In the world of finance, microfinance has long been viewed as a business with low enough margins, it's typically reserved for non-profit work. It's a business that demands high staff-to-client ratios because of its hands-on nature. Microfinance also means small loans, which translates to small returns. But three businessmen are looking to re-write the standard narrative when it comes to microfinance. They're looking to show that small loans at a high volume can translate into big profits. In mid-May, Amr Abouelazm, a veteran of the German Development Bank in Egypt, teamed up with Amr Abouesh from Banque Du Caire and Hazim Medani of the Bank of Alexandria to formulate the concept behindTanmeyah. Tanmeyah was established with investments from Egypt-based private equity firm Citadel Capital - through its regional investment arm Finance Unlimited - Egyptian Gulf Bank and the three businessmen. "We had been discussing the idea for a long time, and we started to think we should have something in the private financial sector to work with the low-income groups based on our experience in the field which was later fortified by the participation and support of Citadel Capital and additionally by Egyptian Gulf Bank, said Abouelazm, who is now the deputy CEO of Tanmeyah. The three executives wrote a business plan and established a model for the company and then approached investors in order to secure funding. In their hunt to find interested parties, they found a strong partner in Citadel Capital, which is now a 51 percent shareholder in Tanmeyah. The Egyptian Gulf Bank holds 24.7 percent stock in the company, while the firm's three founders hold the remaining 24.3 percent. "There is a large unmet demand for microfinance services in Egypt. Traditionally, commercial banks have been reluctant to venture into the area of micro-lending because it was an operationally challenging endeavor that required specialized credit assessment skills that were not available in the local market. We see a clear opportunity for Tanmeyah to come in and fill the void, said Ahmed El Houssieny, managing director of Citadel Capital, explaining his firm's foray into the field of microfinance. The Egyptian Gulf Bank is also enthusiastic about its investment, and now it's finalizing plans to make LE 480 million available to Tanmeyah's on-lending program. Building bridges Client relationship management is the bread and butter for microfinance firms, and Tanmeyah's executives are going out of their way to forge a company that reflects this priority. Many of the clients that a microfinance bank takes on have never entered into a relationship with a bank, meaning they don't have a paper trail that can speak to their credit record. Committed credit officers, therefore, are critical to the success of a company like Tanmeyah. The company already has 12 fully operational branches and has 300 employees working in them, indicating a hands-on approach to credit management. "We look for geographic proximity of the staff we employ, to be familiar with their market and target group, said Abouelazm, explaining that by hiring local credit managers, the company will have a stronger finger on the pulse of its clients and potential clients. The loan sizes at Tanmeyah range from LE 4,000 to LE 35,000. With loan applications for sums this small, loan officers make decisions based as much on local knowledge of an applicant's business acumen as they do on any hard financials. "There is an intrinsic benefit to training our loan officers in-house, said Abouelazm, discussing the rigorous training that all loan officers undergo. Part of this training, he explained, is giving employees a sense of propriety over the company. Their commitment to the firm's success, Abouelazm said, is critical to its success. "We want them to become not only employees but owners of the company's values and culture, transferring their knowledge to the end users, leading to expanding our client base, he said. Strength in numbers A number of microfinance operations have sprung up around Egypt in recent years, both at the non-profit and for-profit levels. Many of the for-profit microfinance offices, though, have been as divisions of a larger bank. Abouelazm, Abouesh, and Medani want to prove that an independent microfinance company - albeit with powerful backers - can flourish. For a long time, banks only sought relationships with high-worth companies. Over the last decade, though, executives have seen small and medium enterprises (SMEs) as potentially lucrative sources of business. While many banks fought over a few of the largest companies, others entered into the vast world of SMEs. Just as the SME wave really gathers steam, a new trend looks to be forming as bankers look to be heading another wrung down the socio-economic ladder to target low-worth businesses and offer them microfinance options. Apart from operational differences that distinguish Tanmeyah from its competitors, Abouelazm said that his firm is the first of its kind in Egypt because of the range of products it offers. "Our model is different because we try to synergize and become a provider of a multitude of financial services to low income groups, he said, explaining that Tanmeyah offers products ranging from micro loans to micro insurance. He said they also hope eventually to offer brokerage services, money transfers, and ATMs. Abouelazm refused to estimate directly the number of clients Tanmeyah currently has, saying that they were in the process of collecting all the appropriate data. He did say, though, that growth was "going according to plan. As an indication that Tanmeyah may have started out on the right foot, Abouelazm said that the company plans to have 400 to 450 branches online in the next four to five years. To date, the company is only operating from Cairo and the delta region. Abouelazm says he hopes to spread the business across the country. It's an ambitious plan, but business volume may be the only way for a microfinance company to succeed. And while Abouelazm is adamant about the firm's ability to turn healthy profits in the microfinance industry, he's also acutely aware of what Tanmeyah's success could mean on a societal level. "Microfinance instigates growth in the market. Access to finance in the target market leads to growth in the businesses, which leads to job creation, income generation and, eventually, poverty alleviation, he said.
