Microcredit in a Changing Region

The Middle East and North Africa (MENA) region has been facing a series of unprecedented events in 2011, resulting in a great deal of change after over three decades of stagnant political dictatorship, uneven economic growth, and increased poverty.

Since January, the people of Tunisia and Egypt have demonstrated, calling for change and demanding democracy and economic reforms. The response in the Arab world to the Tunisian and Egyptian revolutions has been one of celebration, embracing the change long anticipated. There is a sense of achievement and pride in getting rid of previous political regimes, yet also one of concern as to what the future holds. Since March, we have seen political disturbance in Syria, Libya, and Yemen, with demonstrations and violence with inconclusive immediate results.

Thankfully, Grameen-Jameel MFI partners in the region are safe and operational despite the lack of security and turmoil. Grameen-Jameel has remained in close contact with all MFI partners in the region (operating in nine countries) and visited MFIs in Egypt and Tunisia to try and support them through such difficult times, especially to address risk management practices and the social role the MFI is playing given the circumstances. In Syria and Yemen where the situation continues to be unstable, we are in close contact with the MFIs and are trying to help where possible. In Yemen for example, a grant was provided as an MFI headquarter was taken over by armed militants. This grant will help ensure basic overhead expenses are covered and operations are re-established from a neighboring governorate.

Although it remains difficult to assess the exact short-term impact on client loan repayments and MFI performance in the region, given the economic instability and aftermath of political unrest, Grameen-Jameel remains committed to the region and to the microfinance sector with all investment intact.

The ongoing challenges in the region are providing water, sanitation, and housing for the poor, as well as addressing ongoing issues such as health, education, vocational training, and employment. Yet the current key challenges in the MENA region will be to regain stability and find the political will to push the development agenda forward.

The dynamics of operating in the Arab world will change. We will face some difficult times in the short run and as an investor, we need to adapt to such change and anticipate with the MFIs how to handle such change.

Repayments which have stayed above 98% in most countries in the region will likely drop as clients struggle to repay their loans in a difficult economic climate. MFI performance will need to be measured not just on their PAR but how they are managing their entire operation and what they are doing to manage this PAR increase.

Our efforts are critical now, more than ever, to support micro-enterprises and the sector as a whole, and to tackle issues such as poor risk management practices in microfinance. We have heard of emergency plans and how MFIs have globally responded to floods and poor repayment in the past, yet now in MENA, we will need to have our plans in place and be quick to respond to external factors impacting our sector.

This could be a prime opportunity for positive change in the region to finally get a positive response from governments to address issues of unemployment and poverty, and for the sector to flourish in the long run.

The mission of Grameen-Jameel continues to be poverty alleviation by providing financial and non-financial products and services to microfinance institutions. Our ultimate goal remains to reach more poor and scale MFIs.

We will continue to invest in socially responsible MFIs that are sustainable or are working to achieve sustainability. The core activities of Grameen-Jameel will not change dramatically, yet will be flexible to respond to a changing world, as we continue to see demand for financing and technical assistance. As an investor, we are flexible enough to address a wide range of demands, from the developed MFI to the small MFI who is seeking to grow.

In terms of countries we serve, we will continue to support the countries which have the highest demand for microfinance in terms of population and poverty levels. Grameen-Jameel will continue to develop the microfinance sector in the MENA region to ensure the poor have access to finance and hope that change will bring positive improvements to continue to build the infrastructure of the sector as a whole. The change may not necessarily be in the products and service provided but in the approach investors will take in analyzing the MF market in MENA. As mentioned, today more than ever is when investors need to seek the long term development and not the short term results.