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How can microfinance support inclusive growth in MENA?

Jill Richmond's picture

النسخة العربية من المقالة متوفرة على هذا الرابط.

Ranya Abdel-BakiRanya Abdel-Baki is the former Executive Director of Sanabel, The Microfinance Network of Arab countries. Ranya spoke with the World Bank Development Marketplace about the state of the Microfinance sector and Microfinance Institutions (MFI) in the region. Based on her several years leading Sanabel, she also explains why MFIs have been seen by many as the only sustainable and financially viable inclusive business or social enterprise1 model in the region.


Jill Richmond: Can you talk about the impacts of Arab Spring on MFI’s in the region, if any, and its direct impact (both sustaining and non-sustaining) on your clients?

Ranya Abdel-Baki: We ran a successful workshop last November where practitioners from Tunisia, Egypt, Yemen, and Syria gathered and shared their experiences, lessons learned and future challenges. Naturally, the crisis impacts vary from country to country, and also within each country impacts sometimes varied amongst MFIs depending on their geographical locations (especially the case for Egypt).

While we have not yet completed the data collection for December 2011, we believe that total outreach for the region is going to stagnate or drop for 2011. From the workshop we made some interesting discoveries. You would think that MFIs would only be focused on institutional survival, but they have been putting their clients’ needs ahead of their own. We've seen Enda in Tunisia, for example, providing support - not only to its own clients but also to refugees from neighboring Libya. In Egypt, the First Microfinance Foundation (FMF) organized exhibitions for clients during the revolution to help them market and sell their products during these difficult times. Abyan Program, one of the hardest hit MFIs in Yemen, continued disbursements and collections even under circumstances that have forced most of the staff and clients to flee Abyan Governorate.

Jill Richmond: In many interviews you talk extensively about the importance of contingency plans. What other lessons can be taken from the experience of MFIs during the Arab Spring?

Photo Credit: crs.orgRanya Abdel-Baki: We prepared questionnaires for our clients and actually we are finding not a single MFI had a contingency plan in place prior to the revolutions. Many moving forward are reviewing disbursement policies and are becoming stricter in credit provision and I imagine we will see the overall number of clients either decline or stabilize at the same levels of 2010 in Egypt.

In that survey we have also asked clients whether government or other stakeholders provided support. In most cases, the MFIs received very little or no support from their governments and as such Sanabel's advocacy efforts are also much needed now more than ever.

I think maintaining channels of communications with clients and between MFI management and staff is crucial for an MFI to get through troubling times with the least amount of damage. Also, continuing operations through the challenging times will only strengthen customer loyalty further. Many MFIs have continued to renew loans for clients with good performance to send out the clear message to others that those performing well will be recognized and supported by the MFI through difficult circumstances.

 Jill Richmond: Going forward what are the challenges to overcome for a vibrant MFI sector to flourish?

Ranya Abdel-Baki: Regulations regulations, regulations. There needs to be an enabling regulatory environment. Sanabel will be working with GIZ (the German development agency) over the next 3 years to provide a platform for MENA regulators to learn from one another and from other regions about what has worked and how policies can be adapted.

Jill Richmond: The next DM competition will be in Egypt on job creation in rural areas. Can you talk a little bit more about trends in rural supply chain finance, specifically related to agriculture supply chain development (including food processing, agricultural waste management and handicrafts)?

Photo Credit: edg-eg.comRanya Abdel-Baki: By geography a lot of finance goes to clients that live in rural areas in Egypt, however, agricultural loans remain modest in size compared to other loans that are used for manufacturing or handicrafts. There is no specific focus in growth in agricultural finance as of yet, but there is interest in a better understanding and development of agricultural finance. The most developed country in the region when it comes to agricultural microfinance is Palestine. In Egypt, there is collective interest but I believe the wait is largely over technical expertise and product development.

Jill Richmond: while some SEs aim to “serve” the poor as a target group, compared to other regions like India, we have seen very few if any SEs in MENA viewing the Bottom of the Pyramid (BOP) as an opportunity and the poor as clients in areas such as low-cost education or low-cost health services. MFIs have been seen by many as the only sustainable and financially viable SE model in the region that is truly treating the BOP as clients of financial services. What do you think of this phenomenon and why do you think this is the case?

Ranya Abdel-Baki: I do agree that we haven't seen as many SEs in MENA as elsewhere but I believe that we need to distinguish between social entrepreneurship and social business. As coined by Professor Muhammad Yunus, social businesses are not expected to generate any profit for investors so that may be one of the reasons why we haven’t seen enough and that all the examples we have seen are of big corporations that are interested in solving a social problem in a particular sector by establishing a sustainable business but with no interest in making profit out of it.

I believe that with microfinance, the success has been in believing and seeing a profitable opportunity in serving poor clients with sustainable financial services. In other sectors, the challenge continues to identify sustainable means of providing social services at low costs such as education and health. Micro-insurance services, for example, have struggled in the provision of this financial service with medical service providers in a way that is sustainable and profitable for the insurance companies.

I think this needs a great deal of innovation and thinking out of the box and confidence that such initiatives are possible. In India, the sheer scale of the populations served has made a lot possible. I think the bigger markets in the region such as Egypt and Morocco may also be at the forefront of greater SE innovation in the future.

Jill Richmond: Where do you see the future of MFIs of the region in the next 3-5 years, and how do you think this may or may not impact SEs?

Photo Credit: Oliver Laumann - microDinero.comRanya Abdel-Baki: I see a need for consolidation. There are hundreds of small MFIs in Egypt and a dozen or so large ones. It makes sense to see MFIs merge together to better serve the sector efficiently. My ideal scenario is that governments in the Arab region will be much more focused on financial inclusion in the coming years, that they will come to see the power of the tool. I hope to see the legal and regulatory systems reflect that commitment to ensuring that everyone has access to those financial tools, and that people come together to build just and prosperous societies throughout the region. The future certainly holds great opportunity for Arab micro-entrepreneurs and for the region as a whole!

Jill Richmond: Sanabel works almost as a syndicate throughout the Arab region. Can you tell me about some of your services? What is Sanabel’s strategic plan and vision?

Ranya Abdel-Baki: Sanabel's vision is that all low income people in the Arab region are able to access comprehensive financial services. To achieve this vision, we provide support to microfinance institutions in the region so that they are able to provide diversified services to low income populations at a sustainable and far reaching scale.

As such, one of the key areas of service provision for the network is training and capacity building. We have provided training courses over the past ten years in partnership with various service providers for to support trainers and practitioners. We have also introduced a peer exchange program for MFIs in the region which took place in Jordan and Morocco. We are currently revamping the training department's curriculum to include trainings to cover risk management tools and Islamic microfinance given the changing needs in the sector.

The network undertakes an annual industry survey to collect basic portfolio performance data from all MFIs in the region so we can distill the aggregate performance of the region. We launched a regional report last year including country profiles for Egypt, Jordan, Yemen, Palestine, and Lebanon. We will continue to co-write the Arab Benchmarking Report with the Microfinance Information Exchange (MIX) in the future as well as publish white papers and case studies from the region. We are also working now with CGAP on data collection in the region for Islamic microfinance. And we are developing case studies around Islamic microfinance in partnership with Agence Française de Développement (AFD).

The MFI community has come to an agreement on some global principles for client protection and is about to approve universal standards for social performance management. Sanabel was the first organization to introduce the concept of social performance management to the Arab region more than 4 years ago (in collaboration with Oxfam Novib) and has provided trainings and capacity building opportunities to its members since then on how to measure social impact. We have also conducted a number of social audits for Arab MFIs and introduced several tools to Sanabel members, such as Grameen Foundation's Progress Out of Poverty IndexTM.

In addition, Sanabel also manages the Arabic version of CGAP's Microfinance Gateway, which is considered the most comprehensive web-based portal for information on the microfinance industry in the Arabic language.

Strategically, I would like for Sanabel to be the recognized voice for microfinance in our region, and an authoritative and trusted resource for both policymakers and the general public. I am also committed to positioning Sanabel as a resource for public outreach, especially through the media, to increase awareness and correct misperceptions about microfinance. Sanabel has the advantage of learning from others who have been around longer.

For more information about the Egypt Development Marketplaceplace, please visit www.developmentmarketplace.org or albankaldawli.org


1Note: the author intends not to misconstrue entrepreneurial activity for sustenance with entrepreneurship. Sometimes referred to as necessity entrepreneurs, they rarely have the skills and resources to sustain, let alone scale up, their ventures. “Microloans are often used to ‘smooth consumption’ – tiding a borrower over in times of crisis,” writes James Surowiecki in The New Yorker. Microcredit is more often a stopgap that borrowers use for sustenance rather than to create the next Google.