Microfinance in the Middle East and North Africa...

In an era of development theories which focus on individual and community empowerment, microfinance plays has become an important strategy; encouraging individual entrepreneurship and offering opportunities for micro or small business development. Microfinance has spread across the globe in many different forms and guises, it is offered by many different institutions, from banks to NGOs, each with their own ethos and objectives. In the Middle East and North Africa (MENA) region, its development has been more limited than in other parts of the developing world.1 Yet, many actors, including political figures and Microfinance Institutions (MFIs) are now promoting the growth of microfinance in the MENA region, citing success stories of women’s empowerment and economic growth in other regions. In the midst of the mass popularization and promotion of microfinance it is worth standing back and asking, what real value does it bring and what can it offer to tackle the development problems in the Middle East.

The extent to which microfinance operates in MENA varies considerably across the region: Morocco, Egypt and Jordan are

described as being the most developed markets, with Egypt and Morocco receiving almost 77% of microfinance funding for the

whole region. Emerging markets are Yemen, Syria and Tunisia, whereas other countries, such as Algeria and Libya, have barely any activity, very low market penetration and little MFI activity. Many operators see it as a growing sector and are keen to attract more clients in the region,  proposing options such as expanding from mainly microcredit provision to other types of microfinance, such as savings or combining Islamic Finance and microfinance, to respond to local

interests.

Yet, as a form of economics heralded to benefit individuals, it is vital to assess the impacts of existing microfinance activities in the MENA region. As Jon Westover points out in his appraisal of the sector worldwide, there is a significant lack of independent information available regarding the impacts of microfinance. Studies carried out offer limited samples and are quick to point out benefits, but slow to mention problems encountered or disadvantages. A Planetfinance study examines impacts in Syria, yet with no baseline figures to refer to, drawing real conclusions from the research is difficult. A European Investment Bank (EIB) study attempts to

pool together the results of various studies to offer a general overview of microfinance in MENA. The study highlights positive impacts for women who gain greater autonomy and decision

Furthermore, many studies are carried out by MFIs or other interested parties. A further difficulty is the correlation between microfinance and national economic growth. Microfinance works on an individual, local level and its impacts on national growth or decline are difficult to assess. Furthermore, its focus on bettering the economic power of individuals necessarily dictates that its general impacts can be difficult to assess and statistics are dangerous to generalise.

A Planetfinance study examines impacts in Syria, yet with no baseline figures to refer to, drawing real conclusions from the research is difficult. A European Investment Bank (EIB) study attempts to pool together the results of various studies to offer a general overview of microfinance in MENA. The study highlights positive impacts for women who gain greater autonomy and decision making power through participation in microfinance projects. At household and business level improvement is seen in income levels.9 However, in the studies cited these positive benefits apply to half or less of people interviewed and there is no comment or analysis of the cases where individuals have not seen positive impacts or have seen other impacts. This is also the case in a Planet Finance review of its performance in Syria, where in an assessment of a large array of impacts, less than half of the clients interviewed perceived positive changes following participation in a microfinance project.

As well as the direct impacts of microfinance, in most MENA countries the particular institutional organisation poses problems. MENA countries are generally led by an overly powerful executive, keen to promote economic growth, but not necessarily proactive in creating growth which will benefit all citizens. Furthermore, many MENA countries operate legal systems, many of which are governed by Islamic Law principles which restrict certain commercial contracts and forms of

economic investment. Indeed, many governments in the region have not created regulatory frameworks for microfinance in the region and many operators cite this as a problem.

Despite some positive impacts, it seems microfinance causes no change or negative impacts in many cases. Further investigation and analysis is required to understand these effects and should be considered when developing future projects. Other regulatory issues also impede growth in this sector including: few consumer protection measures; bureaucracy; and restrictions on deposit –taking.This article has attempted to highlight some of the issues surrounding microfinance in the MENA region. Although it criticises a sometimes overly-idealised development strategy, this author certainly does not want to overlook the fact that this type of investment has worked well in many contexts and that there exists real potential for development and empowerment through this form of investment. Yet, independent information gathering and real debate about this

issue, as opposed to mass promotion of its benefits, will most certainly improve the quality of microfinance for all those involved. Major actors should develop strategies which support those involved to develop the capacities they need to make schemes work in their favour. Actors must be vigilant to ensure that the scheme has real benefit for those involved and does not worsen

poverty for participants. Furthermore, states should develop mechanisms which hold MFIs to account for ethical behaviour and provision of real support and careful assessment to

potential entrepreneurs. Finally, the issue of economic growth through microfinance or other forms must be seen in the light of the wider civil and political problems in the region which,

until tackled, will impede the free development of every individual. Indeed, microfinance, even if successful, can only be one step in part of a bigger march for tackling development problems throughout the Middle East.