Syria’s First Microfinance Institution is Preparing to Launch This Summer

Aug 2008
Damascus, Syria, August, 07 2008 - Syria’s first microfinance institution will start operating in the coming weeks, giving a diverse range of small businesses, professionals and individuals access to financial services that would otherwise remain out of reach to them. An initiative of the international development agency Aga Khan Development Network (AKDN), the First Microfinance Institution (FMFI) will provide small loans, deposit facilities and a range of other financial services to clients in six Syrian governorates.

“Our prime objective is poverty alleviation, but our loans don’t just target the poor,” Bassel al-Hariri al-Rifai, head of microfinance at FMFI, said. “Around 90 percent of the Syrian population doesn’t have proper access to financial services. There are various reasons for this including low average income and tax avoidance.”

Rifai said many small scale Syrian entrepreneurs and business people operate in a “shadow economy”, working in businesses that are not officially registered and as such do not have access to mainstream banking products. “We can provide a lot of support to these people, because we can tackle the risk of lending to them,” he added. “Taking on this risk is part of our strategy: to be a financial institution with social responsibility which can help lift people out of poverty and help them start a career. By providing financial support to this shadow economy we help them to become registered companies that pay taxes and can employ new staff.”

New legal framework

FMFI received its license to operate from the Central Bank of Syria (CBS) on March 27, following the passing of Law No. 15 in November 2007, which allows for the establishment of microfinance institutions in Syria. The institution’s capital stands at SYP 400m (USD 8.70m) divided in 800,000 shares of SYP 500 each, with the Aga Khan Agency for Microfinance (AKAM) owning 99.99 percent of the institution’s shares.

Until the passing of the new law, AKAM Syria and other organisations like the UNDP, Firdos and UNWRA ran microcredit facility programmes which provided loans to small businesses, start-ups and individuals. Their scope of operation was, however, limited as the legal environment surrounding these programmes remained unclear. Obtaining a legal status will allow microfinance institutions to not only provide clients with better services, but also increase the avenues from which they source their working capital.

“As a microcredit facility, we used to have just one credit line from AKAM Geneva,” Rifai said. “Now that we are transitioning to being an institution, we can seek financing from commercial banks.

“We will be monitored by the CBS and the Credit and Monetary Council, which means we will have the same language as other banks. As a microcredit facility, we previously relied on funds from charity providers, but this is not sustainable in the long term.” At the same time, the institution will not be a fully fledged bank as it is not authorised to conduct money transfers or money exchange and it remains a non-profit social institution.

Income generation

Despite the legal constraints, AKAM Syria has achieved significant results since the programme’s launch in 2003, providing more than 45,000 loans for a total amount of SYP 2bn. Loans have ranged between USD 100 and 3,000 and clients have had between 12 and 24 months to pay the loan back with a 1 percent interest rate levied. Three types of loans – individual, group and for the ultra-poor – have been designed to boost income generation. “Our staff worked very closely with the clients, because they needed to understand clients’ needs and demands and guide them towards better investment options,” Rifai said.

The main difference between loans from a microfinance institution and those from the mainstream banking sector is that microfinance clients face less stringent collateral requirements. Sometimes the intangible collateral (the person’s reputation in the community) is more important than the tangible collateral (the assets) he provides, particularly for the very poor who do not have any assets. In the case of group loans, risk is spread by making each borrower stand as a guarantor for their colleagues.

Ali Ameen, who until recently worked as the AKAM branch manager in Suweida, said AKAM’s microfinance programme transformed lives in the remote village of Ghazneh in Suweida governorate.

“Average daily income in the village was less than 50 cents a day and there were few job opportunities,” Ameen said. “After consulting with the farmers and telling them about our objectives, we set up a project to introduce drip irrigation. We dispensed 50 SYP 20,000 (USD 400) loans as part of a group loan and after one year we found that daily income had gone up to about USD 3 per person. Life in the village had improved beyond expectation.”

After the success in Ghazneh, the AKAM programme introduced its microfinance facilities to 20 more villages and is currently planning to expand its activities across the entire Suweida governorate.

Twenty-five percent of the beneficiaries of AKAM Syria’s loans were women and the FMFI will strive to further boost this number to more than 30 percent as part of a strategy to empower women and boost their economic involvement.

Source : Syria Today

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