Promotion of the Microfinance Sector in the MENA region
Title: Promotion of the Microfinance Sector in the MENA Region (MFMR)
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ); European Union
Country: Egypt, Jordan, Palestinian Territories
Lead Executing Agency: Egypt: Egyptian Financial Supervisory Authority, Central Bank of Egypt, SANABEL; Jordan: Ministry of Planning and International Cooperation, Central Bank of Jordan, Development and Employment Fund; Palestinian Territories: Palestine Monetary Authority
Overall term: 2011 to 2018
The positive impact of financial inclusion is broadly acknowledged. Greater access to financial services promotes social stability, stimulates economic growth and employment and increases the stability of the financial sector. The level of financial inclusion in the Middle East and North Africa (MENA) region, however, is one of the lowest worldwide. Only 18 per cent of the adult population have a formal bank account (and only 13 per cent of the female population; Global Findex database). Meanwhile, access to financial services for enterprises is among the lowest worldwide. The challenges facing financial inclusion in the region manifest themselves on both the demand and the supply side of the financial sector.
Microfinance is an essential means of expanding the levels of financial access. The microfinance sector in the MENA region has experienced high growth in recent years. However, introducing specific microfinance laws and regulations as well as an efficient support structure would enable the sector to live up to its full potential. A strong legal and regulatory framework would create an environment in which microfinance institutions (MFIs) can reach out to the unbanked population, while safeguarding their interests. Moreover, specialised support services, such as training, sharing of information and representation, would contribute to the MFIs’ institutional and human capacity development, thereby also helping them scale up and expand their outreach.
The consulting firm AFC supports the implementation of the project.
The framework conditions have improved for poor people in the MENA region to access appropriate financial services.
At the national level, the MFMR programme provides technical advice for policy-making and regulation, as well as for MFI service structures in the region. It supports the national authorities in Egypt, Jordan and the Palestinian Territories in their efforts to strengthen the legal framework and the supervisory capacities related to the microfinance sector. Furthermore, it assists policy decision-makers in developing and implementing national strategies on financial inclusion.
Regionally, the programme promotes cross-border dialogue and knowledge exchange, and is working to improve access to sector-specific information. It also provides organisational and strategic advice to Sanabel, the Microfinance Network of Arab Countries.
In Jordan, the programme is implementing the EU Action ‘Promoting financial inclusion through improved governance and outreach of microfinance in Jordan’. It supports the government in reforming the microfinance sector and in the organisational reform of the Development and Employment Fund, which is to become an apex lending institution for Jordanian MFIs.
The legal and practical guidance provided through the programme has actively encouraged the regional exchange of information and experiences in the fields of financial inclusion and microfinance, thus providing policymakers with a better understanding of the sector, its issues and possible solutions.
In Egypt, a microfinance law was issued as a presidential decree in 2014, allowing commercial companies to engage directly in microfinance, alongside the current players (banks and NGO MFIs). The law regulating microfinance activities undertaken by companies and non-governmental organisations places them under the supervision of the Egyptian Financial Supervisory Authority, while banks will continue to be regulated by the Central Bank of Egypt.
In Jordan, after the passing of a new microfinance by-law in 2015, the Central Bank has taken on a supervisory role in the microfinance sector. Carried out with funding from the EU, the new project for Jordan backs the government in implementing its national microfinance strategy and developing it towards a financial inclusion strategy.
In the Palestinian Territories, the Palestine Monetary Authority has issued the first licenses for MFIs and has set up internal structures to supervise the sector, including dedicated staff and IT capacities.
The Microfinance Network of Arab Countries, Sanabel, has developed a three-year strategy, established a new internal structure and improved its training provisions. It has also collaborated with GIZ in launching the GIZ/Sanabel Gender Award, which aims to enhance access to finance for women in the Arab countries.