From Microcredit to Microfinance: Ambitions for Tunisia

After the revolution of January 2011, Tunisians experienced poverty at a level far more critical than official statements had suggested. Microfinance has quickly been identified as one of the tools that can help reduce inequalities, address exclusion, and strengthen the country’s economic fabric, as already shown by the achievements of Enda Inter-Arabe (Enda) and the Microcredit Associations (MCA) that have been operating since 1990.

By the end of March 2011, microfinance was among the core measures presented by the Minister of Finance in his economic and social program. The new program addressed concerns presented by MFI operators and other private sector players, who after the revolution, focused their attention on the future of microfinance. Moreover, the program addressed donor priorities, as the improvement of the microfinance legal environment was one of the conditions set by several donors for their support to Tunisia.

Initiatives to bolster microfinance were merged together by the non-partisan collective Tounes 2020. Together, they established a vision and roadmap, which were presented at a conference in April 2011. Four ministers opened this conference – finance, employment, social affairs, and regional development – as a sign of microfinance’s popularity to address exclusion, but also revealing a need to align definitions and expectations.

The Ministry of Finance set up a working group comprised of relevant ministries, operators, and donors, and conducted numerous meetings during the summer and spring with other financial sector players such as commercial banks, post offices, insurance companies, and mobile operators. The objectives were, within the next five months, to assess needs, come up with a coordinated strategy, and improve the legal framework as needed. Quite a challenge!

Diagnosis of needs                                                                                                                                                                                                                                                       
The first task of this working group was to assess needs. The country’s lack of accurate data on financial exclusion led in the past to underestimate needs and implement a relatively restrictive framework. Secondary data sources have revealed there are 2.5-3 million potential clients for microfinance services, including 1.2 to 1.4 million for microcredit.

Supply assessment                                                                                                                                                                                                                                         
Unfortunately, the current supply is unable to meet this demand. Tunisia’s banking and postal networks which are relatively large can enable low-income people to gain access to savings services and build up capital. However, current savings and payment capabilities remain the luxury of wealthier populations, while low-income people tend to keep their savings in kind, with all risks involved. Although more developed than other emerging countries, social coverage is far from universal, and insurance companies do not compensate for this lack. In terms of credit, only 400 000 micro-entrepreneurs now have access to Enda and MCA’s credits.

The market infrastructure itself is defective, due to non-existent credit bureaus, weaknesses in available trainings, and lack of transparency. In addition, the regulatory framework that has been around since 1999 provides a solid basis for some microcredit activities, but severely restricts microfinance development, since it limits the range of financial services, limits target populations, and allows only nonprofit associations to work in microcredit. Moreover, it does not encourage best practices, since no standards for governance, internal control, information systems, or consumer protection, have been enacted.

New vision                                                                                                                                                                                                                                                                       
Based on these findings, a vision has been developed aimed at unlocking the potential of the microfinance sector in Tunisia: A socially responsible and sustainable microfinance sector which, by allowing the largest number of people access to quality financial services, addresses financial exclusion, contributes to the harmonious development of the country, and supports economic consolidation.

Areas of development                                                                                                                                                                                                              
In order to realize this vision, two main strategies were identified to be implemented over a period of three years: an initial reform to develop the microcredit sector and its operators, and, as soon as possible, a second reform to fully evolve into microfinance. As part of the first reform, four strategic areas were identified for the next three years:

1. Implement a regulatory framework and a supervision that encourage sector development,
2. Contribute through microfinance to the development of all regions and segments,
3. Structure the sector to register its impact over time, and
4. Promote the sector’s responsible growth.

Where are we now?                                                                                                                                                                                                                              
The vision, action plan, as well as the new legislative decree will be shortly submitted to the Council of Ministers. If these documents are approved, the sector makeover will be launched soon.