CAIRO: Om Adel is 55 years old. She has scraped a living since her husband died a decade ago by buying and selling scraps of raw materials, primarily leather, and selling them to manufacturers in her neighborhood of Gamaleya. Her skin is swarthy, coarse like the leather she subsists on. Having launched herself robustly into the nearest easy chair in the office of the Association for the Development and Enhancement of Women (ADEW), an Egyptian organization that lends capital to women who live in Cairo's slums, she beams a wide, toothless grin. "The micro-loan from ADEW has helped me a lot. I can buy more materials now. Before my customers would ask if I had this or that, and I didn't have to the money to buy them, but the loan has let me buy a wider variety of things in bulk. So I make quite a bit more money than I used to. I have a fridge and a washing machine now. she exclaims. The evidence presented by women like Om Adel about the difference that micro-credit can make to lives of those occupying the poorer brackets of society lends powerful persuasion to concept's fiercest proponents. According to the UN, over 150 million people worldwide have prospered as a result of micro-credit and there currently over 200 government-funded organizations, NGOs and commercial banks in Egypt offering micro-loans to more than a million clients. However, despite the impressive growth of the industry, critics contest that, because micro-credit must be a commercial enterprise as well as a social endeavour in order to be successful, Egypt's most needy, are, in fact, being systematically excluded from micro-credit projects. Shymaa Allam, the micro-credit project manager at ADEW, admits that a large proportion of Egypt's poor remain untouched by the movement. "Donations for micro-lending institutions are scarce, so they need to be financially self-sustaining. At ADEW we can only offer loans to the Om Adels, who already have some kind of business underway, because otherwise it is too much of a risk for us, she said. The loan schemes have also been the object of stern derogation because they do not seem to offer a wholesome solution to the poor person's ultimate conundrum: How to save a usefully large amount of capital to cover life cycle exigencies (education, marriage, old age); personal emergencies (sickness, unemployment); and natural disasters (war, famine); as well as have some left over to exploit modest investment opportunities to enhance their prosperity. Pay back time Although Egypt's micro-clients generally make more money as a result of the loans they take out, they are still struggling to pay back their loans and save capital to cover their basic requirements. There are even cases of clients needing to borrow more money in order to avoid defaulting on their initial loans. The latest UNDP microfinance survey reveals that only 31 percent of micro-credit clients save money each month. Even Om Adel admits that, despite taking out six loans over the last five years, totaling LE 2,000, she has no savings at all. "I don't have extra money at the end of the month. Every two weeks I pay back some of the loan, buy more raw materials to sell and pay the household expenses. There isn't anything left over after that, she said. According to Carole Servière, a UNDP researcher and the executive director of Planet Finance Middle East, an organization which designs and implements microfinance programs, far more could be done to get people to open savings accounts. "At the moment only the National Postal Authority is allowed to capture people's savings, even though the percentage of micro-clients with an account is only 8 percent, which is pretty low. NGOs should be allowed to offer savings accounts to their clients. "An ideal plan might be a cooperative framework between the postal authority and these NGOs as the latter's large portfolio of clients are a good channel through which the former's products can reach the poor, she added. Such a solution, nonetheless, she admits, does not address the problem of the markedly high interest rates against which clients must pay back their loans; they are often over 20 percent. Allam from ADEW thinks that the problem is a catch-22. "The rates are so high because we have to insure ourselves against non-payment. Giving out loans to poorer people is still risky, so they need to be at this level of interest for it to be a financially self-sustaining business. Of course, this prevents people from making the savings, which they need for the future, she explained. The inability of Egypt's poorest entrepreneurs to make adequate savings has prompted some experts to call for micro-insurance schemes to be made widely available as an alternative. "There is a real need for micro-insurance in Egypt, Servière told Daily News Egypt. "At the moment if a micro-credit client gets sick and cannot work, they will have no income at all. With insurance schemes, they can put in a little bit of money each month and if something happens they are well-covered financially, she said. However, Allam is hesitant on the topic. "Insurance is not part of the Egyptian culture. Many Egyptians have never even heard of insurance. And, when you explain the idea, a lot of them find the concept of putting money into a fund, which they can only reclaim in specific circumstances, very suspicious. Opposing side Yet, as the debates about the need for micro-credit organizations to diversify their activities rage on, an army of even more skeptical observers are asseverating their opposition from the wings with increasing amplitude. They warn that micro-enterprise actually reinforces the structures that contribute to high poverty levels, by leading to over-saturation of and hyper-competition in the informal sector. This hypothesis rings with particular resonance in Egypt, where half the population already works informally, as micro-scale entrepreneurs in mercantile occupations. "The vast majority of micro-credit clients are caught in subsistence activities. They usually have no specialized skills, and so must compete with all the other self-employed poor people in entry-level trades. We should not romanticize the poor as entrepreneurs, said Aneel Karnani of Michigan's Ross Business School. Karnani thinks that microfinance distracts policymakers from developing small and medium enterprises (SMEs) even though they are the best source of formal employment. "Micro-credit is absorbing an ever larger share of the financial resource base, she asserts. But Mohammad Aziz, from the International Development Research Center in Egypt, while agreeing that developing SMEs is crucial to Egypt's growth, believes that microfinance is still a useful tool and that there is room for policy coexistence. "Microfinance is a different project and doesn't conflict with SME-related projects. There has recently been a lot of research going into how we can encourage the growth of SMEs and it is high on the government's agenda. It is early days but the government wants to do more to help SMEs and is working on making legislative and taxation changes to facilitate their development, he added. According to some academics, such as Filipe Santos of International Business School, instead of abandoning microfinance programs, organizations should be working to upscale micro-enterprises into larger businesses in order to create more SMEs. Micro-clients' independence from government regulation and subsidies, which makes them less susceptible to "cancer of corruption and cronyism, is a serious advantage, he said. When Daily News Egypt asked Aziz whether he though that microfinance could contribute to growth of SMEs in Egypt specifically, he was skeptical. "For an SME to be successful it needs to be managed by well trained individuals with a solid education and discernible skills. Most people working in micro-enterprises do not fit this description and there are currently insufficient economic and social efforts being made to correct this he said. However, Servière urges that microfinance, despite its shortcomings, is still crucial in the war of attrition against the grinding poverty which scourges the lives of nearly a third of Egypt's population. "The truth is tackling poverty takes a lot of time, a lot of research, and a lot of money. And it requires you to address other issues such as health and education. But microfinance can still make a useful contribution. The more we work at it, the more people it can reach, and the bigger the difference we can make.
