Sierra Leone Business: Partnerships between financial institutions will boost their growth -Frank Ajilore

Business

International Finance Corporation (IFC) Boss Frank Ajilore has informed Microfinance Institutions (MFIs) and stakeholders within the financial institutions that they are just looking at borrowing as the only source of financing. “But, one of the ways that you can increase your capital is just to increase your equity base. We in this side of the world we don’t like partnerships. We want the big positions, that concept cannot really make you grow beyond what you should” he said.

He, therefore, urged them to open up beyond their equity base by getting financing from people around them whether it is cooperative or partnerships with other institutions. He also mentioned the need to securitize their existing portfolio, “if you have ten clients and then you guarantee that they are going to pay you certain amounts of money within six months to a year, you can actually bring back that future payment into a securitize package.” This he added works in a way that someone can look into their forward payment of loans and will issue a loan based on that, “you can essentially unlend more than your current lending, it usually works because most of the times the non-performing loans (NPLs) of MFIs are much lower.” The IFC Boss further encourages the MFIs to start looking into guarantees. But that he said must be anchored on the size of the deal, so that the cost of the transaction does not kill its purpose. “Let us also look at what type of aggregation is ideal for Sierra Leone and what type of commercial bank.” Responding to a question on hedging, he replied that he doesn’t know which angle the person is coming from whether it is the borrower or the lender, “but whichever angle, it is essential as we look at it a couple of things here. Hedging against investment risk means strategically using instruments in the market to offset the risk of any adverse price movements. In other words, investors hedge one investment by making another. He recalled that there was a point in time when they were trying to lend to two commercial banks and they were worried about the currency risk. “We even proposed a swap to enable protect against- but the cost of the swap is very high.” A swap is a derivative contract through which two parties exchange the cash flows or liabilities from two different financial instruments. Sierra Leone, he said gets one of the most prolific swop markets in the world so when someone in London is asked to give a swap rate for Sierra Leone, “it is very very high. So essentially it isn’t worthwhile, but that doesn’t mean that you shouldn’t continue to try. I know that there is a scheme that Cordaid is using to provide some form of hedging.”

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