In the first study of its kind in Timor-Leste, researchers have documented an unmet demand for credit from small businesses around the country. The study focused on the need for second-tier credit--loans of between $1,000 and $10,000--and the constraints to accessing that credit. Data from the survey of small and medium enterprises in six district capitals outside the national capital, Dili, estimated the potential demand from the industrial and service sectors nationwide for second-tier credit at about $10 million.

The new study compliments previous supply-side analyses of financial services available in Timor-Leste. Research was conducted by an energetic group of MBA students from Bocconi University in Milan, Italy, who interviewed entrepreneurs in different communities. The team concluded that there is a small, but important, unmet demand for small business loans. These second-tier loans are designed to boost the capacity of small businesses to employ more people, produce more goods, and generally perform more efficiently.

The research team took its structured surveys to the six regional towns to collect data that identified small business attitudes and capacity to absorb second-tier credit. Research on credit demand is important because it generates data about small businesses that are often neglected in supply-side studies. Important constraints identified in the study include low education levels (including only rudimentary understanding of basic business finance) and uncertainties about land tenure.

Research team leader Ross Ferguson said he hoped that the study will form the basis for more extensive efforts in the sector. "The numbers we provided were important, but it is vital that the business and non-profit world continue to engage the reservoir of goodwill and all the resources available," he explained.

Providing the grant for this research is one of the ways in which USAID supports small business and microfinance programs to help rebuild the country's shattered economy. USAID provided seed money to the Micro-Finance Working Group, a dynamic group whose work resulted in a code of conduct for microfinance institutions operating in the country. The group has since become the Association of Micro-Finance Institutions of Timor-Leste (AMFITIL), with 11 member organizations that manage a total loan portfolio of more than $2 million.