Fawaz Ismael, a loan recipient under UNRWA's microfinance programme, works at his sock-making business in Yarmouk, Damascus. 16 May 2012
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Small Loans, Big Business Can microfinance help solve Syria's poverty problem? By Edwin Lane
In towns and villages across the country, Syria's small but growing band of microfinance institutions (MFIs) are going about their business, offering loans to the poor, the marginalised and the drought-affected. Through local officers, they provide loans as small as SYP 10,000 (USD 210) to individuals and communities who have few assets to provide as collateral, but who need the money to start small businesses such as market stalls, to pay for medical treatment or to invest in new farming equipment. "The aim is to improve the quality of life for the majority of Syrians who are denied access to mainstream financial services," David James, chief executive of the First Microfinance Institution-Syria (FMFI-S), the country's largest micro-lender and part of the Aga Khan Development Network, explained. He said that up to 90 percent of Syrians do not have adequate access to loans and other financial services, despite the recent growth in the traditional banking sector. There is therefore a high demand and potential for growth in the micro-lending market. As its name suggests, FMFI-S was the first microfinance institution to be licensed when regulations permitting them were introduced in 2007. Only one bank has joined it so far. Bab Rizq Jameel Bank for Microfinance from Saudi Arabia entered the market in 2010. A third MFI, Ibda Microfinance Bank, run by the Arab Gulf Programme for Development, is also expected to begin lending soon. These banks, run by not-for-profit development agencies, join NGOs that have for several years offered small loans as part of their development programmes inside Syria. These organisations include UNRWA, the UN agency for Palestinian refugees, and other projects run by the Syria Trust for Development and the UNDP in conjunction with the government.
Helping out The success of the project has allowed her to help support her eight children. "I am now an active person, as I help my husband and my kids," she said. "I used to just do the housework and serve the family, but now I'm the active one." Despite stories like this, industry figures admit that microfinance lenders still face challenges. The most significant is ensuring that the business remains sustainable and profitable while still helping the poorest citizens. "Achieving sustainability is important in the long term if we are going to open more branches and expand our services to more people," James said. The bank is not currently making a profit, he said. This year it may break even, but, in any case, the point is simply to cover costs rather than make money. "It's important that our costs are kept within our income." That, he said, means ensuring that borrowers are planning to invest their loans in the right way, and that they will be able to pay back the money. "For me, it is essential that a loan officer meets every client personally, but that's also very expensive," James said. "I could choose not to do that, but then I would make a lot of bad loans." He said loan officers typically each have about 200 clients and are responsible for meeting each of them personally, as well as going on follow-up visits to monitor how the loan is being used. Interest rates are high relative to mainstream banks, with clients paying between 1 and 1.25 percent a month on top of their loans. The high costs associated with forging close relationships with clients, he said, was why interest rates were high. The rural areas where the bank focuses its business makes travelling to meet clients an expensive business. This approach appears to be working, however. FMFI-S currently has a portfolio of some 14,500 loans. Over the next five years it plans to grow that to 86,000 loans and expand its network of branches to 23 across the country. UNRWA's microfinance department also said its lending is sustainable, with a current profit margin of 14 percent, which allows it to begin lending to marginalised Syrians in Damascus and Aleppo as well as to Palestinians.
Paying back "They want to pay the money back because they see the benefit and want to keep benefitting," she said. Even when UNRWA's Duma branch was closed due to the recent pro-reform protests and violence, clients travelled to other branches in the capital to ensure their repayments were made on time, Ali added. The policy of working closely with borrowers again appears to have worked. Ninety-nine percent of UNRWA's microfinance loans are repaid on time, allowing the organisation to keep focused on its central mission of providing opportunity to the poor and marginalised. But even where the business is sustainable, some express caution about hailing microfinance as the single solution to Syria's poverty problem. According to the UN, at least 1.3m Syrian households live below the poverty line, particularly in rural areas affected by years of drought. The figures are controversial, but more independent analysts have said that number is growing. Mohammad Khaled, Middle East and North Africa representative for CGAP, a think tank focused on poverty reduction, said that microfinance is only part of the solution to addressing endemic poverty. "We need to be realistic about what we can expect from microfinance," he said. "Microfinance is not the only solution for poverty – it helps, but it can't work by itself. It's not a solution for job creation, for example, and it doesn't help the poorest of the poor. It works with people who already have something and need the capital to expand." In particular, he said, much of the success of microfinance in the wider Middle East region has been in urban settings. Replicating that in rural settings would be a challenge. But making a profit, he agreed, is essential if microfinance institutions are going to keep helping those denied financial services elsewhere. "To be able to reach and help so many people, you have to cover your costs, and that means turning a profit." |
16 May 2012
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