Microfinance Slowly but Surely Making Headway in Lebanon

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Nov 2010
Beirut, Lebanon, November, 15 2010 - According to a World Bank study released at the end of 2009, Lebanon’s net micro-loan portfolio stands at roughly $50 million, with the estimated number of active clients ranging between 38,000 and 55,700. The World Bank highlights a stark disparity between those figures and the number of eligible borrowers which stands at 190,000, a $200 million market, by the bank’s calculations.

Catering to the needs of the very low income families who are not qualified to apply for a personal loan from traditional banks has always posed a big challenge for financial institutions.

Traditional banks in Lebanon customarily ask any person applying for a loan to submit either a salary letter from employers or present some collateral that qualifies them for a credit line.

To meet the urgent requirements of very low income families who usually live in rural areas, a number of banks and NGOs have started offering microcredit for these people.

Microfinance offers small loans with higher interest rates to poor families.

“There is room for growth for microfinance,” said director of Financial Operations at the Central Bank Youssef Khalil.

In Khalil’s view, one of the main challenges that Lebanon’s banking system must overcome is to dispense its deposits per capita ratio, which at 300 percent is one of the highest in the world, over the greater population. “How to channel the money to borrowers has always been a problem,” he told The Daily Star, “microfinance is filling – modestly filling – part of this gap.”

According to a World Bank study released at the end of 2009, Lebanon’s net micro-loan portfolio stands at roughly $50 million, with the estimated number of active clients ranging between 38,000 and 55,700. The World Bank highlights a stark disparity between those figures and the number of eligible borrowers which stands at 190,000, a $200 million market, by the bank’s calculations.

Though by some measures, namely GDP per capita, Lebanon ranks as one of the richest countries in the region, economic prosperity is arrested by swelling poverty rates. Nearly 28.4 percent of Lebanon’s population falls below the UNDP’s upper poverty line, translating into a $4-a-day income.

Khalil sees microfinancing as a three-pronged tool: it reduces poverty by allowing the poor to raise resources for self-sustaining ventures; it creates new revenue-generating opportunities for private banks, and, for the Central Bank, it aids its de-dollarization campaign, that it has spearheaded since the start of the post-war era, by using the Lebanese lira as a lending vehicle.

In 2004, the Central Bank issued a circular exempting banks that provide small loans from some of its reserve requirements. According to the World Bank, this brought only a 3.5 percent increase in micro-finance lending. It suspects that lackluster results were “due mainly to the lack of capacity of most of the MFPs as well as the fact that most of the MFI loans are in US dollars and not Lebanese pounds.”

However, there are signs that microfinancing is making headway.

In July 2009, Community Development and Microfinance group, Emkan, burst onto the scene with prices that significantly undercut market averages and with a formidable workforce.

By focusing more on building team capacity, and designing products, and less on profit-reaching, Emkan has been able to make large gains in the last year and a half, Emkan Executive Director Mayada Baydas told The Daily Star. Emkan has made forays into six Lebanese regions, and boasts a $10 million loan portfolio.

Baydas denies rumors that Emkan, listed in the Interior Ministry by the Hariri Group, has received subsidization and that it caters only to Prime Minister Saad Hariri’s contingent of Sunni Muslims. “They should look at our portfolio … I’m quite comfortable in saying that this is unfounded,” said Baydas.

Baydas, who has worked in the local microfinance market since its infancy in the late 1990s, believes that Emkan will be “a pivotal force in creating niches” in an industry “that has a long way to go.”

For Emkan’s counterparts, Ameen and Majmoua, two of the largest microcredit groups in Lebanon, market expansion must not go on without exercising some caution. Ameen’s General Manager Ziad Halaby and Majmoua’s Executive Director Youssef Fawaz both cited the risk of overindebtedness that microfinancing institutions run was they rush toward similar target groups, and clients become inclined to take loans from multiple lenders.

“Our obsession is not to overburden people; we’re not a commercial enterprise. We’re not out there pushing funds,” Fawaz said, stressing that microfinance groups would benefit from a well-functioning credit bureau that would prevent over-lap between lending ventures.

Fawaz said the industry should not be given more than it can chew.“There was a time when there was an infatuation towards microcredit, everyone thought this was the ultimate solution towards world poverty ... far from it. Microcredit is, at the end of the day, simply one of the tools. It’s an effective tool. How effective it is, is today the subject of debate and studies,” said Fawaz

The Daily Star visited two of Majmoua’s clients in the Barbir neighborhood of Beirut. “Hajjeh” is a Syrian woman in her mid-sixties who has been taking loans from Majmoua to buy make-up that she sells while meandering between cars stuck in traffic. Amal is a young Palestinian mother of three who made Arabic sweets as a past-time until she came across a worker at Majmoua and decided to turn her hobby into an enterprise. They both rake in an additional $100 a week because of their new businesses.

But fluctuating interest rates and an even more volatile food basket price are a growing cause of concern that keeps their ambitions in check. “With all these rising prices, cash money cannot stay in our pockets. It’s impossible,” said Amal.



Source : The Daily Star
 

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