Written by Ranya Abdel-Baki, Manager of Transparency at Sanabel and Charles Cordier, Analyst at the MIX, published by the Microfinance Information Exchange Inc. (MIX), February 2009, 17 pages, available at:
A report from the Microfinance Information Exchange Inc. (MIX) and Sanabel, provides an analysis of the microfinance sector in the Arab region. The report explores the growth, efficiency, profitability and recent evolution of regulatory frameworks for MFIs in the Arab region. The MFI sample is composed of 48 MFIs in 10 countries for the benchmarks with 36 MFIs from nine countries for the 2006-2007 trend data. The current number of participating MFIs by country, their number of active borrowers and loan portfolio size are as follows: Morocco (9 MFIs, 1.3 million borrowers, loan portfolio USD 721.5 million), Egypt (13 MFIs, 666,300 borrowers, loan portfolio USD 116.5 million), Jordan (6 MFIs, 100,206 borrowers, loan portfolio USD 93.5 million), Tunisia (1 MFIs, 63,775 borrowers, loan portfolio USD 22 million), Palestine (6 MFIs, 24,699 borrowers, loan portfolio USD 43.6 million), Yemen (5 MFIs, 18,354 borrowers, loan portfolio USD 2 million), Lebanon (3 MFIs, 17,730 borrowers, loan portfolio USD 15 million), Syria (2 MFIs, 16,297 borrowers, loan portfolio USD 14 million), Sudan (2 MFIs, 6,858 borrowers, loan portfolio USD 1.7 million), and Iraq (1 MFI, 5,268 borrowers, loan portfolio USD 8.3 million).
The median number of borrowers for MFIs in the Arab region increased from 13,266 in 2006 to 15,407 in 2007 while the median GLP for the region increased from USD 4.9 million to USD 7.5 million. The average loan balance per borrower increased 21 percent (USD 259 dollars to USD 314 dollars per borrower). Jordan was the exception as it saw a slight decline in the average loan balance per borrower. The report notes that this decline is the result of a rapid increase in the number of borrowers relative to its portfolio.
The Moroccan sector saw large growth in the volume of loan portfolio and the number of borrowers. In the nine MFIs that comprise the Moroccan sample, five MFIs (AL Amana, Zakoura, FBPMC (Fondation Banque Populaire pour le Micro-Credit), FONDEP Micro-Crédit, and Foundation ARDI) recorded an increase of 46 percent from 2006-2007. Four out of the five leading Moroccan MFIs reached more than 100,000 borrowers. It is important to note that three of the largest MFIs in the Arab region are all from Morocco (Al Amana, Zakoura, and FBPMC), collectively reaching 49 percent of the regions total borrowers and representing 61 percent of the regions total portfolio.
Arab MFIs slightly increased their outreach to women borrowers to 71 percent with the following percentage of women borrowers for the Middle East and North Africa region (MENA) at: Yemen, 98 percent; Sudan, 91 percent; Jordan, 82 percent; Morocco, 59.5 percent and Egypt at 75 percent. Egypt and Morocco saw a decline in the percentage of women borrowers in 2007. The report suggests that the Moroccan decline could be the result of greater diversification in individual product offering, sector maturity, and overall growth in individual products that are demanded by male entrepreneurs.
According to the MIX and Sanabel the 79 percent of Arab MFIs were operationally self-sufficient with only 50 percent being financially self-sufficient. The report implies that many Arab MFIS are reliant on subsidized funding. Egypt, Morocco and Jordan achieve a financial self-sufficiency rate of 104 percent, 109 percent and 111 percent respectively. The report notes that Yemen and Palestine struggled to achieve full cost-recovery in competitive commercial markets with a financial self-sufficiency rate of 89 percent and 53 percent respectively.
The co-authors include two CGAP studies (2005-2007) that traces the trends on investments of development of finance institutions (DFIs) and illustrates the results by region on a global scale. The report’s findings show that the maximum increase in microfinance investments during 2005-2007 was in the MENA region. While total investment in the region did not exceed 7 percent of total international commitments, 76 percent were directed to MFIs. MENA was ranked third in terms of percentage of direct investment in microfinance. The median commercial funding liabilities ratio for the MENA region (all liabilities with “market” price/adjusted gross loan portfolio) increased by 13 percent to 52 percent.
Furthermore, Morocco was the only country that managed commercial funding liabilities/commitments greater than USD 300 million. Egypt received commitments between USD 100-300 million, while Palestine, Syria, Tunisia, and Yemen each received commitments ranging between USD 50-100 million.
The MIX and Sanabel state that “the profitable MFIs are positioned as attractive investments opportunities for the MENA region.” The Arab MFI’s global median return on assets (ROA) ratio in 2007 was at 0.6 percent. According to the report, the increase in ROA is attributed to the increase in financial revenues coupled with maintaining low expense levels. It is also important to note that the increase in ROA is a greater representation of the most mature MFIs in the sample.
The co-authors reported that the total expense ratio for the Arab region is the lowest in the world at 21.5 percent with the median global ratio at 23.8 percent. The report attributes this low expense level partially to the Arab region’s low commercial funding liabilities ratio of 47.4 percent compared to the global median of 79 percent. Egypt reported a 0.9 percent loss on assets in 2006 while the country experienced a 0.2 percent return for 2007. Jordan profitability resulted in an 8 percent increase in return on assets. The Moroccan sector ROA ratio decreased to 2.4 percent, down from 5% in 2006.
According to the co-authors, MFIs in the Arab region maintain well controlled expenses. The report states that this is due to maintaining low administrative expenses coupled with the lowest provisioning expense ratio in the world; a reflection of high portfolio quality. For example, Morocco’s operational expenses decreased by 2 percent in 2007. However, financial revenues dropped from 32.4 percent to 28 percent. This was due to the decrease of yield on gross portfolio from 33.9 percent to 29.8 percent caused by increase competitions and maturity of the market; driving interest rates lower to maintain competitiveness.
Established in 2002, Sanabel is a microfinance network (64 members) of 12 Arab countries advocating growth, innovation, best practices/standardization of the microfinance sector in Arab countries and to strengthen the capacity of MFIs through needs-based training, technical assistance and peer exchanges. The MIX is a provider of financial, business information and data services for the microfinance industry and aims to promote transparency of the industry.
By Zoran Stanisljevic
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