Last week saw the anniversary of the revolution in Egypt that, amidst a wave of mass protest, violence and triumph that swept across the Arab countries, toppled the Mubarak regime..
It is thought-provoking to recall that this whole movement was sparked by Mr. Bouazizi, a Tunisian fruit vendor and micro-entrepreneur who set himself on fire in despair when he was faced with losing his livelihood at the hands of bureaucracy. Mr Bouazizi is one of many millions of Tunisians, Egyptians and Libyans that work in the small and micro-enterprises (SMEs) that are the foundation of Middle East and North African (MENA) economies. Despite their importance – in Egypt they make up 90% of business – SMEs have lacked support; and are consistently side-lined by governments that favour the business empires of family and friends.
Microfinance has had a steady presence in Arab countries in the last decade, but service providers have been restricted in their actions, suffering the mistrust of Ministers for Finance. In Egypt for example, non-bank commercial companies are not allowed to provide microcredit directly, thus limiting the scope and innovation of the sector. In addition, Egypt’s lack of effective regulation has made it difficult for microfinance institutions to effectively collect loans. The rate of default has been especially high under the country’s transitional government as customers foresee a lack of repercussions under a transient legal system.
There is huge potential for microfinance to give a boost to SME lead growth in MENA countries. Currently it is estimated that of the 14m people living below the poverty line in Egypt, just 1.5m use the network of 500 MFIs. The tangible benefit of microfinance is its ability to proliferate and adapt to the market based on local knowledge. However, it needs the right kind of regulation to ensure that customers understand how to leverage it, make reliable re-payments and attract investment.
So a year on, what are the prospects for microfinance post-Arab spring?
A year of turmoil, the drain of foreign investment and an acute financial crisis are certainly taking their toll on the relatively few MFIs in Egypt. Yet there is also a chance that a new law – drafted by the Mubarak Regime in 2009 – will be implemented this year, allowing, among other things, non-commercial banks to provide loans.
There is also a hope in the sector that the incoming government will put considerably more weight both behind the SMEs that drive the Egyptian economy and the poor and the middle classes that run them.
Emma Kallel from the Tunisian Ministry of Finance recently presented the Tunisian microfinance outlook at the European Microfinance Week in Luxembourg. Microfinance was identified by the Tunisian government as essential to address the country’s systemic inequality, poverty and regional disparity. The country’s new vision therefore is to create a socially responsible and sustainable microfinance sector that will exponentially broaden the current 400,000 client base and strengthen the economic fabric of the country.
Donors are also in the process of reviewing their support for microfinance in these regions, having identified the sector’s potential to promote job creation. Employment is a key challenge in these regions; unemployment in Egypt for example was at 10.4% in 2011.
The World Bank has initiated the ‘Enhancing Access to Micro and Small Enterprises’ project in 2010 to help sustain credit to SMEs in the midst of the revolution.
SME activity is also one of the first avenues that the European Commission has been looking to support in Egypt. Funds of $22 m from the Commission will target the creation of jobs, especially in the rural entrepreneurial and agricultural sector, by providing access to finance for SMEs and micro-enterprises. The Commissioner for Enlargement Štefan Füle, said: "Small and medium enterprises have a vital role to play in creating jobs and growth in Egypt. By making it easier for them to access finance we are helping to remove one of the main barriers to job creation, enabling more Egyptian people to make a living and support their families as a result".
As Egypt and Tunisia move towards achieving a democratic future, the microfinance sector could be a vital partner in shoring up economic activity and working directly with the poor. With new laws and regulation, an enormous un-served market and a newly liberated people with a thirst for progress, these countries present investors with a fertile ground for new business opportunities.
