The micro-finance sector has a success story to tell, reports Sherine Nasr Because of its long-standing experience in micro- finance lending, Egypt has been chosen by Sanabel -- the first Arab-led forum serving the area's micro- finance industry -- to host one of the region's largest micro-finance conferences. Due to be held in Cairo next month, the conference will bring together some 300 regional and international experts to discuss crucial issues related to exchanging knowledge, capacity building services and advocacy for best practice micro-finance. "Because of high unemployment and the large gap between rich and poor, it is estimated that there are 5.5 million people in need of micro-finance in the Arab region. These potential borrowers are heads of households living around the poverty line with a small or micro business," said Ahmed El-Ashmawi, executive director of Sanabel, the organiser of the event, which will be inaugurated by Mrs Suzanne Mubarak and co- sponsored by the United States Agency for International Development (USAID). "The number of clients that are currently being provided with micro-finance service are estimated at 625,000, which is only 10 per cent of the estimated demand," he said. According to El-Ashmawi, several factors -- including limited literature and training, minimal capital flow into micro-finance lending, and the absence of micro-finance-friendly regulations in many of the region's countries -- have contributed to micro- finance's slow growth in the region. "These factors have limited the institutions' ability to grow to their maximum capacity, and serve their clients with a variety of financial services," he said. Social and economic development experts agree that micro-finance -- the supply of loans, savings and other basic financial services to the poor -- is a powerful instrument for poverty reduction. "Like everyone else, poor people need a diverse range of financial instruments to run their businesses, build assets and reduce their vulnerability to economic stress," said business expert Hassan Farid. In Egypt, the small and micro-finance enterprises sector has always played a very significant role in the country's economic and social development. According to recent USAID studies, the sector makes up almost 99 per cent of Egypt's non-agriculture private sector enterprises, and it employs 60 per cent of Egypt's labour force. The micro-finance sector will continue to play a crucial role in the economy, especially as the government makes clear that one of its top priorities is to create at least 550,000 new jobs every year up to 2017. "A considerable portion of those jobs will have to be provided by viable small businesses, which will be expected to provide 325,000 sustainable employment opportunities per year," commented Kenneth Ellis, the director of USAID in Egypt. In fact, the Egyptian government and USAID have always worked closely to develop this field. Since 1990, USAID has been one of the main financiers of micro- finance initiatives in Egypt, supporting almost 70 per cent of all of this sector's activities. "USAID- supported micro-finance institutions have extended about 1.5 million micro credit loans valued at LE3.4 billion to more than 600,000 small and micro- entrepreneurs," said Ellis, who added that at present, these institutions are managing an outstanding loan portfolio of LE365 million, serving about 265,000 borrowers. Fifty-five per cent of the current active borrowers are poor female heads of household located in Egypt's economically disadvantaged areas. "These women receive micro loans to run small, often home- based businesses, and earn income for their families," he said. By 2007, the USAID micro-finance supported programme is targeted to provide LE1 billion to serve about 700,000 active borrowers. Commercial banks, meanwhile, have recently joined the micro-finance lending team, and have now become one of the main players in the field. Banque Du Caire (BDC) was one of the first to jump into the fray in July 200, aiming to both balance its own portfolio and help support a vital sector in the Egyptian economy at the same time. Initially, the bank extended LE270 million in the form of 92,000 loans ranging from LE1,000 to 10,000, which were to be reimbursed in monthly instalments at an interest rate of 16 per cent. The only guarantee asked for by the bank was that the micro activities take place at a viable location. To support the initiative, USAID provided the necessary training for the bank's staff, as well as technical support in the form of the internal system with which the bank could keep a record of its loan- seekers to prevent duplication and minimise possibilities of default. "Three years into it," said Amr Aboush, adviser to the BDC chairman, "the experience has proven a big success." Aboush said the bank has initiated some 125,000 loans, with a value of LE535 million, at its 100 branches across the country. "The outstanding portfolio is LE150 million serving 74,000 loan- seekers, with a risk level around 0.6, which is very low," he said. Seven-hundred-and-fifty of the bank's full time employees are now working on micro lending activity, and the loan ceiling has been raised from LE10,000 to LE15,000. "Next January, the bank will inaugurate four specialised micro-finance bureaus in Upper Egypt to provide the same service to areas that are far away from the main bank branches," said Aboush, who added that an additional 880 employees will help provide the service to these new clients. The bank was invited to share its success story with the World Bank-affiliated Consultative Group to Assist the Poor, whic met in Istanbul early this month. "The bank has been chosen among the top 10 banks worldwide operating in the field of micro- finance on a fully commercial scale in the Middle East," Aboush said.
