LIBERIA: LEDFC AT ONE -- LESSONS LEARNED

UNCLAS SECTION 01 OF 02 MONROVIA 000993

SENSITIVE
SIPDIS

PLEASE PASS OPIC FOR KARL CHRISTENSEN AND AMY BAILEY

E.O.12958: N/A
TAGS: EINV EFIN ETRD ECON OPIC LI
SUBJECT: LIBERIA: LEDFC AT ONE -- LESSONS LEARNED

REF: 07 MONROVIA 1260


1. (SBU) SUMMARY: The OPIC-funded Liberia Enterprises DevQopment
Finance Company (LEDFC) is faltering but can probably be salvaged.
Both the recently-resigned LEDFC General Manager and current CHF
International caretakers cite the lack of adequate business service
support and mentoring as a factor in clients' struggles. A
commercial banker very familiar with LEDFC's operations attributes
the problems to delays in disbursing funds and overly-rigorous
standards for LEDFC borrowers. After a year of stumbling, LEDFC
needs to become an effective financing entity or close its doors.
END SUMMARY.

What is LEDFC?
--------------


2. (SBU) LEDFC was an experiment to determine if small and medium
Liberian firms are credit-worthy for longer-term loans. It was
conceived as a $30 million partnership by OPIC, CHF International
and the Robert L. Johnson Foundation (reftel). OPIC provided $20
million over five years for on-lending to Liberian small and medium
enterprises. RLJ provided $3 million over three years to cover
LEDFC's initial operating costs. LEDFC's owner, CHF International,
was expected to contribute $7 million dollars to support business
development services for LEDFC's target market: small to medium
entrepreneurs with viable ideas but little experience in business.
However, CHF never provided the funding for business development
services, a gap that seems to have had far-reaching impact on the
success of the project and placed an unanticipated burden on LEDFC's
clients and credit officers.

Who is in Charge?
--------------


3. (SBU) CHF Liberia (and thus LEDFC) is in a state of transition.
LEDFC's General Manager Gus Erskine, resigned in October due to
frustration about ineffective management he attributes to CHF's bias
towards micro-credit projects. CHF Country Director Laurin Banner
had resigned in June or July and his successor too has since
returned to the United States. LEDFC's Finance Director, who joined
CHF in May, is acting LEDFC General Manager. Lloyd Guzha-Chanetsu,
a consultant from South Africa who was sent two months ago to train
credit officers, is serving as CHF Country Director.

Who is at fault?
--------------


4. (SBU) During a review of LEDFC's first year, Erskine (who had
just resigned) said LEDFC fills an important role but is hobbled by
CHF's lack of experience in SME lending and lack of commitment to
Liberia. LEDFC started operations last October with broad public
interest and hundreds of applications. In the past year, LEDFC has
cultivated only eight approved projects, with another sixteen in the
pipeline. However, there have been no new project approvals since
May. Thus far, most of the clients have been repaying their loans
but Erskine said Liberian firms' interest in LEDFC has dropped as
applications languish six to nine months without approval and he has
heard rumors people think LEDFC is actually a front for a Nigerian
scam operation.


5. (SBU) According to Erskine, CHF appears to be struggling to find
an effective management structure. He said the LEDFC board, which
should approve projects, had not met in the past year and CHF has
changed the management structure four times over the year. Rather
than reporting to its board, LEDFC reports to CHF's Office of Global
Operations. (Note: Apparently the board did meet later in November
to begin the search for a new GM. End note.) Erskine reports that
CHF did not respond adequately to requests for capacity building of
LEDFC staff, sending one consultant for two weeks. He said LEDFC is
the only CHF activity in Liberia and $900,000 of RLJ's $3 million
for LEDFC operating costs goes to supporting CHF operations.

CHF blames former management
--------------


6. (SBU) During a subsequent introductory meeting with Econoff at
CHF/LEDFC, Guzha-Chanetsu and the acting LEDFC GM said the eight
current projects are weak but they will be able to salvage the
portfolio. They criticized the lack of mentoring and market
linkages for LEDFC clients and said the focus on start-up firms
created an extra burden for the credit officers. (Note: Neither
seemed aware that one of LEDFC's initial goals was to reach Qond
borrowers who had traditionally had access to finance, and they said
they did not know the LEDFC model had been based on an understanding
CHF would provide $7 million for business support services to assist
clients early in the application process. End note.)


7. (SBU) Michael Carson, CHF International's Regional Director for
Africa Operations, told the Ambassador in a November 21 meeting that
overall things are going well but there have been management issues.

MONROVIA 00000993 002 OF 002


Noting that the average of 30 new jobs per LEDFC client was an
unexpected bonus, he said lenders are repaying, despite struggles,
and LEDFC's December interest payment to OPIC will be 100% from
client repayments (up from 80% in June). He said despite the rough
start, the portfolio is "very salvageable."


8. (SBU) The Ambassador told Carson she had heard troubling reports
of LEDFC since her arrival and it is important to for CHF to get it
right. (Note: The reports came from LEDFC clients and others, not
CHF or LEDFC. End note) The new jobs are important, and failure by
LEDFC clients will cast a shadow on USG economic revitalization
initiatives. She said it seems they need to move faster, and need
more outreach. Carson agreed, and confirmed the new General Manager
should be in place by the end of the year. CHF plans to expand
links to other organizations and will be using funding from Goldman
Sachs to boost women's entrepreneurship. (Comment: Carson's
description of CHF plans to boost business outreach made no mention
of the fact such support is long overdue. End comment.)

The bank blames CHF
--------------


9. (SBU) A commercial banker very familiar with LEDFC operations
attributes the problems to delays in disbursing funds and
overly-rigorous standards for LEDFC borrowers. While noting the
clients required time-consuming support, he feels the businesses had
strong potential if their funding had arrived more expeditiously.
The banker said he knows first-hand that President Sirleaf has
received a memo blasting LEDFC's lack of performance (he did not
know the author of the memo) and has been told by the Governor of
the Central Bank that there are concerns about LEDFC's relations
with its clients. Asked about the current LEDFC/CHF Liberia
officials' claims the portfolio was substandard, he agreed the
projects were risky but noted LEDFC knew that going in and was
trying to address a market that had not previously had access to
credit. He felt most, if not all, of the existing projects could
have succeeded had they not been crippled by the slow and erratic
disbursement.

What next?
--------------


10. (SBU) Comment: Carson's plan to expand linkages, improve
management and provide more support to new entrepreneurs is very
welcome, but over a year late. The LEDFC model could work but the
perception here is that LEDFC is so slow in approving projects and
disbursing funds that clients are put at risk. Initial concerns
that LEDFC would be a vehicle for channeling funds to the former
elite seem to be unfounded. However, grass-roots clients are
extremely labor-intensive for credit officers. LEDFC's shortcomings
have drawn attention from the highest levels of the Liberian
government. Although there is a strong need for its products, after
a year of stumbling LEDFC needs to find its feet or risk tarnishing
the reputation of future USG efforts to assist the private sector.
End comment.

THOMAS-GREENFIELD