CAIRO: Microfinance has reached a new developmental stage in Egypt as microfinance institutions (MFIs) are "moving to a commercial footing rather than acting as primarily philanthropic organizations, a bank executive said. "Today MFIs need access to commercial finance, transactional services support, savings: a broad cross section of financial support. They look to be treated as clients and partners, not beneficiaries of grants, Aftab Ahmed, Citibank Egypt chairman, said at a conference last week discussing proposed microfinance legislation. Citibank and Arab microfinance network Sanabel hosted a group of international microfinance associations last week in conjunction with the expected passage of new microfinance law, currently waiting for parliamentary review. Ghada Waly, consultant to the Egyptian Financial Services Authority (EFSA), and Ranya Abdel-Baki, executive director of Sanabel, along with Ahmed addressed microfinance specialists from Eastern Europe, Southeast Asia, Africa and Latin America regarding the new legislation. Ghada Waly, advisor to the EFSA chairman for microfinance, explained that the new legislation came in response to vocalized need from Egyptian organizations currently legally unable to provide microcredit loans. "The first priority is a regulatory framework for companies, she stated; the legislation will therefore allow companies to provide microfinance credit under the regulation of the EFSA. For example, the Microfinance Enterprise Services Company, or Reefy, has been acting as a microfinance agent for banks since 2007, and would be among the first companies to benefit from the new law. She listed the law's objectives: to allow expansion of the microfinance market; to enable the development of new finance products (such as micro insurance); to serve more individuals in need of microcredit loans; to attract funds, especially from international MFIs; to professionalize the industry through training and standardized practices; to protect consumers through transparent cost structures; to require consumers to register with a credit information service to prevent overlapping loan grants. Regarding the final objective, Waly explained that currently iScore, the country's first and only credit bureau, provides the only source of credit information and that its services, compared to the size of the loans granted, are pricey. However, she expressed optimism that the new law would spur the development of competing credit bureaus and drive down fees. At present only banks and NGOs enjoy a legal structure that allows them to access the increasingly profitable sector of microfinance, and 200 of them operate as MFIs. The Central Bank of Egypt oversees the microfinance activities of the four licensed banks, while NGOs, regulated by the Ministry of Social Solidarity, make up the bulk of microfinance providers. The top five MFIs by gross loan portfolio (GLP) dole out 40 percent of Egypt's total microfinance GLP. Thus, by allowing non-banking financial institutions into the arena, the government hopes to better serve Egyptians in need of microfinance loans, estimated to be anywhere from 2.8 to 6.9 million individuals, according to Sanabel. Waly pointed out that engaging in microfinance often allows unbanked individuals, currently around 90 percent of Egyptians, to first interact with a formal financial institution and possibly graduate to traditional loans and savings. She acknowledged that the current law does not contain any provisions for deposits, a service that many of Egypt's poor currently receive from the post office. "Not everyone will be an entrepreneur, Waly emphasized, "and loans may not be appropriate for them. We don't want to put everybody in debt. Waly emphasized that the legislation seeks to protect the microfinance consumer, a question raised by Karim Fanous, executive director of the Lead Foundation, Egypt's second largest MFI by GLP. Abdel-Baki from Sanabel pointed out that deposit mobilization in Egypt is perceived in the context of Ponzi schemes in the 1970s that operated in partnership with trusted Islamic figures and did not repay billions of pounds. "Everyone in Egypt knows someone who lost money [to those schemes], she said, "so that's what everyone thinks of. Greater regulation therefore, will hopefully assuage concerns, despite the worry, raised by audience members, that new rules would only choke the growing microfinance industry. Abdel-Baki believes that a cost effective Islamic microfinance product would be met with great demand. "[Without Islamic microfinance] we're depriving a huge segment of the population who won't seek microfinance unless there's an Islamic option, she stated. Developing such instruments may receive support from organizations such as the Citigroup Foundation, currently sponsoring Sanabel as one of 12 microfinance networks receiving support around the world. Swati Patel, head of citizenship for EMEA (Europe, Middle East and Asia) and corporate affairs for the Citigroup Foundation, affirmed Citi's commitment to microfinance. "Microfinance is a key pillar for the Citi Foundation. It has been involved since 1990, funding organizations as a philanthropic approach. She explained that Citi Foundation facilitates dialogue with regulatory organizations in order to best serve individuals seeking microfinance. Sanabel recorded the average microfinance loan granted by Egypt's primary MFIs as $192. Microcredit is often intended to benefit female entrepreneurs in particular, and obviously, the poor. Those living below the international poverty line of $2 per day in Egypt currently represent 18.4 percent of the population, or 13.9 million individuals.
