The civil unrest of 1999 displaced half the population of Timor- Leste, destroyed homes and infrastructure, and increased the incidence of poverty to 80%. On 25 October 1999, the United Nations Transitional Administration in East Timor was established to ensure stability and to restore the civil service, police, and judiciary. Donors pledged money to the Trust Fund for East Timor (TFET) to finance the reconstruction of the country. ADB was given the responsibility of managing TFET microfinance interventions. In the financial sector, donors recognized the vacuum created by the departure of all Indonesian banks and the lack of other service providers, particularly to serve poor households. To address this problem, ADB extended its assistance. Technical assistance was provided to create sustainable policies and a regulatory framework and to study the feasibility of establishing a microfinance bank.
The Instituiçäo de Microfinanças de Timor-Leste (IMFTL) was created as a regulated, quasi-banking institution in May 2002 with capital from TFET. It operates with three branches under the supervision of the Banking and Payments Authority which acts as the central bank. IMFTL has experienced rapid growth in business, especially in mobilizing savings. At the end of 2004, IMFTL had 2,694 active loan accounts, a total loan portfolio of $907,000, and client deposits of $873,000 in 8,627 deposit accounts.
This infant bank operates in one of the most difficult environments for microfinance and is thus confronted with severe problems. Although it has established credibility within the community as a trustworthy institution, IMFTL needs to strengthen its internal controls, improve staff skills and management, and bring in strategic partners as shareholders to improve governance. The breadth and depth of IMFTLs outreach remain limited; it is in the process of addressing these issues. IMFTL was rated by a microfinance rating agency in February 2004 and appraised by an external team of experts from the Consultative Group to Assist the Poor and Oikocredit, an international, socially responsible investor in microfinance, to determine suitability for possible equity investments by external parties. In the meantime, ADB is continuing its support to build the capacity of IMFTL to improve its internal controls and sustainability and to extend its outreach to the poor.