The Arab Spring: an opportunity for financial inclusion?

This post was originally published in CGAP’s blog on January 9, 2013 and is authored by Mayada El-Zoghbi, Michael Tarazi and Nadine Chehade.

The end of 2011 was undeniably a momentous time across the Arab World with uprisings first emerging in Tunisia and Egypt and then spreading to Libya, Yemen, and Syria. Expectations of 2012 were high as old regimes were discarded and new governments brought with them hopes of more equitable societies and opportunities for all, including in particular the region’s large numbers of young people. New governments have been scrambling to enact reforms that will appease the hopes of the now vocal and restless street, while trying to create democracies in a region with limited experience in democratic processes. So to say the least, it has been a tumultuous year. But little by little there is progress across many fronts – political, economic and judicial. At the forefront of these reforms is the need for inclusive processes and outcomes, and financial inclusion is increasingly seen as part of the solution toward that end.

While regulatory developments are often regrettably slow in the region, 2012 marked the kick-off of policy changes at the regional and national levels. During the Arab Policy Forum in May, non-enabling legal and regulatory frameworks were seen as the main challenge to advancing financial inclusion, and the need for both increased awareness and high-level governmental commitment was highlighted. As if in response, the Arab Monetary Fund (AMF) in October announced its new mandate to promote financial inclusion in the Arab World, backed by a position paper drafted in partnership with CGAP. The Alliance for Financial Inclusion (AFI) member base for MENA also increased to 7 countries: Egypt, Jordan, Morocco, Palestine, Yemen, Sudan, and Syria. At the country level, 2012 was the year that Tunisia created the first national microfinance supervisory body in the region. Morocco released its new microfinance strategy, aimed at growing the sector three-fold to reach 3.2 million active users of both credit and insurance by 2020. Morocco also issued a draft law authorizing private companies to provide financial services, a first step towards enabling NGOs to transform into for-profit entities.

In addition, 2012 witnessed other major breakthroughs in the region.

1. Indicating increasing attention to responsible finance: the Central Bank of Jordan (CBJ) issued its Consumer Protection Guidelines. After those of the Palestine Monetary Authority (PMA), CBJ’s guidelines are the most advanced set of rules in place for banks in the MENA region (and will ultimately apply to MFIs should they fall under CBJ’s supervision). The Guidelines cover a wide range of important topics such as transparent disclosure (including of APR), fair treatment, complaints handling, and, in an attempt to prevent over-indebtedness from as early as the loan appraisal stage, proper evaluation of borrower repayment capacities.
2. In a testament to the power of postal networks offering financial services, Al Barid Bank (owned by Moroccan Post) continued its sustained growth, reaching 5 million active clients through a network of 1,800 branches. Al Barid Bank’s success has sparked greater interest in postal banks across the region, notably in Tunisia, Egypt, Jordan, and Yemen – albeit with limited concrete and successful emulating actions to date.
3. In an unprecedented wave of innovation, the MENA region saw financial inclusion developments ranging from the provision of health micro-insurance in Jordan, insurance-based savings in Egypt, and experimentation in various forms of Sharia-compliant finance across the region, notably investigating potential business models for micro-equity. Jordan became the first developing Arab country to permit nonbank e-money issuers and Morocco is rumored to be next in line.

Lingering concerns remain. The first signs of multiple borrowing appear in some markets (Lebanon, and potentially Jordan) and much needed regulatory reforms are still stagnating in Egypt, where political and institutional transitions have slowed progress. The recovery of the microcredit sectors is not yet complete in Morocco, Egypt, and Yemen, with non-performing loans of the top tier institutions still above best practice levels.

In an attempt to answer the post-Arab Spring challenges, donors are arriving daily with new programs and projects, creating a mix of incentives which could harm some of the progress already seen if not coordinated or structured wisely.

Expectations remain high for 2013. There is the real possibility of more enabling environments for mobile banking, notably in countries with particularly low banking penetration such as Yemen or Sudan. There is also potential for scalable results and emerging global lessons from ongoing innovations in serving the youth segment with financial services and new product innovations. And slowly but surely, there is continued progress at the policy and regulatory levels.

The authors are part of the Middle East and North Africa regional team at CGAP and participated in a live web chat on this topic on January 16, 2013. Click here for more information.