VZCZCXRO4542
RR RUEHMA RUEHPA
DE RUEHMV #0565/01 2161711
ZNR UUUUU ZZH
R 041711Z AUG 09
FM AMEMBASSY MONROVIA
TO RUEHC/SECSTATE WASHDC 1211
RUEHNR/AMEMBASSY NAIROBI 1591
INFO RUEHZK/ECOWAS COLLECTIVE
RUEATRA/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAWJB/DEPARTMENT OF JUSTICE WASHDC 0019
RHEHAAA/NSC WASHDC

UNCLAS SECTION 01 OF 02 MONROVIA 000565 
 
SENSITIVE 
SIPDIS 
 
NAIROBI PLEASE PASS TO S STAFF 
 
E.O.12958: N/A 
TAGS: ECON EINV LI
SUBJECT: LIBERIA:  CAN LEDFC SALVAGE ITS FLOUNDERING BUSINESS? 
 
REF: 08 MONROVIA 993 
 
¶1. (SBU) SUMMARY:  Short on cash and wracked by non-performing 
loans, the Liberian Enterprise Development Finance Company (LEDFC) 
will exhaust its operating capital and be forced to close by 
February 2010 if it cannot raise $1 million in additional funds. 
Questioning LEDFC's long-term viability, the Robert L. Johnson 
Foundation has refused to provide additional financing.  In the face 
of a serious cash crunch, LEDFC frankly admits to searching urgently 
for debt or equity investment, even if on unfavorable terms, and has 
recast its business model in favor of a more diversified portfolio 
of many smaller loans.  Given LEDFC's high-profile status, its 
failure would deter other would-be lenders, postponing a deepening 
in the financial markets that is a pre-requisite for domestic 
private sector growth.  END SUMMARY. 
 
¶2. (SBU) The Ambassador met July 30 with Abraham Ndorfor, General 
Manager of the Liberian Enterprise Development Finance Company 
(LEDFC), and Brian King, Country Director of CHF International, the 
U.S.-based development organization that manages LEDFC, to discuss 
their strategy for righting an ailing financial institution that has 
suffered from poor management, an unrealistic business model and 
deadbeat loan recipients since its inception in 2007. 
 
¶3. (SBU) Delivering on a Clinton Global Initiative commitment, Black 
Entertainment Television founder Robert L. Johnson, CHF 
International and the Overseas Private Investment Corporation 
(OPIC)launched LEDFC, hoping to provide affordable medium-term 
financing to small and medium enterprises that were underserved by 
Liberia's limited capital markets.  OPIC pledged up to $20 million 
in loan capital, the Robert L. Johnson Foundation provided a $3 
million grant for start-up operating costs, and CHF promised $7 
million for business development services. 
 
¶4. (SBU) Despite a highly-publicized launch and strong support from 
President Ellen Johnson Sirleaf, LEDFC failed to fulfill its early 
promise.  After two years, LEDFC has disbursed only $2 million, 
seven of its 11 existing loans are delinquent, CHF's promised 
business advisory funds never materialized, and all of the initial 
management team has left, resigning in disgust or dismissed by CHF 
for backing poorly performing businesses (reftel).  Recalcitrant 
borrowers openly refuse to repay their loans, even when their 
businesses show profits, claiming to believe their loans had really 
been grants. 
 
¶5. (SBU) The new management team of Ndorfor and King candidly admit 
LEDFC needs an economic reset, and outlined several steps they are 
taking to find quality lenders, fund business advisory services and 
achieve long-term profitability.  Indeed, LEDFC's recovery is a 
matter of some urgency: without monthly loan payments to fund its 
operating expenses, King said LEDFC will exhaust its $3 million in 
start-up capital in February 2010. 
 
Smaller Wagers, More Diversity 
------------------------------ 
 
¶6. (SBU) LEDFC's strategic error may have been betting big on a 
handful of large loans.  Each time one of these 11 original loans -- 
ranging from $100,000 to $675,000 each -- stopped performing, 
LEDFC's monthly revenues diminished markedly.  In May, LEDFC 
successfully applied to OPIC to reduce the minimum loan size from 
$20,000 to $10,000, and Ndorfor said the lender now intends to 
diversify its portfolio, nurturing companies with an initial small 
loan accompanied by sustained business advice.  When a company 
proves itself a worthy borrower, and as its business flourishes, 
subsequent tranches of a loan might follow.  To that end, Ndorfor 
said LEDFC has approved six new loans worth a total of $600,000, and 
has eight to 10 more in the pipeline worth another $500,000. 
 
In Search of a White Knight 
---------------------------- 
 
¶7. (SBU) OPIC estimates LEDFC must assemble a loan portfolio worth 
$10-$14 million to sustain monthly operating costs of $50,000. 
Although a portfolio composed of increasingly small loans will 
mitigate risk, LEDFC must seek out and vet dozens of quality 
borrowers in a market where sound business models are scarce, a feat 
King acknowledges they cannot achieve before existing operating 
funds are depleted.  Ndorfor conceded that LEDFC is searching 
desperately for other investors, even if that means relinquishing 
some equity in the company or contracting debt on less appealing 
terms. 
 
¶8. (SBU) However, LEDFC's past missteps seem to be deterring 
 
MONROVIA 00000565  002 OF 002 
 
 
would-be investors.  During a July 6 meeting in Washington, 
Johnson's Foundation told Ndorfor the foundation would provide no 
additional capital, claiming past credit misjudgments, failure to 
buttress loans with business advisory services, and slow disbursal 
of funds eroded its founder's confidence in LEDFC. 
 
¶9. (SBU) Ndorfor told the Ambassador the Soros Economic Development 
Fund (SEDF) is favorably considering an equity investment, but Ben 
Matranga, Country Director for Liberia, subsequently downplayed 
SEDF's interest in a conversation August 3 with Econoff.  While SEDF 
believes there is an unfilled demand in Liberia for five-year loans 
of $25,000-$100,000, Matranga worries LEDFC's operating expenses are 
too high, its non-performing loans are too onerous, and that any 
investment from Soros would be insufficient to both provision bad 
loans and cover expenses for an 18-month buffer period LEDFC needs 
to achieve self-sufficiency. 
 
¶10. (SBU)  While Matranga characterized Ndorfor as "the kind of 
impressive businessman you can build an institution around," he 
questioned the quality of LEDFC's four loan officers, who seem to 
lack the business acumen or marketing skills to seek out and nurture 
a sufficient pipeline of loans.  SEDF may pursue a parallel loan 
facility, but given the organizations' shared mission, they would be 
careful not to duplicate LEDFC's efforts or crowd them out of the 
market. 
 
¶11. (SBU) COMMENT:  If Liberia is to build an economy that rests on 
more than foreign investment in extractive industries, the 
development of medium and ultimately long-term financing for 
Liberian SMEs is essential.  LEDFC is the only lending facility that 
has ventured into this niche, and if it cannot succeed despite 
support from Robert Johnson, OPIC and President Sirleaf, then few 
other institutions will dare to replicate this high-risk model.  As 
a result, commercial lending in Liberia will remain focused on trade 
finance, propagating an import-dependent economy and stifling 
domestic enterprises that will be unable to hire new employees or 
make expensive capital investments without access to long-term 
borrowing. 
 
¶12. (SBU) COMMENT CONTINUED: LEDFC has assembled a credible, 
well-respected management team that acknowledges past mistakes, 
offers a concrete plan of corrective action, and intends to work 
with Post to make LEDFC a success.  If the Robert L. Johnson 
Foundation were made aware of ongoing USG interest in LEDFC's 
success, its founder might reconsider his initial refusal of further 
financing.  The question is how much more risk the Johnson 
Foundation will want to take in LEDFC. 
 
THOMAS-GREENFIELD