Lessons Learned from the Moroccan Crisis
For a decade, the Moroccan microcredit sector was a rising star, boasting top-performing institutions enthusiastically supported by local and international funders. Yet, by December 2009, credit risk had soared to 14 percent, reaching as high as 38 percent for one leading microfinance institution (MFI). Under Central Bank leadership, providers, national associations, and funders scrambled to correct course. By December 2011, credit risk had been cut in half but remained relatively high at 8.6 percent. A year later, it had edged up again to 9.6 percent. This Brief outlines lessons learned from the rise, fall, and ongoing recovery of the Moroccan microcredit sector that may be useful when adapted in other countries in similar situations.
Since its start in the late 1990s, the Moroccan microcredit sector enjoyed extraordinary growth rates. Its portfolio grew 10-fold from 2003 to 2007, becoming the largest in the Middle East and North Africa region, totaling US$733 million for 1.35 million loans outstanding by December 2007. Credit risk was consistently far below international benchmarks. Leading MFIs scored remarkably well on all microfinance performance metrics, including scale, profitability, and asset quality. In 2008, half of Morocco’s 12 MFIs ranked in the MIX top 100, and most received good ratings.
Such rapid growth soon proved unsustainable, and signs of stress surfaced in 2007. While credit risk was at a generally acceptable level of 2.3 percent, it had surged from 0.4 percent over a two-year period. The credit crisis had started; its extent hidden by skyrocketing portfolio growth. Shortly after, the new management information system (MIS) of the second largest MFI, Zakoura, revealed that its credit risk was much higher than previously reported, leading it to stop all disbursements. Many argue this decision triggered the crisis, notably by tightened liquidity for repaying clients, many of whom were affected by either the global financial crisis or serious floods in some regions of Morocco. Other clients seized the opportunity to default with no penalty, sometimes supported by local leaders. At this point, an estimated 40 percent of clients held multiple loans, borrowing from two to five MFIs. Repayment issues spread sector-wide. In May 2009, Zakoura’s credit risk exceeded 30 percent. In December 2009, the sector’s overall credit risk reached 13.7 percent.
The response was swift, including measures for both short-term recovery and long-term industry building from the regulators and the industry itself. Although they failed to prevent the crisis, the Moroccan Central Bank, Banque Al-Maghrib (BAM), and the Ministry of Finance played catalytic roles in averting contagion and restoring confidence. In early 2006, before the crisis, and in light of unprecedented growth, the Ministry of Finance transferred industry supervision to BAM.