Financial sector restructuring (FSR) project assistance [and] financial sector restructuring (FSR) non-project assistance

The program/project was largely successful and had a positive impact on the lives of Gambian citizens. Government involvement in banking and credit was reduced: credit controls were eliminated; policies of indirect monetary control and effective bank supervision were established; the Gambia Commercial and Development Bank was privatized; and other legal reforms were enacted. Unfortunately, targets in regard to Assets Management Recovery Corporation (AMRC) debt recovery and adherence to repayment schedules, enhancement of lender collateral security, and mobilization of savings were not achieved. Findings concerning the special issues addressed by the evaluation are as follows. (1) Interest rates. Although interest rates are in line with those charged in countries under similar IMF restructuring levels, the business and donor communities agree that they are too high for prime borrowers and cannot support sustainable economic growth. Among possible strategies in this area, the team believes that a reduction in both the inflation rate and the loan default rate would have the greatest potential for reducing bank interest rates. (2) Banking industry and competition. The Gambian banking industry consists of four commercial banks, all majority foreign-owned and all concentrating their activities in the greater Banjul area. This concentration, together with the high interest rates currently prevailing, indicates that there is room for additional competition, especially in rural areas, where a locally owned bank might be able to penetrate the middle market and small business sectors -- though such a situation could increase the risk of improper lending practices and lead to higher default rates. Other suggestions for improving the Gambian banking industry include giving special consideration to future banking license applicants who propose majority local ownership, promoting negotiable certificates of deposit, encouraging banks to price their loans on a case-by-basis, etc. (3) Bank confidence in the legal system. Due to its lack of commitment to AMRC debt recovery and to the enforcement of Gambian laws, the Government"s credibility has deteriorated. As a result, banks lack confidence that the legal system will support foreclosure of loans, and are less willing to make loans that require mortgage-secured collateral. Additionally, the tax system appears to be based on ease of collection rather than on a systematic analysis of cost and benefit, and tax rates are too high and the base too narrow. More direct taxes should be imposed and collected. If these are enforced, government credibility will follow. (4) Alternative financial institutions. A number of possible alternative financial instruments and services are suggested, in particular, privately owned single branch savings and loan institutions in rural areas, which would then become the primary conduit of formal financial services in those areas. Other potential alternative financial institutions and services to accelerate financial development include a mortgage lending market, an electronic or wire transfer service, a semi-formal debt market, and urban marketplace credit programs. The Mission commented that the evaluators failed to incorporate Mission corrections or recommendations in the final report, which was completed just prior to the 7/94 coup d"etat in The Gambia. USAID assistance to The Gambia was terminated pursuant to statute in 3/95.