ACTBB); Brac Microfinance Limited; LAPO Microfinance;
Association for Rural Development (ARD); Community Empowerment and Development
Agency (CEDA); Salone Microfinance Trust (SMT); Ecobank Microfinance Limited; Grow and
Gender Empowerment Movement (GGEM); BIP; ASA SL; and Capital Finance Limited.

2
https://www.mfw4a.org/sierra-leone/sierra-leone-financial-sector-profile.html
Some commercial banks such as Access Bank, First International Bank, Guaranty Trust Bank,
Union Trust Bank and Skye Bank lend to SMEs, although only Union Trust Bank has a
dedicated unit for SME lending.
As in most poor and developing countries, there is a strong presence of Osusu or ROSCAs
(Rotating Savings and Credit Associations) throughout the country. Relatively big traders in
rural communities are also common sources of credit usually at very high interest rates but very
flexible terms and with quick access.
Table 10 below shows competition analysis of five MFIs as of end of 2018. The information for
ACtB and BIP is for June 2018 while that for EMSL, LAPO SL and GGEM MFI is for
December 2018. These are the MFIs that were willing to share their information.

Table 10: Competition Analysis Matrix (December 2018)

FDH EMSL ACtB LAPO SL BIP GGEM

MFI

Active borrowers 15 3,239 17,416 23,605 3,715 7,019

Gross loan portfolio (SLL’000) 318,000 55,986,389 32,132,730 28,202,557 1,076,728 7,443,333

Average loan balance 21,200 17,285 1,845 1,195 289 1,060

(SLL’000)

Number of depositors 15 66,584 10,104 62,502 NA NA

Savings Balance (SLL’000) 318,000 76,499,445 7,573,316 13,526,701 76,630 NA

Total Assets (SLL’000) ??? 97,127,383 53,539,802 48,985,461 1,524,091 1,108,256

Total Equity (SLL’000) ??? 13,747,410 16,477,596 8,925,760 983,711 373,670

Total Revenue (SLL’000) 754,578 21,259,033 NA 17,468,581 NA 401,916

Net Operating Profit (SLL’000) 222,104 4,317,432 NA 2,529,221 NA 55,854

PaR30 3.00% 5.71% 8.85% 5.02% NA 7.91%

Number of staff 7 109 NA 259 NA 41

Number of loan officers 1 30 NA 93 NA 20

Number of branches 1 8 8 24 1 6