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Microfinance and the Arab Spring: Threat or Opportunity?
Submitted by admin on Wed, 07/27/2011 - 11:53
By Elissa McCarter, Vice President of Development Finance at CHF International
Microfinance Focus, July 27, 2011: After weeks of headline news about the Arab Spring, we seem to have forgotten the man who started it all: Mohamed Bouazizi, the Tunisian fruit vendor who set himself on fire after police confiscated his small cart. It was Mr. Bouazizi, a microentrepreneur, who sparked this revolution in a single act of protest against the same harsh economic realities shared by the majority of citizens across the Arab world. If this was a protest started in response to economic realities, why has there been such limited discussion on the topic?
Having worked as a microfinance practitioner for well over a decade, providing small loans to entrepreneurs very much like Mr. Bouazizi, I can picture his cart, like so many others scattered along dirty crowded streets and outdoor markets in developing countries around the world. Given the changing political situation today, the first question from potential investors in our Middle East microfinance programs is all about risk. “How will they ensure that their money is safe, that microfinance borrowers will pay back?”
Little do they know that our highest repayment rates from microentrepreneurs are in the Middle East -- despite the second intifada in Palestine in 2000 , the Bagdad uprising in 2005, the “July War” in Lebanon in 2006, the blockage of Gaza strip in 2008, and now, the Arab Spring that we witness playing out today. Indeed, 88 percent of CHF International’s $200 million microfinance and SME portfolio is in four countries: Jordan, Lebanon, West Bank & Gaza, and Iraq, where we have nearly 47,000 clients and over 600 staff – all of whom are of Arab origin. Since 2004, we have provided loans to 200,000 people and been instrumental in the creation of an estimated 400,000 jobs in the region.
Still, many investors fail to see the opportunity. There may not be a sizeable middle class in the countries where we see the Arab Spring unfold but there is a vast majority of working class. For instance, over 40 percent of the Egyptian population is living under the poverty line and it is this same group that represents the working class. They are hard working, they pay back, and they have no other choice but to stay in the country and make things work. They live through war, conflict, disaster, regime change, stagnation, and regime change again. At first it may feel risky, but these are the people – Bouazizi and people like him – that you should want to invest in, because they represent the future, and they will determine what their countries ultimately become. They cannot flee their country in the event of an emergency – the have to invest in it, and in their future, and show determination in so doing.
Building up institutions and establishing policies that support small businesses, enact more favorable taxation and safety nets, and facilitate private sector and investment cannot happen overnight. It takes years, if not decades. The real threat of the Arab Spring is inertia; the slow economic change needed to help someone like a Bouazizi fruit vendor does not have media appeal as the excitement of youth demonstrations, the buzz words of social media or even war. Yet the real opportunity is investing in ways that will directly benefit people like him. It is economic change, away from the oligarchy, family patronage, clientelism of state workers, and toward capital investment in people and enterprise, that will ultimately drive the outcome of the Arab Spring.
According to Dr Ali Kadri, the former Head of the Economic Analysis Section of the United Nations regional office in Beirut, recent events in the Middle East are the culmination of decades of under development, and in some cases de-development – fueled by failed economic policies and broken institutions. He points out that between 1971 and 2000 overall economic growth in the Arab world was negative, with the real GDP per capita of Gulf Countries contracting by 2.8% annually.
I see real opportunity and real potential for change that can filter down to the average citizen, despite all this. The microfinance work we do in the Middle East and North Africa [MENA] region demonstrates a collective power in numbers. According to 2009 MENA statistics from the MIX Market, there are approximately 2.5 million microfinance borrowers, 76 civil society organizations, over 5,000 employees involved, and one could estimate over 1 billion children growing up in those families. What would happen if we connected all of them through the same power of social networking that has fueled the uprisings across so many communities? What would happen if they could launch an agenda in each country to lobby governments specifically for the right economic policies? In the Middle East, more than in other regions, we have witnessed the power and resilience of the entrepreneurial spirit, and a lot of smart small business people who are making things happen. Imagine now how history might change with the right policies in place and long-term investors willing to take the risk. Sustainable economic change is going to take patience and a real discussion, involving the people who matter and who can make change happen. Those are the kinds of news headlines we need.
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The lesson for microfinance from the Arab Spring
Dear Peter and Mohammed,
I actually was not referring to any particular institution in Tunisia or another other country. I also take a broader view of the microfinance industry to include organizations and banks working in this space to serve both the economically active poor as well as the underserved small business. Peter, your points are well taken about the failure of microfinance to address the fundamentals behind unemployment. There is indeed a risk and we see it happening that microfinance providers are financing subsistence level activities that do not really help people move beyond that tenuous hand to mouth position. But I believe there is a place and a role for financial services (credit, savings, insurance) for the poor, as well as micro-credit targeted to microentrepreneurs both registered and unregistered. I think we can all agree that micro-credit is not enough. This is why I argue that focus needs to be on "Building up institutions and establishing policies that support small businesses, enact more favorable taxation and safety nets, and facilitate private sector." From my own experience working with CHF, we see that our efforts to lend to the "missing middle" enterprises, those very small or medium size businesses that could still be considered microfinance, do indeed create jobs and can ultimately help contribute to economic growth policies. But microfinance in a vacuum won't get us very far. We need to also work with governments, civil organization, and advocacy efforts by and for the people to put in place supportive policies that promote small business, help people like Bouazizi move from subsistence to either find formal employment opportunities, enter vocational training programs, or have incentives to grow their business beyond informal enterprise. We have first hand stories where we have seen this happen in Lebanon, Iraq, Palestine, and Jordan. But it needs to happen on a larger scale. And that is why I argue that perhaps the same power of the people we have seen in the Arab Spring could be channeled to keep economic growth and systemic change on the forefront of government agendas.
Thanks again for your postings.
Elissa McCarter
sorry if i was not clear, i
sorry if i was not clear, i did not understand that you are referring to a certain mfi or a certain country elissa but i used enda to clarify the kind of microcredit you were referring to.. which is not the subsidized microcredit which is provided by the goverment on political basis (BTS in the case of Tunisia) which Peter used as an example.
There are some opportunities there. The Tunisian Temp government is working on a new microcredit law (they are still reluctant to talk about microfinance as the central bank has other priorities)which will open the door for new players. they are also working on a microfinance national strategy. the same in egypt, many officials in the new government seem to believe that a big part of the solution for poverty and unemployment is supporting Micro/Small/Medium Enterprises and are trying to work on that within the existing legal framework as there is no parliment there to approve new laws et..
however, the Arab Spring also created some challenges for the sector. the PAR went up significantly and to continue to be high even in countries such as Egypt and Tunisia. In Yemen, one of the good programs (Abyan) sent a call for help a couple of weeks ago.. one of their branches was completely destroyed.. their clients were displaced and their PAR is 100% after operating for so many years with a zero or a vercy close from zero PAR.
The challenges did not stop there, staff and clients of some MFIs were killed in the events. Branches were destroyed in some cases, while many clients lost their businessess etc..some clients were encouraged by the new situation not to pay back their loans. MFIs had and still have to deal with such situations and on a large scale in some cases..so the challenge is not only donors or investors are not willing to take the risk but also to help those MFIs who have been performing very well for so many years to continue operating and to pass this period.
and yes, neither microcredit nor microfinance will be enough to respond to the needs which were behind those revolutions. and though Bouazzizi was a microenterprenuer, teh overwhelming majority of those who began this in Tunisia, Egypt and in other countries are middle/upper class, highly educated young people, many of whom have good jobs (such as ghunaim in egypt)who thought their countries deserve better.
Microcredit in Tunisia
Thanx Elissa for your blog. i think you raised a very important issue there.
Over the last decade+, there were two kinds of microcredit in Tunisia.. the BTS model which is the Ben Ali model mentioned by Peter above, which was heavily subsidized by the government and used as a political tool. but also there was the Enda model. the NGO which did not get any support from the government and which managed to serve more people than those served by the BTS 280+ Associations but economically active poor Tunisians. I assume that Elissa was referring to the Enda Model of microcredit which was recognised so many times on the regional and international level. The good news is that the temporary government in Tunisia now is working on consolidating those BTS associations in an attempt to put them on the right track.
THE lesson for Microfinance from the Arab Spring
The author fails to identify that maybe the main lesson for Micro-Finance coming from the "Arab Spring" is that Micro-Credit Funds for small business development did not solve and maybe exacerbate the problems of unemployment, informal sector businesses and corruption. The Banque tunesienne de solidarite was an initiative of Tunisia's president Ben Ali that was copied throughout North Africa and the Middle East. It was surrounded by entire crowds of micro-credit associations and commercial banks with CSR micro-credit departments.
As long as outspoken foreign donors can convince governments and other stakeholders to continuing, creating, re-creating and expanding socio-political credit funds, the poor shall certainly not benefit from Microfinance to safeguard their financial assets and better plan their expenses and business ideas.
If I am not mistaken Mr. Bouazizi was a subsistence fruit & vegetable seller without a business license, who got mistreated by policemen. Providing people like him with micro-credit does not solve their problems, that seems not so difficult to learn, isn't it?
Respectfully,
Peter van Dijk
BSD City, Indonesia
THE lesson for Microfinance from the Arab Spring
The author fails to identify that maybe the main lesson for Micro-Finance coming from the "Arab Spring" is that Micro-Credit Funds for small business development did not solve and maybe exacerbate the problems of unemployment, informal sector businesses and corruption. The Banque tunesienne de solidarite was an initiative of Tunisia's president Ben Ali that was copied throughout North Africa and the Middle East. It was surrounded by entire crowds of micro-credit associations and commercial banks with CSR micro-credit departments.
As long as outspoken foreign donors can convince governments and other stakeholders to continuing, creating, re-creating and expanding socio-political credit funds, the poor shall certainly not benefit from Microfinance to safeguard their financial assets and better plan their expenses and business ideas.
If I am not mistaken Mr. Bouazizi was a subsistence fruit & vegetable seller without a business license, who got mistreated by policemen. Providing people like him with micro-credit does not solve their problems, that seems not so difficult to learn, isn't it?
Respectfully,
Peter van Dijk
BSD City, Indonesia
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