Since the beginning of 2011, a revolutionary wave of demonstrations and protests have been taking place in the Arab world. There have been revolutions in Tunisia and Egypt where regimes have been changed; a civil war in Libya; civil uprisings in Bahrain, Syria, and Yemen; and major protests in other countries of the region. Economic decline, unemployment, and extreme poverty are among the numerous factors which led to the protests.
These events have created some challenges and opportunities for the microfinance sector and the financial inclusion agenda in the region. Some of the common challenges include alterations in internal operations ranging from changed working hours in line with imposed curfews to complete shut-downs for a number of days. Despite efforts to maintain the collection of installments as per schedule, portfolio at risk (PAR) for many MFIs in the region skyrocketed, in some cases leading to a dramatic decline or complete cessation of disbursements. This has led to an increase in expenses and a drop in both liquidity and revenues.
In some cases, branches were raided, vandalized, or burned. At least in one case, (Abyan Governorate, Yemen), where almost the whole area was evacuated for security reasons, the PAR went up from zero to almost 100% and revenues were quickly depleted, threatening the very existence of one of the high performing MFIs in Yemen.
Despite these challenges, the crisis has also shown true colors of many MFIs in the region. Most Arab MFIs exhibited high levels of social commitment and responsibility to their staff, clients, and the community in times of need. In one case, (Enda, Tunisia), the MFI went beyond serving its own clients and community to help and support refugees from neighboring Libya.
The importance of maintaining client loyalty through good relationships and continuous communications clearly stood out during the crisis, as clients safeguarded the branches and committed to repayment despite the crisis. Sound human resource management was also reflected in staff loyalty and dedication to protect branches, and continue working during difficult conditions.
We began to see a greater focus from the temporary governments in Tunisia and Egypt on MSMEs as a tool for extending outreach to youth and poor populations. In Tunisia, the government is currently working on a national microfinance strategy and a new microcredit law which will open the door for new players and investors. In Egypt, the government has announced that one of the state-owned banks will be specialized in MSME lending over the coming period and has allocated resources for the development of these sectors.
Three characteristic aspects of Micro-Finance in the Arabic countries are that (1) its definition as credit for income-generating activities, (2) strong Government support (politically and financially) and (3) strong foreign donor support. In some countries commercial banks undertake activities in the above context as corporate social responsibility activities.
In Palestine, the donor-dependent micro-enterprise credit NGOs (also after extensive visits to MFIs in the region) requested the assistance of their “central bank” (PMA) to transform them into sustainable Micro-Finance Institutions that can assist so far unbanked people in providing all retail banking services.
CGAP and the regional MF associations don’t seem to change their strategies. Unfortunate, in the knowledge that governments that have been changed in the popular uprising managed wealthy micro-credit funds that did not improve the situations of unemployment, enterprise development and corruption. There may be a risk that further betting on socio-political micro-enterprise credit might lead to what the Bosnians call “the Africanisation” of the economy (small unviable businesses depending on loans perceived as hand-outs which will not support sustained growth).
Sincerely, Peter van Dijk, Indonesia
I think that though the such political events in the Arab area showed the true essence of many people working in that field, However I think that governoments won’t give priority to issue any new laws or No seriious procedures till they settle down. cause they have better issues to take care of.
I think it’s a little early to evaluate the impact of the Arab Spring on MFIs and Microfinance sector. The industry in the MENA region was going through many difficulties and had many challenges even before the Arab Spring. Now, will MFIs be able to change as well? will they be able to put the client first (especially poor, youth and rural clients)? How will new authorities in place look to microfinance? I think we need some time before getting a clear answer.