Strategic Area:                        Recovery and Sustainable Livelihoods

Alignment with strategic plan:   Poverty reduction and achievement of MDGs
  
Project Name:                         Launch of an Inclusive Financial Sector in Somalia

Duration:                                2008 - 2012

Project Summary:
Sustainable microfinance can be successfully implemented in post-conflict situations.  All essential and preferred conditions are sufficiently present in Somalia to allow for a sequenced approach to restarting and gradually expanding microfinance services. At present, however, the financial sector in Somalia is disjointed and under-developed, and while the remittance sector serves approximately one-third of Somali households transmitting $1 billion per annum, savings, credit and insurance products are virtually non-existent.  No commercial banks operate in the country, and after eight years of piloting NGO-financial services, providers remain at a very nascent stage. Potential demand is high in Somalia. Estimates indicate that demand for credit for micro and small business activities may outstrip supply by some 10 times.  An even larger gap exists for savings services.  Entrepreneurial activities are likely to continue to spread as security improves.  The present policy environment presents no immediate constraints for the financial sector serving the lower segments of the market to develop and expand.  

Engaging in the establishment of best-practice microfinance from the outset of reconstruction offers the potential for resources invested to have both an immediate and a sustainable impact at the retail and meso levels. Minimizing harm through clear guidelines and coordination amongst actors of how best to apply grants versus loans can also assist in the reestablishment of a credit culture. 

Together with UNCDF, UNDP has developed the ‘Launch of an Inclusive Financial Sector’ programme that aims at supporting access to microcredit and financial services in Somalia. The programme is planned to start in April 2008 and seeks to engage with a range of partners in both private and public sector. Somalia presents an opportunity for the Financial Service Providers (FSPs), Government and donors to apply the lessons from other countries that have developed microfinance as an integral part of the financial sector. If the peace process is consolidated during the projected five year course of the programme, then the opportunity for Government and donors to combine their efforts based on a shared vision to build an inclusive financial sector might present itself.  In this case, it is feasible that within a period of 6 to 8 years a large and self-financing microfinance industry could be built.  This UNDP/UNCDF programme covers a period of 5 years that will bring immediate benefits for recovery, and lay the foundation for more dramatic scaling up of microfinance outreach and building an inclusive financial sector.

Expected outputs of the project are:
1. Potential leaders of the microfinance industry have addressed institutional weaknesses that allow them to make clear progress toward sustainability and considerably increase their outreach to launch an Inclusive Financial Sector.
2. Strategic partnerships are built with other donors and private sector in joint support of an inclusive financial sector
3. Ensure an optimal enabling environment for the launch of an inclusive financial sector and integration into the financial system.
4. Sound microfinance principles have been disseminated and are widely accepted and adopted

Implementation and achievements:
The project is expected to commence in April 2008.