Middle East and North Africa (MENA)
Microfinance Investment in Middle East and North Africa
MIVs in Middle East and North Africa
Microfinance Networks in Middle East and North Africa
Microfinance Investment in Middle East and North Africa
Microfinance is relatively young industry to the Middle East and North Africa, with the oldest running program, Alexandria Business Association, beginning operations in Egypt in 1983. Today, microfinance is prevalent in seven MENA countries (Jordan, Palestine, Lebanon, Egypt, Yemen, Tunisia, and Morocco) and emerging in several others, including Syria, Algeria, Saudi Arabia, Mauritania, and Iraq. While microfinance is still a developing in infrastructure, several important gains have been made in the past five years.
Between the presence of oil-rich nations and the fact that most countries are considered middle income, there is a common misperception that poverty is not a problem in the region. Yet most countries have unemployment rates over 20% and large pockets of poverty. Approximately 300 million people live in the 22 countries that comprise the Arab world in the Middle East and North Africa, of which one out of five lives on less than $2/day.
There are an estimated 70 MFIs serving approximately 2,500,000 clients across the region, 60% of whom are women. The sector has seen significant growth in the past decade, led by the Moroccan sector. Institutions surveyed in 2005 presented healthy growth rates and expanded their combined outreach by 219,000 borrowers. Regional figures of growth, however, mask an uneven distribution of growth. In previous years, Moroccan MFIs were at the leading edge of sector expansion. These institutions added three fourths of new borrowers in surveys. The six leading Moroccan institutions averaged 49 percent in growth.
Boosted by their productivity increase, Egyptian MFIs were fast on their heels, followed by the Jordanian market. According to the MIX market survey, profitability is the backbone of outreach in Morocco and Jordan, but it has yet to take hold in Egypt, where two thirds of borrowers rely on loss-making institutions for their loans. While the Arab sector has much ground to cover in ensuring that clients have reliable access to microfinance services, it has certainly hit the mark on depth of outreach.
As institutions expand their client base, they remain focused on the low end of the microfinance market. Except for Jordan and Palestine, where institutions also cater to small enterprises, loan balances across the region do not exceed one fourth of local income.
The traditional financial structure of MFIs in MENA is distinct. Whereas the microfinance industry as a whole draws on external funds for over two thirds of its assets, the typical Arab MFI remains heavily reliant on capital, with earnings and donations accounting for the bulk of its funds. Governments often provide the sector with a cheap source of funds in addition to the soft loans offered by international donors, as commercial funds barely constitute 25 percent of the sector’s portfolio, compared to 60 percent in the median global institution. Across the region, Egypt stands out as the most commercialized sector. Egyptian MFIs fund four fifths of their portfolios with commercial debt.
Islamic Microfinance
The region’s emerging microfinance industry is unique due to its relatively late beginnings and due to religious beliefs regarding finance. In fact, the interest element of microfinance makes it unsuitable for replication in an Islamic environment, as interest is banned in Islamic law. As a result, many Muslims refrain from using financial services that do not adhere to Islamic financing principles. An estimated 72 percent of people living in MENA countries do not use formal financial services (Honohon 2007). Unfortunately, until the late 1990s, very few initiatives have been based in these principles, even when working in largely Muslim countries.
Indeed, demand for microfinance services based on Islamic principles is high – CGAP surveys in Jordan, Algeria, and Syria, for example, revealed that 20–40 percent of respondents cite religious reasons for not accessing conventional microloans. In terms of supply, there are also many potential funding opportunities through Islamic donors that are interested in investing in Islamic MFIs to reach this demand. As a result, significant research and numerous conferences have been directed toward the development of Islamic Microfinance in recent years, as several Islamic microfinance institutions (IMFIs) have been established.
Successful microfinance programs need to be tailored to the complexities of each country or region. Islamic microfinance represents a combination of both microfinance and Islamic finance. Dr. Ahmad Elnaggar initiated the first modern experiment with Islamic banking in 1963, in Mit Ghamr, Egypt. The Mit Ghamr savings project was based on profit sharing and applying certain concepts of the modern microfinance movement. The project became the Nasser Social Bank in 1971. However, it took another 20 years for this initiative to progress in the region, and it remains largely undeveloped in countries such as Saudi Arabia and the UAE.
Presently, the supply of Islamic microfinance is concentrated in Asia, with Indonesia, Bangladesh and Afghanistan ranking in the top three. According to the 2008 CGAP survey, Islamic microfinance accounts for only about 0.5 percent of global with a total estimated global outreach of only 380,000 customers. Islamic microfinance is still in its infancy, and business models are just emerging.
According to a study by Mannan (2007) in Bangladesh, conventional microfinance institutions are based on assumptions of social class conflict and tend to empower women, whereas Islamic Microfinance Institutions (IMFIs) empower families by ensuring by lending to families or groups of families.
Table 1: Snapshot of Microfinance in MENA*
No. of MFIs |
No. of Borrowers (thousands) |
Total Population (mill.) |
Poor Population (mill.) |
Penetration Rates |
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Borrowers / population (%) |
Borrowers / poor (%) |
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Egypt |
18 |
902 |
75 |
12.6 |
1.2% |
7.2% |
Iraq |
1 |
5 |
||||
Jordan |
7 |
101 |
6 |
0.8 |
1.8% |
12.4% |
Lebanon |
6 |
19 |
4 |
0.8 |
0.5% |
2.5% |
Mauritania |
1 |
2 |
3 |
1.4 |
0.1% |
0.1% |
Morocco |
10 |
1,328 |
31 |
5.9 |
4.3% |
22.6% |
Palestine |
9 |
32 |
4 |
1.6 |
0.8% |
2.1% |
Somalia |
1 |
2 |
8 |
0% |
||
Sudan |
4 |
15 |
39 |
16.6 |
0% |
0.1% |
Syria |
2 |
16 |
20 |
7.6 |
0.1% |
0.2% |
Tunisia |
1 |
64 |
10 |
0.8 |
0.6% |
8.2% |
Yemen |
7 |
52 |
22 |
9.4 |
0.2% |
0.6% |
Aggregate MENA |
67 |
2,538 |
222.5 |
57.4 |
||
Ave. MENA Countries |
5.6 |
212 |
20.2 |
5.7 |
0.9% |
5.6% |
* From: Gonzalez, Adrian, 2008. “How Many Borrowers and Microfinance Institutions (MFIs) Exist?” Microfinance Information Exchange (MIX), Washington, D.C.
IAMFI has compiled additional statistical data on each country in this region regarding population size, poverty rates, foreign capital flows, investors’ environment ratings and sovereign ratings. IAMFI members can access these data here.
For more information and details on the sources used to create this section, please see research section below, or click here.
MIVs in Middle East and North Africa
While most MIVs spread their microfinance investments around the world, listed below are MIVs that chose to focus their investment in the MENA region or in specific countries within the region. To read more general information on MIVs and their challenges see the Microfinance Investment Vehicles section.
MIVs with Exclusive MENA Focus
- db Microfinance-Invest Nr. 1 - Deutsche Bank
MIVs with MENA Country Focus
- Morocco: JAIDA - KfW
Microfinance Networks in Middle East and North Africa
What are microfinance networks?
A microfinance network is commonly an umbrella organization for multiple microfinance institutions, providing an avenue for cooperation and support. Through these networks, network member MFIs can share ideas, experiences, and solutions common challenges. In addition, networks help facilitate the MFI’s funding and investing procedures by connecting their members with funders and investors. Many times, networks strengthen operational, technical, and financial capacity of MFIs by promoting MFI standards and best practices and training.
Some microfinance networks promote a particular methodology through technical assistance (such as ACCION or Women’s World Banking) and may have a partial or whole equity stake in their members and partners. Country and regional microfinance networks have an additional focus on advocating local microfinance policies and help members transform into regulated deposit-taking financial intermediaries. In these networks, members are partial owners themselves of the network and govern the network through seats on the Board of Directors.
Accion
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Association of Asian Confederation of Credit Unions (AACCU)
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Développement international Desjardins (DID)
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Grameen Foundation
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Sanabel Microfinance Network of Arab Countries
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Website: http://www.sifra.org
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Small Enterprise Education Promotion Network (SEEP)
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Women's World Banking (WWB) |
Research on Middle East and North Africa Microfinance
The Rise, Fall, and Recovery of the Microfinance Sector in Morocco |
This report analyzes microcredit in Morocco. Morocco is a recognized microcredit champion, boasting 40 percent of client outreach in he Arab world and host to some of the best performing microfinance institutions (MFIs) in the world. But since 2007, the microcredit sector has been confronting a crisis. There are 12 licensed MFIs in Morocco, serving close to 1 million clients with combined assets of 5.7 billion dirham (US$705 million) as of December 2008. The industry is heavily concentrated, and the four largest MFIs account for 90 percent of client outreach |
Xavier Reille |
Published by: CGAP |
2010 |
Making Microfinance Work Better in the Middle East and North Africa |
This report analyzes microfinance in the Middle East and North Africa and offers recommendations on how to further develop the industry.This report presents findings on the growth of microfinance in the Middle East and North Africa. It compiles information from two World Bank surveys of microfinance institutions in the region, one assessing developments as of the end of 1997, and the other as of the end of 1999. |
Brandsma, J. and Hart, L., |
Published by: World Bank |
2008 |
Arab Microfinance Analysis and Benchmarking Report, 2009 |
| This report provides a comprehensive view of the performance of the microfinance sector in the Arab region, beginning with a 2006-2008 study of scale and outreach trends with a sample of 35 microfinance institutions (MFIs) and a special focus on the microfinance sector crisis in Morocco, the only country to register a decrease in outreach in 2008. The report then highlights key regional policy improvements, followed by a study of the funding structure of the microfinance sector, the deep changes that have occurred, and key funding characteristics in terms of volume, lender type, and pricing. The last sections of the report analyze both portfolio quality by country and the profitability of the microfinance sector in the region, which now has the highest return on assets (ROA) in the world. |
May 2010 |
Published by: Microfinance Information Exchange – MIX and Arab Microfinance Network - Sanabel |
Islamic Microfinance Report |
This report aims to assist the International Development Law Organisation (IDLO) in understanding basic Islamic law (Shari'a) principles governing provision of Islamic finance products and services.Shari'ais not a codified body of law. Hence, it is open to interpretation by scholars, whose views may also change over time. The paper also discuses supervisory and advisory role ofShari'a scholars, the processes involved in obtaining Shari'a approval for financing transactions and products and Islamic microfinance in Middle Eastern, South Asian and Southeast Asian countries. |
Allen & Overy LLP |
Published by: IDLO - International Development Law Organisation |
Feb 2009 |
Islamic Microfinance: An Emerging Market Niche |
In recent years, Islamic microfinance emerged as a new market niche, however it is still in its infancy, and business models are just emerging. This Focus Note provides an overview of the current state of the Islamic microfinance sector and identifies possible challenges to its growth. It is intended as an introduction to Islamic microfinance primarily for the donor community and other potential entrants into the market. It is based on a 2007 global survey on Islamic microfinance, where CGAP collected information on over 125 institutions and contacted experts from 19 Muslim countries. Unlocking the potential of this niche could be the key to providing financial access to millions of Muslim poor who currently reject microfinance products that do not comply with Islamic law. |
Nimrah Karim, Michael Tarazi, and Xavier Reille |
Published by: Consultative Group to Assist the Poor - CGAP |
August 2008 |
Islamic Microfinance Theory, Policy and Practice |
There has been a burgeoning literature evaluating the impact of microfinance programs and offering advice to the service providers on how credit and savings schemes should be structured and implemented. However, very few of these initiatives have adhered to Islamic financing principles even when their work is undertaken in largely Muslim countries. This document is, primarily, a practical manual written from a practitioner’s perspective. The purpose is to show how microfinance programs based on Islamic financing principles can be established by providing a theoretical framework upon which Islamic financing is based, and practical advice on how such a program may be structured. These guidelines can be followed when implementing a microfinance program, as well as monitoring and evaluation. The target audience is organizations that wish to provide microfinance services that conform to Islamic financing principles. |
Ajaz Ahmed Khan |
February 2008 |
Published by: Islamic Relief |
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