Governor Abraao de Fernandes and Deputy Governor Nur-Aini Djafar Alkatiri, BCTL are among the high-level representatives attending the study visit in Kuala Lumpur, Malaysia.

Enhancing MSME credit worthiness key to SME development for Timor-Leste’s central bank

Small and medium enterprise (SME) development is crucial to advancing financial inclusion in Timor-Leste, and despite being in its early stages the country’s central bank is strengthening the sector to assist wider economic development.

In line with these efforts and led by Banco Central de Timor-Leste (BCTL) Governor Abraao de Fernandes, over a dozen high-level representatives of financial institutions in Timor-Leste are attending a three-day study visit to Malaysia hosted by the Alliance for Financial Inclusion (AFI).

On the first day, de Fernandes highlighted in his opening remarks how the visit will act as a knowledge exchange platform to learn more about SME development policies. These include credit guarantee and registries, financial literacy and alternative forms of financing for micro, small and medium enterprises (MSMEs).

“AFI not only theoretically explains the need to have a proper policy but is also practically showing us how to do it and roll it on the ground, via peer-sharing experience,” Governor de Fernandes said, adding that because AFI gathers information from across the globe, it provides the “best” learning experience.

Timor-Leste’s second National Strategy for Financial Inclusion (NSFI), covering 2017 – 2022, includes not only commitments made under the Maya Declaration, but also tasks such as completing a study of SME finance and introducing a pilot credit guarantee scheme. These efforts, de Fernandes said, will help foster SME growth in a sector where currently only 40 percent of registered companies are SMEs, but many more exist.

Over the next three years, he added, the central bank will focus on providing training to SMEs in order to raise financial literacy levels both in the capital, Dili, and municipalities across the Southeast Asian country. This, he highlighted, is an area in which his institution looked up to AFI for guidance.

Since launching the NSFI, the central bank has implemented a series of training programs, including some targeted exclusively at women, as they make up a significant portion of the SME workforce.

Other goals, he said, include the digitization of banking processes and upgrades to credit registries that ensure greater access to finance by SMEs. Despite being a major contributor to national job creation and gross domestic product, SMEs often face limited capacity to secure formal financing, as well as a lack of know-how and resources.

Governor de Fernandes thanked AFI for organizing the study tour, a sentiment echoed by AFI Deputy Executive Director Norbert Mumba, who in his welcoming remarks emphasized the importance of enterprises and businesses in financial inclusion.

“In most national financial inclusion strategies, if not all, MSMEs have become one of the pillars for a holistic inclusion,” Mumba said.

In order to assist members, Mumba reminded participants that AFI in April published the latest version of its Draft Guideline Note on SME Financing,  presented at the 12th SME Finance Working Group Meeting in Zambia. The Guideline Note provides an overarching view of SME financing policy and best practices from AFI member institutions. BCTL Deputy Governor Nur-Aini Djafar Alkatiri gifted Mumba with a copy of Timor-Leste’s NSFI along with a scarf bearing local motifs.

Deputy Governor Alkatiri then gave an overview of financial inclusion and SME promotion, including details of her country’s Master Plan for Financial Sector Development, a roadmap for expanding the role of financial sector in the country’s economic and social development.

In addition to presentations from a range of top-level players, a series of demand and supply side site visits have been arranged as part of the Study Visit on Exchange Information of Funding Scheme for SME Development in Agriculture, Tourism, and Industry Sector in Timor-Leste. Among them, participants will visit SME Corp. Malaysia, Credit Bureau Malaysia and several local SMEs.

AFI offers in-country implementation support to member institutions to assist with better policy changes, practical implementation of these polices and meeting of the Maya Declaration targets. Through in country implementation activities, AFI member institutions are expected to have a higher impact on financial inclusion within their own jurisdictions.

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BCTL Study Visit on SME Development, Malaysia