Liberia: Financial Inclusion Risks Debt, Collateral Registry Discussed

There is something fundamentally wrong with a financial system if its proudest measure of inclusion is how many more poor people can borrow, rather than how many borrowers eventually become stronger businesses, employers, homeowners, farmers and wealth creators. Liberia's newly launched Enhanced Collateral Registry could unlock enormous opportunities by allowing people to borrow against assets previously ignored by lenders. But the approaching National Conference on Non-Performing Loans should remind us of the other side of that promise: access without understanding can become indebtedness; collateral without productive opportunity can become lost property; and credit without a pathway to prosperity can deepen the very poverty financial inclusion is supposed to solve. That is why the September 9-11 conference must go beyond the question of how banks and other financial institutions recover bad loans. It should ask the harder question: Why do so many loans go bad in the first place? The numbers demand an answer. Liberia's non-performing loan ratio stood at 19.1 percent in 2024 before declining to 12.9 percent in 2025. The improvement is encouraging, but 12.9 percent remains significant. Behind those numbers are banks worried about recovering their money, but also borrowers whose businesses failed, incomes collapsed, collateral may be at risk, or who simply did not fully understand the obligations they were assuming. Keep up with the latest headlines on WhatsApp | LinkedIn Consider Sarah, the 50-year-old woman in Greenville profiled by the Daily Observer. Earning only about US$60 monthly, she took an initial L$25,000 loan, followed by L$50,000 and eventually L$70,000. What began as an opportunity to improve her circumstances has become, in her words, "too strenuous." Her experience raises a question that should concern lenders, regulators and policymakers alike: at what point does financial inclusion become debt inclusion? A loan should be a bridge, not a destination. The objective cannot simply be to give Sarah access to a first loan, congratulate us when she qualifies for a second, and call the third evidence of expanding financial inclusion. We should be asking whether the first loan increased her income. Did it expand her business? Did it improve her capacity to repay? Did it create an asset or strengthen her household economically? If not, repeatedly extending credit may not be inclusion at all. This is especially important as Liberia expands the range of assets people can pledge as collateral. The Enhanced Collateral Registry is potentially transformative because inventory, equipment, livestock, receivables and other assets can help unlock financing for people who do not own expensive land or buildings. But expanding what people can pledge also expands what they can lose. That makes transparency essential. Borrowers should understand not merely the amount they receive, but the total amount they will repay, the effective cost of the loan, repayment frequency, penalties, consequences of default and exactly what happens to their collateral when things go wrong. Knowledge must accompany access. And lenders must also know their borrowers. The absence of a fully functioning, real-time credit reporting system creates risks for everyone. A borrower may accumulate obligations across multiple institutions while lenders remain unaware of the person's total exposure. That is dangerous for the financial institution, but potentially devastating for the borrower. The Central Bank's efforts to establish improved credit reporting alongside the collateral registry therefore deserve urgency. So does resolving Liberia's fragmented identification environment, which financial institutions say makes reliable borrower verification more difficult. But technology will solve only part of the problem. Liberia must also confront the economics behind borrowing. If a market woman borrows at a cost her small trading margin cannot realistically absorb, fi