Microfinance Sector Continues to Grow in Arab Countries

Microfinance Focus, May 19, 2010: According to the 2009 Arab Microfinance Analysis and Benchmarking Report, published by Microfinance Information Exchange, in partnership with Sanabel and CGAP, the microfinance sector in most Arab countries continued to develop both in terms of infrastructure and operations, despite a worldwide economic crisis. Based on data from 54 microfinance institutions (MFIs) in 10 Arab countries and trend data from 35 MFIs covering the period from 2006 to 2008, the report shows that the region recorded the highest ROA (Return On Assets) in the world, with the lowest total expense ratio and the lowest financial revenue ratio.

When compared to other regions in the world, Arab microfinance recorded the second highest median in terms of outreach, after Asia. On average an Arab MFI reached 11,785 borrowers, surpassing the more mature market of Latin America and the Caribbean, where an MFI reaches an average of 9,768 borrowers, the report says. In terms of GLP growth, the Arab region also came second globally – this time to Latin America and the Caribbean – with respect to median GLP, which reached approximately 5.1 million USD per MFI. In the Arab region Morocco and Egypt continued to dominate the microfinance sector in 2008. These two market leaders represented 85 percent of all borrowers and 73 percent of the total loan portfolio of the region.

Even with the Moroccan delinquency crisis, which clearly affected the whole region’s quality of assets, the region recorded the lowest PAR > 30 in the world, and reached sustainability through a 2007-2008 growth in operating expenses. The Moroccan market took steps toward recovering from the crisis with government support and their efforts in tightening up credit processes, which will show results in subsequent years. In 2008, we witnessed a reversal trend for the financing structure of Arab MFIs from a reliance on grants toward debt funding. With the very limited role played by saving in the financing structure of Arab MFIs, the most immediate concern for Arab MFIs upon the start of the global financial crisis was how the global liquidity contraction would affect the availability of funding. The Arab region was the only region that witnessed a drop in funder commitments (5 percent) in 2008. This drop was driven by the close of several donor and guarantee issuer programs and big projects, and expansion of several private sector commitments.

While the world economy has experienced slower growth over the past three years, microfinance has continued to expand globally, albeit at much lower rates when compared to growth in previous years. From 2006 to 2008, the number of microfinance borrowers worldwide grew by 21 percent, and portfolio increased by 35 percent for the median MFI. Following this trend, the Arab region also continues to grow at a high rate with outreach growing by 19 percent between 2006 and 2008. This high growth is also evident at the portfolio level, with a 30 percent increase in gross loan portfolio (GLP) from 605,850,000 USD in 2006 to 1,022,200,000 USD in 2008.

The Arab microfinance sector is still faced with many challenges, especially at the regulation level, as some countries still do not have microfinance regulations. In addition to the policy improvements that are key factors in helping all MFIs to strengthen their activities, the report says that MFIs also need strong governance, appropriate MIS, and internal credit policies and controls.

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