MICROFINANCE PUBLICATION WRAP-UP: “The Microfinance Sector in Morocco: Investment Opportunities After the Crisis;” Published by MicroFinanza Rating

“The Microfinance Sector in Morocco: Investment Opportunities After the Crisis,” published as part of the Insight series by MicroFinanza Rating, May 2014, 4 pages, available at http://www.microfinanzarating.com/images/Insight_Morocco_March_2014.pdf

Performed by Italy’s MicroFinanza Rating in May 2014, this “country screening” analyzes the political, economic and legal frameworks in which microfinance institutions (MFIs) function in Morocco. It also identifies the local microfinance sector’s “opportunities, threats, obstacles and facilities” from the viewpoint of a potential foreign investor.

The paper describes a group-lending experiment launched in the 1990s by the Catholic Relief Service, a US-based non-governmental organization, and two Moroccan NGOs that provide microfinance services, the Moroccan Association for Solidarity & Development and Oued Srou. The success of this initiative triggered the development of additional MFIs in the country. As of 2013, Morocco had 12 licensed MFIs, three of which accounted for a combined 90-percent market share. MFIs in the country may not accept deposits, and the authors deem product differentiation “limited.”

The authors state that rapid growth in the country’s microfinance sector proved to be unsustainable, with over-indebtedness and repayment problems leading to a “crisis” in 2007. A lack of robust institutional frameworks including weak risk management practices also contributed to the trouble, with portfolio quality and ratios of profitability and solvency showing signs of distress by 2007. For example, the ratio of non-performing loans (NPLs) increased among microlenders nationwide from 0.42 percent in 2003 to 1.9 percent in 2007. The ratio of “Portfolio at Risk as of 30 Days” (PAR30) reached 5 percent as of 2008, and it grew to 10 percent as of 2009.

The authors point out that the government, MFIs, commercial banks and development finance institutions recognized the need to restore confidence in the market by 2009. The government improved regulatory frameworks while commercial banks and development finance institutions continued to extend credit to MFIs. MFIs reduced their asset bases, tightened credit and risk processes, and implemented recovery plans that included controls to limit client borrowing from multiple institutions. Consequently, the market went through a consolidation process; the outstanding loan portfolio shrunk by 13.3 percent during 2009, 2.6 percent during 2010 and a further 2 percent during 2011. The number of active borrowers also decreased by 25.3 percent during 2009, 4.2 percent during 2010 and 9.4 percent during 2011. The authors state that portfolio quality has improved since 2010 as has the sector’s overall efficiency.

In 2009, the Central Bank of Morocco took over some of the responsibilities for supervising the microfinance sector from the Ministry of Finance, including setting guidelines for risk management, loan-loss provisions, internal controls, governance and reporting. The government has established credit bureaus that provide microfinance and traditional credit institutions with data supporting lending decisions. MFIs also have been allowed to transform into limited liability companies.

In closing, the authors identify the following as ongoing weaknesses: (1) mandatory price transparency for MFIs “entails risk of competitiveness loss” for small microfinance associations; (2) MFIs in Morocco are not legally allowed to take deposits; (3) the withholding tax of 10 percent on lending profits; and (4) international currency flows remain controlled and the approval of “hard currency lending contracts” is often delayed and not transparent.

By Alíz Crowley, Research Associate

About MicroFinanza Rating

MicroFinanza Rating is a private microfinance rating agency headquartered in the city of Milan, Italy. The company was founded as an operating subsidiary of Italian microfinance consulting firm MicroFinanza, and subsequently became fully independent in 2009. MicroFinanza Rating’s mission is to “…provide the microfinance and responsible finance industry with independent, high quality ratings and information services, aiming at enhancing transparency, facilitating investments and promoting best practices worldwide.” The firm offers social and credit ratings for microfinance institutions (MFIs), client-protection certifications and subscription services for potential microfinance investors on topics including due diligence, country screening and deal sourcing. In addition to Italy, MicroFinanza Rating has offices in Bolivia, Ecuador, Kenya, Kyrgyz Republic, Mexico and the Philippines.

Sources and Additional Resources

[1] MicroFinanza Rating, May 2014, The Microfinance Sector in Morocco; Investment Opportunities After the Crisis

[2] Grameen-Jameel, June 2012, The Microcredit Sector in Morocco Pre and Post Crisis

MicroCapital, February 6, 2014, International Finance Corporation (IFC) Loans $20m to Attawfiq Micro-Finance for Microlending in Morocco

MicroCapital, January 25, 2014, European Bank for Reconstruction and Development (EBRD) Invests $60m in Banque Marocaine du Commerce Extérieur’s Eurobond Issue for Micro-, Small, Medium-Sized Enterprises in Morocco

MicroCapital, October 11, 2011, MicroFinanza Rating, MicroRate, Planet Rating Sign Microfinance Rating Agency Code of Conduct, Sanjay Sinha of Micro-Credit Ratings International (M-CRIL) Criticizes Commercial Rating Agencies as “Too Liberal” with Microfinance Institutions

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