Identifier
Created
Classification
Origin
09MONROVIA565
2009-08-04 17:11:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Monrovia
Cable title:  

LIBERIA: CAN LEDFC SALVAGE ITS FLOUNDERING BUSINESS?

Tags:  ECON EINV LI 
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UNCLAS SECTION 01 OF 02 MONROVIA 000565 

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E.O.12958: N/A
TAGS: ECON EINV LI
SUBJECT: LIBERIA: CAN LEDFC SALVAGE ITS FLOUNDERING BUSINESS?

REF: 08 MONROVIA 993

UNCLAS SECTION 01 OF 02 MONROVIA 000565

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E.O.12958: N/A
TAGS: ECON EINV LI
SUBJECT: LIBERIA: CAN LEDFC SALVAGE ITS FLOUNDERING BUSINESS?

REF: 08 MONROVIA 993


1. (SBU) SUMMARY: Short on cash and wracked by non-performing
loans, the Liberian Enterprise Development Finance Company (LEDFC)
will exhaust its operating capital and be forced to close by
February 2010 if it cannot raise $1 million in additional funds.
Questioning LEDFC's long-term viability, the Robert L. Johnson
Foundation has refused to provide additional financing. In the face
of a serious cash crunch, LEDFC frankly admits to searching urgently
for debt or equity investment, even if on unfavorable terms, and has
recast its business model in favor of a more diversified portfolio
of many smaller loans. Given LEDFC's high-profile status, its
failure would deter other would-be lenders, postponing a deepening
in the financial markets that is a pre-requisite for domestic
private sector growth. END SUMMARY.


2. (SBU) The Ambassador met July 30 with Abraham Ndorfor, General
Manager of the Liberian Enterprise Development Finance Company
(LEDFC),and Brian King, Country Director of CHF International, the
U.S.-based development organization that manages LEDFC, to discuss
their strategy for righting an ailing financial institution that has
suffered from poor management, an unrealistic business model and
deadbeat loan recipients since its inception in 2007.


3. (SBU) Delivering on a Clinton Global Initiative commitment, Black
Entertainment Television founder Robert L. Johnson, CHF
International and the Overseas Private Investment Corporation
(OPIC)launched LEDFC, hoping to provide affordable medium-term
financing to small and medium enterprises that were underserved by
Liberia's limited capital markets. OPIC pledged up to $20 million
in loan capital, the Robert L. Johnson Foundation provided a $3
million grant for start-up operating costs, and CHF promised $7
million for business development services.


4. (SBU) Despite a highly-publicized launch and strong support from
President Ellen Johnson Sirleaf, LEDFC failed to fulfill its early
promise. After two years, LEDFC has disbursed only $2 million,
seven of its 11 existing loans are delinquent, CHF's promised
business advisory funds never materialized, and all of the initial
management team has left, resigning in disgust or dismissed by CHF
for backing poorly performing businesses (reftel). Recalcitrant

borrowers openly refuse to repay their loans, even when their
businesses show profits, claiming to believe their loans had really
been grants.


5. (SBU) The new management team of Ndorfor and King candidly admit
LEDFC needs an economic reset, and outlined several steps they are
taking to find quality lenders, fund business advisory services and
achieve long-term profitability. Indeed, LEDFC's recovery is a
matter of some urgency: without monthly loan payments to fund its
operating expenses, King said LEDFC will exhaust its $3 million in
start-up capital in February 2010.

Smaller Wagers, More Diversity
--------------


6. (SBU) LEDFC's strategic error may have been betting big on a
handful of large loans. Each time one of these 11 original loans --
ranging from $100,000 to $675,000 each -- stopped performing,
LEDFC's monthly revenues diminished markedly. In May, LEDFC
successfully applied to OPIC to reduce the minimum loan size from
$20,000 to $10,000, and Ndorfor said the lender now intends to
diversify its portfolio, nurturing companies with an initial small
loan accompanied by sustained business advice. When a company
proves itself a worthy borrower, and as its business flourishes,
subsequent tranches of a loan might follow. To that end, Ndorfor
said LEDFC has approved six new loans worth a total of $600,000, and
has eight to 10 more in the pipeline worth another $500,000.

In Search of a White Knight
--------------


7. (SBU) OPIC estimates LEDFC must assemble a loan portfolio worth
$10-$14 million to sustain monthly operating costs of $50,000.
Although a portfolio composed of increasingly small loans will
mitigate risk, LEDFC must seek out and vet dozens of quality
borrowers in a market where sound business models are scarce, a feat
King acknowledges they cannot achieve before existing operating
funds are depleted. Ndorfor conceded that LEDFC is searching
desperately for other investors, even if that means relinquishing
some equity in the company or contracting debt on less appealing
terms.


8. (SBU) However, LEDFC's past missteps seem to be deterring

MONROVIA 00000565 002 OF 002


would-be investors. During a July 6 meeting in Washington,
Johnson's Foundation told Ndorfor the foundation would provide no
additional capital, claiming past credit misjudgments, failure to
buttress loans with business advisory services, and slow disbursal
of funds eroded its founder's confidence in LEDFC.


9. (SBU) Ndorfor told the Ambassador the Soros Economic Development
Fund (SEDF) is favorably considering an equity investment, but Ben
Matranga, Country Director for Liberia, subsequently downplayed
SEDF's interest in a conversation August 3 with Econoff. While SEDF
believes there is an unfilled demand in Liberia for five-year loans
of $25,000-$100,000, Matranga worries LEDFC's operating expenses are
too high, its non-performing loans are too onerous, and that any
investment from Soros would be insufficient to both provision bad
loans and cover expenses for an 18-month buffer period LEDFC needs
to achieve self-sufficiency.


10. (SBU) While Matranga characterized Ndorfor as "the kind of
impressive businessman you can build an institution around," he
questioned the quality of LEDFC's four loan officers, who seem to
lack the business acumen or marketing skills to seek out and nurture
a sufficient pipeline of loans. SEDF may pursue a parallel loan
facility, but given the organizations' shared mission, they would be
careful not to duplicate LEDFC's efforts or crowd them out of the
market.


11. (SBU) COMMENT: If Liberia is to build an economy that rests on
more than foreign investment in extractive industries, the
development of medium and ultimately long-term financing for
Liberian SMEs is essential. LEDFC is the only lending facility that
has ventured into this niche, and if it cannot succeed despite
support from Robert Johnson, OPIC and President Sirleaf, then few
other institutions will dare to replicate this high-risk model. As
a result, commercial lending in Liberia will remain focused on trade
finance, propagating an import-dependent economy and stifling
domestic enterprises that will be unable to hire new employees or
make expensive capital investments without access to long-term
borrowing.


12. (SBU) COMMENT CONTINUED: LEDFC has assembled a credible,
well-respected management team that acknowledges past mistakes,
offers a concrete plan of corrective action, and intends to work
with Post to make LEDFC a success. If the Robert L. Johnson
Foundation were made aware of ongoing USG interest in LEDFC's
success, its founder might reconsider his initial refusal of further
financing. The question is how much more risk the Johnson
Foundation will want to take in LEDFC.

THOMAS-GREENFIELD