Microfinance and SMEs in South Sudan

Microfinance and SMEs in developing countries

Finance for small and medium enterprises or SMEs is an increasingly important topic in development literature. They have received particularly attention in developing country context due to technology-based innovations, such as peer-to-peer lending, receivebales-based lending, alternative credit scoring, and mobile technology. All these factors have contributed to greater flexibility in accessing credit in contexts where traditional banking sector might not be able to serve SMEs. Access to credit is an integral factor in all phases of business growth, even for small and micro enterprises that operate without formal banking services.

SMEs are a particularly problematic, yet important aspect in development finance. They often face disproportionally high barriers to credit, as traditional banking sector often sees small and micro enterprises as riskier investments. Furthermore, small enterprises often lack the standards of transparency and reporting necessary for acquiring formal finance. Finance is often a serious barrier to SME growth – a particularly difficult situation in developing countries where small enterprises are an important source of employment. Their growth is not only a business concern, but a development priority for the state.

Literature suggests microfinance institutions, abbreviated MFI, as a flexible and efficient alternative for SME finance. These institutions can offer small enterprises services such as credits and savings, but also provide business consultancy and technical training for entrepreneurs. Microfinance can be seen as a tool for poverty alleviation and development policy. There is promising empirical literature that suggest efficient use of MFIs can contribute to increased employment opportunities, increased standard of living and povery alleviation in developing countries, even in post-conflict contexts.

Context in South Sudan

Macroeconomic context in South Sudan is deeply problematic in many ways. The country’s GDP has been contracting for several years, and the tendency is projected to continue. The economy is dependent on the extractive sector, oil accounting for 70 % of the GDP. Most indicators correlate directly with oil prices. The armed conflict has decimated industrial infrastructure and productive capacities. Armed conflicts still persist in some states. Political instability and disagreements with Sudan contribute to lack of hard currency. Exchange challenges and inexistence of internationally recognized payment methods increase frinctions in commerce.

The main problems in South Sudanese business environment are the weak institutions and state structure. The state faces overwhelming and complex challenges in nation, state and peace building due to decades of armed conflict and continued political instability, both domestically and regionally. The state has arguably failed to create stable institutions and support a healthy private sector. The state prioritizes security spending, and its proportion of GDP has grown incrementally since independence. Furthermore, South Sudan has been plagued by extremely high and unpredictable inflation.

While the situation is dire, there are clear business and investment opportunities in agricultural development, water and forest resources, minerals and energy. These sectors would clearly benefit from increased regional cooperation and foreign investment for funds and technical cooperation. Population is predominantly young and demographic structure of the country would support economic growth – though the population lacks educational opportunities and relevant work experience to support growth.

Financial sector in South Sudan

Due to the recent independence and concentration of industry and services in Sudan over a long period of time, South Sudanese financial sector lacks long history and experience. Thus independent South Sudan has very few banks, and the quasi totality of its population lacks access to formal banking services. Loans are mainly short-term finance for business purposes. For most Sudanese the main creditor is the informal sector, as only informal actors can efficiently reach rural segments of population. Existing institutional capacity has been built mainly in cooperation with international aid donors, such as the International Monetary Fund and the World Bank Group. Shortage of skilled human resources slows down the development of the sector that attempts to deal with lacking inclusion.

In the Doing Business 2019 report, access to credit is the worst ranked area for South Sudan. It is among the most important barriers to economic growth and private sector development. Access to credit is valued at 10 points out of 100, which translates into global rank 178 out of 190 compared countries or regions. The Doing Business report emphasizes lacking legislative framework and institutional infrastructure for the financial sector. There is no informative infrastructure for credit data, credit scoring, or registering credits, which would establish confidence and promote growth.

The traditional banking sector in limited in size and internally fragmented. The central bank, the Bank of South Sudan, formally controls the banks – but there is very little formal regulation. Use of traditional banking is negligible. Even the largest banks serve only a few percent of the population and have only dozens of branches and ATMs in the entire country. There is very little competition. While the number of banks has increased, a small handful of market leaders – KCB, Equity Bank and Ivory Bank – dominate the entire marketplace.


As is the case with traditional finance, also the microfinance sector is limited in size and impact. There are only few microfinance institutions (MFI), and their respective clienteles are restricted to few thousands. MFIs in South Sudan are both non-governmental organizations and private sector organizations. MFIs are most active in trying to cater to rural and marginal populations. This sets them clearly apart from traditional financial sector. This makes MFIs a central part of diversification of financial services. They offer a level of flexibility and adaptability that SMEs require for growth.

Image 1 – Source: Ngahu & Stefanski 2012

While the existing market of MFIs in South Sudan is very restricted, it has had positive qualitative impacts. Based on several studies conducted in South Sudan and its neighbouring countries, expansion of MFIs has contributed to increased employment and increased efficiency in small business management. The impacts have been noted in terms of cost reductions, increased efficiency, improved marketing, improved managerial skills and higher standard of living.
Mobile and online finance sector

On Pan-African scale, mobile technology is a central element in developing communication and financial service inclusion. Accessibility of mobile in comparison with other internet services is growing exponentially, and mobile is the most used platform for online content. It is also a key element in fomenting technological innovation and SME and start-up business growth. It is also perceived as a central part also in achieving the UN-established Sustainable Development Goals.

Mobile market is similarly restricted as it the financial sector. International Finance Corporation estimates South Sudan’s mobile readiness at ”medium”, and the country’s mobile penetration rate was estimated at 15 % in 2012. There is little competition and the market is dominated by a handful of large actors – Vivacell, MTN and Zain. There are few electronic payments methods available.

Image 2 – Source: GSMA 2017

While mobile penetration has traditionally been very low, it also indicates that the market is underdeveloped. There is great potential for creating opportunities in the sector, and there is certain optimism among investors. For instance African service providers like Zain Group and MTN have long-term plans to tap mobile payment market in South Sudan. They have indicated that mobile penetration rate is increasingn quickly and the customer base is increasing – which means that there is pent up demand for mobile financial services. South Sudan has a history of creative use of technology for payment purposes. For instace, there is evidence of using pre-paid mobile airtime as a digital currency.

SME opportunities is South Sudan financial sector

The context in which SMEs operate in South Sudan is, in many ways, deeply problematic and complex. Lack of human resources, institutional framework and limited access to credit make economic growth difficult to achieve on short temr. At the same time, there is an extensive untapped market in financial services, with potentially massive indirect impacts on the entire society. While traditional financial sector is struggling to serve small business owners and rural populations, smaller and more flexible microfinance institutions have greater capacity to reach marginal populations.

There is significant pent up demand for microfinance services. There are few actors and very little competition on the market, and some regional actors have already started to invest into South Sudan. There is also severe lack of coordination between available finance and credit neede by small businesses, particularly in rural areas. Increased microfinance supply would also serve to efficiency gains in allocating existing funds to those in need. At the same time the market is becoming increasingly flexible, as mobile internet access is becoming increasingly common due to its relatively low initial costs in comparison to broadband. Advances in mobile communication technology contributes to new emerging markets in payments and credit.


Abio & Emenike (2018) Microfinance Institutions’ Support and Growth of SMEs. KINERJA Vol 22, No. 1, pp. 29-44

African Development Bank (2018) Political Economy of South Sudan. African Development Bank Group

African Development Bank (2019) African Economic Outlook 2019. African Development Bank Group

Bank of South Sudan BSS (2013) South Sudan’s Financial Sector. South Sudan Investment Conference 2013

Bernstein (2014) Mobile Money’s Newest Outpost. Center for Financial Inclusion, URL: https://www.centerforfinancialinclusion.org/mobile-moneys-newest-outpost , accessed on 21.6.2019)

Garang (2014) The Financial Sector and Inclusive Development in Africa: Essays on Access to Finance for SMEs in South Sudan and Kenya. Doctoral Dissertation, University of Massachusets

GSMA (2017) The Mobile Economy. Sub-Saharan Africa 2017. GSMA Intelligence Report

Hoyt (2009) Microfinance Obstacles: South Sudan Edition. The World Bank Blog, URL: https://blogs.worldbank.org/psd/microfinance-obstacles-southern-sudan-edition (accessed on 25.6.19)

Ngahu & Stefanski (2012) IFC Mobile Money Scoping. Country Report: South Sudan. International Finance Corporation, World Bank Group

Stickney (2016) Emerging SMEs. Secrets to growth from micro to small enterprises. Center for Financial Inclusion

The World Bank (2019) Economy Profile for South Sudan. The World Bank Group, Doing Business Report, 16th Edition


Santeri Talka has a master's degree in corporate law from Åbo Akademi University and a master's degree in development studies from the University of Helsinki in Finland. He is particularly interested in economic development, investment in emerging and frontier markets, and regional integration. He has previously researched regional integration in broader Central Asia, and worked on social and economic development analysis in North Africa with the Ministry for Foreign Affairs of Finland.

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