The macro importance of micro-credit
Micro-finance institutions in the Arab world are taking major strides towards integration, writes Sherine Nasr
What is LE250 really worth? For the affluent, it may mean a new pair of shoes.
For Shadia Salem, it was a fortune. Literally, it meant the beginning of a new life.
LE250 was all Salem dreamt of as she wondered how she would extract herself from a serious dilemma. In addition to being remarkably poor, she was solely responsible for sustaining a sick husband, an aging mother, a deaf sister and five children of various school ages.
"The first time I applied for a micro-loan was in 1998. I took a credit of LE250 and started doing what I could do best, namely, making mefataka (a high-calorie paste made from molasses and fenugreek seeds). I displayed my home-made product in front of my house, and it was a big success," said Salem, who has since managed to expand her work, and is now applying for an additional LE4,000 loan.
Salem was one of several enterprising and brave individuals who were honoured during the second regional micro-finance conference that was held in Cairo this week.
Held under the patronage of Mrs Suzanne Mubarak, the conference was the largest event in the Middle East to gather micro-finance experts, donor agencies, non-governmental organisations (NGOs) and government officials. The 26 participating Arab countries discussed the future of micro-finance in the region and the means to integrate efforts among Arab countries to achieve concrete results in the field.
"Extending micro-loans has proved to be one of the best ways to eradicate poverty and raise people's standard of living," Mrs Mubarak said. "Female-headed families are among the poorest. That's why it is important to introduce mechanisms that would enable these women to support their families."
It is worth noting that the event coincides with a United Nation's decision to declare 2005 the year for Small and Micro-Finance Enterprises. Globally, nearly one billion people, and especially the very poor, lack access to financial services. The challenge of providing them with these services remains heavy.
The situation in the Arab world is no better, with a World Bank report indicating that only 10 per cent of the region's micro-finance services market is covered.
"In the face of high unemployment and the large gap between the rich and the poor, it is estimated that there are eight million people who are in need of integrated micro-finance services in the Arab region," said Fouad Abdel-Mou'mini, the chairman of the Sanabel micro-finance network of Arab countries, and the organiser of the event.
Sanabel was launched in 2002 to respond to the intense demand for micro- finance, and in light of the lack of an organised forum for providing the region with these kinds of professional services. Maximising outreach to Arab micro-entrepreneurs is among its main tasks, which it does by providing micro-finance institutions with capacity building services, exchange experience and advocacy for best practice.
"The network now combines 29 micro-finance institutions, which are among the largest in the region, and is currently serving some one million clients," Abdel-Mou'mini said. Although the network began by providing services to 70,000 clients, that number has grown remarkably over a short period of time. "However," Abdel-Mou'mini said, "this is still a very humble number compared to the actual number of those who live under the poverty line and are still lacking in micro-finance services."
Although providing the poor with a variety of services is crucial, the micro-finance market in Egypt and the rest of the Arab world is mainly limited to micro-lending, "which is only one form of other important services which are still lacking," Abdel-Mou'mini said.
Financing for healthcare, education and housing are also vital issues that remain non- existent for the poor.
Micro-finance experts want governments to understand the power of the poor. "It is the poor in the informal sector that constitute the main bulk of the country's workforce, as is the case is in the agricultural sector in Egypt," said Elizabeth Littlefield, the CEO of a donor agency. "The poor are really in the centre of an economy, not the margins. They are the fundamental engine of prosperity in any country," Littlefield said.
She said that Egypt had taken big strides towards providing professional services in this field. "Although Arab micro-finance is one of the youngest markets in the world, it is very dynamic." A few years ago, for instance, the micro-finance market was focussed on supply-driven services; now, it has to provide demand-driven services as well.
Another issue, Abdel-Mou'mini said, is that "providing finance to new enterprises continues to be an unsolved dilemma for most micro-finance institutions. Lending goes to financing the capital, not on improving the quality of production."
Clearly, a lot of work still needs to be done. Although "27 banks in Egypt are now providing micro-finance services, as they have realised the vast economic potential in focussing on the bottom of the pyramid," Littlefield said, "governments should act as enablers, not directors, of financial policies governing the market. Micro-finance is not the whole answer to saving the poor. Other effective tools have to be adopted to help."