The need to develop Liberia’s financial system should be on the mind of every presidential candidate. Unfortunately, only a handful out of the dozens of presidential candidates appear to have the financial or economic perspicuity to offer a sound policy to develop the financial system.
How do we develop the financial system?
There are six parts to a fully functional financial system, each of which will play a foundational role in Liberia’s economic model. Those parts are money, financial instruments, financial markets, financial institutions, government regulatory agencies and the Central Bank of Liberia (CBL).
We use the first part of the system, money, to pay for our purchases and to store the value or wealth we have accumulated. In Kenya, for example, hard currency or money has rapidly move to mobile phones. As a matter of fact, Kenya is leading the world in mobile money, particularly its use of M-Pesa.
In Liberia, an environment brimming with corruption, mobile money with its audit trail capabilities will be an immediate tactical solution to trace the illegal flow of money. All government purchases should be made using mobile money. The data from each transaction is immediately uploaded to the Ministry of Finance or an auditing agency for record keeping and to use in corruption cases.
The second part, financial instruments, could be used to transfer resources from savers to investors and to transfer risk to those who are best equipped to bear it. Liberia should develop a stock market, support the development of mortgage companies, and insurance agencies. These entities are necessary for a financial system to transfer risks to those who can absorb it. Moreover, the transfer of risk will support the first principle of money and banking, that is, time has value.
The third part of the financial system Liberia should develop is the financial markets. Financial markets will allow investors to buy and sell financial instruments quickly and cheaply. For example, Liberia could develop a Liberian Stock Exchange or a Liberian Commodities Exchange. These exchanges will form the financial markets that will create access to capital Liberians need to develop the small business sector.
Next, we need to strengthen our financial institutions – the fourth part of the financial system. We need to have each financial institution offer a wealth of services, including the ability for investors to access the financial markets and provide information on the commodities exchange. Each financial institution should have the ability to collect data – a credit reporting mechanism – to ensure the creditworthiness of borrowers. This mechanism will help drive down interest rates and reduce the number of loan defaults.
Everything I have mentioned thus far will be disastrous and futile if Liberia does not create the appropriate regulatory agencies with prosecutorial powers or close alliance with the Ministry of Justice to ensure that the elements of the system is safe and reliable.
Finally, we need to strengthen the Central Bank of Liberia. Many central banks around the world have evolved from their role as large private banks to the nations bank for stabilizing the economy and keeping inflation at bay. The CBL needs to work with Liberia Institute of Statistics and Geo-Information Services to collect data on production, prices, consumer confidence, unemployment, Real GDP and other relevant data.
An essential component in developing Liberia’s financial system lies in the legislators’ competence to craft Laws that will protect Liberians and the Ministry of Justice ability to prosecute wrongdoers without interference from the Executive branch. There are tremendous challenges in developing the financial system in Liberia. In spite of these challenges, we need a system that will evolve and not become outmoded. These are tangible issues that should be on the minds of Liberians and being discussed by all presidential aspirants. Unfortunately, campaigns in developing countries are centered around nontangible issues especially personalities, hence, Liberia remains in a state of perpetual developing nation. This writer hopes the young people of developing nations will begin to examine and ask presidential candidate to discuss plans to solve these complex issues.