Finance & Banking

Finance & Banking

Banking Facilities

Sierra Leone’s banking system is overseen by its central bank, the Bank of Sierra Leone. Thirteen commercial banks operate in the country, including one regional and one domestic bank as well as seven Nigerian, two pan-African and two State-owned banks. The two largest commercial banks in terms of customers and assets are the Sierra Leone Commercial Bank and Rokel Commercial Bank.

All commercial banks are headquartered in Freetown. Accounts can be held in foreign and domestic currencies. Automated teller machines (ATMs) are available. Credit cards are not widely used owing to poor connectivity. Transfers of over US$10,000 in value must be sent through the banking system with the objective of ensuring transparency.

Banks cannot lend in foreign currencies, which is a limitation on local business expansion. This can in turn impact the supply chains of large foreign-run businesses.

Foreign Exchange

Currency can be freely converted in Sierra Leone, subject to its availability. The Leone is not pegged to a foreign currency and has a floating exchange rate. Exchange rates were fairly flat in Q1 2014, trading at an average of USD/SLL 4360, but started rising in Q2 2014 largely due to the impact of Ebola and challenges in the mining sector. The depreciation peaked in November with an average rate of USD/SLL 5050, representing almost 16 per cent year-on-year depreciation. Since then marginal appreciation has been seen, with trading at an average rate of around 4870 at end May 2015.

The Bank of Sierra Leone conducts weekly foreign exchange auctions but limits the amount a single bidder can purchase to US$100,000 (US$ is currently the only currency offered at these auctions). Only commercial banks operating in the country are entitled to take part and foreign currency purchased through the auction must be used for imports of goods.

Access to Credit

The World Bank’s 2015 Global Report on Doing Business ranked Sierra Leone at 151 out of 189 economies for “getting credit”. The regional average for the rest of sub-Saharan Africa was 122. The category was assessed by reference to (a) movable collateral laws (that is the strength of legal rights of borrowers and lenders in secured transactions) and (b) credit information systems (the sharing of credit information).

In terms of specific scores on the strength of legal rights, Sierra Leone ranked above regional comparators such as the Gambia and Liberia, but sat below Nigeria, Kenya and Rwanda among others. Higher scores on strength of legal rights indicate that collateral and bankruptcy laws are better designed to facilitate access to credit. Along with 33 other countries, Sierra Leone’s score for access to credit information is zero. Although the Credit Reference Act 2011 (CRA) does provide the legislative framework for the Bank of Sierra Leone to operate an interim Credit Reference Bureau Unit, where such units are not operational or cover less than 5 per cent of the adult population on the depth of credit information, the World Bank Report scores the country at zero for this category. The World Bank report does not cover access to credit more generally.

Interest rates for commercial loans are relatively high. In November 2014, the GoSL enacted the Borrowers and Lenders Act, which applies to security interests in movable property, establishing the framework for lenders to register charges on the borrowers’ moveable assets. The legislation provides for priority by date of registration and contains provisions in relation to the enforcement of such collateral. It should be noted that the Act’s scope appears to be limited to “lenders”, which are defined as commercial banks or other financial institutions licensed by the Bank of Sierra Leone. The framework established by the Act brings structure to an area which to date has been unclear. It is hoped the Act will improve access to finance and provide lenders with the confidence that their collateral over movables has a solid legal framework supporting it.

To support small and medium enterprises (SMEs) in Sierra Leone, the Ministry of Trade and Industry has introduced an SME Policy, which facilitates access to credit and provides subsidies and incentives (such as a special interest rate) for SMEs.

Taking Security

Security by way of fixed or floating charge can be taken over any class of assets, including land, receivables, cash and shares. The charge and instrument must be registered with the Corporate Affairs Commission within 21 days of the date of its creation. There are few restrictions on the timing and value of enforcement of security. However, there is no guarantee that secured creditors will be paid first, and a creditor cannot enforce against an insolvent debtor without the court’s permission. Insolvency proceedings can be resolved expeditiously through the FTCC.

Following amendments to the Companies Act in 2014, there are also generally few restrictions on foreign companies (i.e. those not registered to do business in Sierra Leone) to prevent them from enforcing contractual obligations in the courts of Sierra Leone, for example in terms of foreclosure. The GoSL continues to enact reforms to strengthen the market for security, expanding permissible security to include both future assets and replacements for already secured assets, and establishing a public credit registry to facilitate lenders’ credit checks.

Anti-Money Laundering

Sierra Leone is not on the Financial Action Taskforce list of countries suffering from strategic deficiencies in Anti-Money Laundering (AML) provisions, but was identified as a jurisdiction of concern in the United States (US) Department of State 2014 International Narcotics Control Strategy Report due to a combination of its position as a strategic sea port and a lack of restrictive border controls. The GoSL enacted the Anti-Money Laundering and Combating of Financing of Terrorism Act in 2012, criminalising terrorist financing (and the failure to report such financing), introducing AML compliance requirements such as “Know Your Customer” and other verification checks, and imposing record-keeping requirements.

The Act also establishes the Financial Intelligence Unit (FIU), which has wide investigatory powers in respect of money laundering and suspicious transactions. The Regulation on Terrorism Prevention (Freezing of International Terrorists’ Funds and other Related Measures), which deals with the freezing of funds in accordance with UN Security Council Resolutions 1267 and 1373 awaits parliamentary approval at the time of publication of this Investor Guide. Revised guidelines on preventing money laundering and terrorist financing for both financial and non-financial institutions have been issued by the FIU and Bank of Sierra Leone.

The Intergovernmental Action Group Against Money Laundering in West Africa, established by ECOWAS in 2000, which works towards the development of AML strategies in the region, last reported on Sierra Leone in 2013 (the 9th follow-up to the 2006 Mutual Evaluation). Its report highlighted the progress made by the enactment of the Anti-Money Laundering and Combating of Financing of Terrorism Act 2012 and increased domestic cooperation in investigating transnational organised crime, including money laundering. The Report also identified challenges that still remain in terms of supervision of AML compliance and the resourcing of the FIU.