Financial Inclusion Eludes Timor-Leste Despite Efforts
The Asian Development Bank (ADB) has released a report highlighting the challenges faced by Timor-Leste in achieving financial inclusion. Despite efforts to promote financial inclusion, the country’s financial sector remains limited and restrictive.
Limited Banking Sector
The ADB report notes that only five banks operate in Timor-Leste, with the latest addition receiving a license as recently as February 2017. The lack of competition has resulted in sluggish network expansion, with only 11 new bank branches added to the network from 2011 to 2017.
- Limited banking options hinder financial inclusion
- Sluggish network expansion contributes to restrictive financial services
Institutional Constraints
The report highlights that the country’s financial inclusion progress is hindered by institutional constraints, including:
- Insecure property rights
- Outdated bankruptcy frameworks
- Laws and customs restricting foreigners from owning land, making it difficult for foreign-owned banks to hold security interests in land
Limited Financial Products
The ADB also notes that Timor-Leste lacks diversified financial products, with limited options for:
- Long-term financing
- Small and medium-sized enterprise (SME) financing
- Specialized asset finance providers
Positive Developments
In a positive development, the National Switch Project, announced by the governor of BCTL in 2017, is working to enable bank interoperability by integrating ATM, point of sale, and mobile banking functionality among four of the country’s licensed commercial banks. This project has the potential to increase the functionality of Timor-Leste’s financial services and expand access to financial services.
Challenges Remain
Despite these efforts, financial inclusion in Timor-Leste remains a challenge. The International Monetary Fund (IMF) highlighted in 2016 that while there have been some advances made by Timor-Leste in the area of financial inclusion, more needs to be done to address the country’s financial sector challenges.
Recommendations
The ADB report emphasizes the need for policymakers and regulators to work together to:
- Address institutional constraints
- Provide diversified financial products
- Improve the regulatory framework to ensure the stability and effectiveness of Timor-Leste’s finance sector.