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How has the ArabSpring affected microfinance institutions?
By The Editors 20/11/2012

Ranya Abdel-Baki

Ranya 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. 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 and where she hopes to lead Sanabel within that context.


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: 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!

 


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.

Source: Development MarketPlace Blog

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