News

04.13.2013

|

Web

|

Microfinancing growing strong in MENA - The Gulf Today Interview April 2013

by William Faria from The Gulf Today


Micro-credit projects have become a common norm globally, assisting micro entrepreneurs to be able to support themselves and their families by starting small businesses. Here in the Middle East & North Africa (MENA) region, a newly introduced web-based social lending platform, for individuals and corporate investors, is generating funding for developing the microfinance industry throughout the region. Speaking to William Faria of The Gulf Today, the founder and CEO of Pi Slice Investments, Genny Ghanimeh, explains that several challenges exist in the current microfinance industry in MENA.

Here is the full interview:

Q. Can you explain the role of Pi Slice and why was it established?

A. In a pioneering effort to bridge the gap between individuals, the private sector and social development in the MENA region, Dubai-based microfinance funding platform, Pi Slice enables individuals and companies to lend to MENA-based microfinance institutions (MFIs).

In partnership with MicroWorld.org, a subsidiary of the PlaNet finance Group, it offers a strategic choice for individuals and corporations to sustainably direct their socially responsible initiatives.

Driven by social impact, Pi Slice empowers micro-entrepreneurs, who are otherwise excluded from access to credit by formal banking institutions, to start and grow businesses, engage in income-generating activities, and thereby transform their own lives as well as those of others by becoming job creators rather than job seekers.

Q. Is this concept the first of its kind in the Middle East & North Africa (MENA) region?

A. Well of course, to be honest it is actually the first e-MENA model taking into consideration that the MENA region is home to approximately 370 million inhabitants of which at least 26 per cent are estimated to be living on less than USD $2 / day.

It is estimated that there are approx. 6 million households eligible for a microfinance loan and that there is a gap of approx. 3 million potential microfinance customers for a total of nearly $3.5 billion in GLP.

Q. Who are the partners with Pi Slice in the region?

A. Pi Slice is a partnership with the PlaNet finance Group (the biggest MicroFinance NGO in the world) to build and administer the site and back office through one of their subsidiaries MicroWorld.org

Pi Slice is also a partnership with Xische& co, a leading media strategy group to ensure the implementation of an integrated media strategy and maximum digital social outreach.

Pi Slice aims to partner up with major Arab corporations through their CSR budgets and create together a new channel for CSR funding reaching out for MENA micro entrepreneurs.

Q. Besides micro-lending what other fields does Pi Slice concentrate its activities on?

A. Firstly, we build and establish an online social interactive community of lenders (individuals and corporates).

Inspire young people to be in social entrepreneurship through organizing a social entrepreneurship competition.

We also lead the way of Corporate Social Responsibility (CSR) initiatives into sustainable projects and investments.

Q. How do you think the microfinance is performing in the MENA region?

A. Although the MENA region is the second youngest microfinance sector in the world, it has shown signs of maturity in recent years, characterized by the following developments:

Increased diversity of financial service providers (banks, microfinance banks, non-bank financial institutions, service companies, and NGOs); higher and deeper penetration levels; a widening pool of experienced human resources; improved credit risk systems.

Within the region however, the microfinance markets are in different stages of development with Morocco, Egypt, Jordan, and Yemen showing higher levels of maturity when compared to younger markets in Iraq, Sudan.

Q. What are the criteria to define a micro entrepreneur?

A. Informal businesses are the basis of economic life in the developing world. Markets in the centre of town are the main distribution centres, similar to supermarkets in the developed world, while street vendors take the place of our local shops and stores. Production of goods is usually local and artisanal, rather than large-scale industrialised. Part of the reason for this small geographic spread of activities is the lack of good transport infrastructure, lack of public transport, and relative high cost of private transportation.

Q. What are the various advantages of micro lending?

A. In the Middle East, youth unemployment stays on the rise. For instance in Egypt, 90 per cent of unemployed people in the country are below thirty years old. If micro entrepreneurship is encouraged and there is a growth of small businesses, there will definitely be acceleration in the economic growth and there will be more jobs created. Global Communities, which was previously known as CHF international, is the largest global microfinance network, which is giving a great helping hand in the Middle East.

It has provided more than 620 million dollars microfinance loans since 2004, which has helped in the creation of half a million jobs in the region.

Global Communities has more than 680 staff members and 55,000 clients who are of Arab origin with a portfolio of 157 million dollars, which is concentrated in Jordan, Lebanon, etc.

Q. How does the MF loans assist micro and small entrepreneurs to succeed?

A. Microfinance Institutions (MFIs) are the organizations that offer micro-finance services and products to the poor.

There are many different types: savings and credit cooperatives, NGOs, programmes established by international organisations, legally-recognized micro-finance institutions, and micro-finance banks, and their sizes greatly vary, from 100 clients to over 6 million clients for the largest.

As well as offering basic financial services such as loan products, savings accounts, and insurance, many MFIs also provide non-financial services such as training and education, or specific programmes to combat local issues.

Q. What is the future of microfinancing in the region?

A. The future of microfinance is hard to forecast, but several estimates suggest that 500 million to 1.5 billion people still lack access to financial services that could strengthen their economic situation and improve their life conditions.

Additionally, 2.5 billion young people will become adults within the next ten to twenty years, and it seems uncertain whether the traditional working market will be able to absorb such demographic boom.

The role of micro-finance and other alternatives ways to encourage and assist auto-entrepreneurship are likely to remain important in the global economy.

Q. What is the funding structure of the microfinancing industry in MENA?

A. MFI’s generally have three main sources of funding to finance their growth: deposits, debt, and equity. Only a few markets in the MENA region (Sudan, Syria, and Yemen) currently allow for savings mobilizations while the remaining markets are hampered by restrictive regulations and current structure of the financial sectors.

Historically, MENA MFI’s main source of funding has been donated equity. In fact, the MENA region still maintains the highest capital / asset ratio in the world at 45 per cent in 2009 compared to a global median of 23 per cent.

Most countries in the region have been increasing debt financing and decreasing dependence on equity. MENA received $ 787 million in cross-border funding in 2009, which represents both the lowest volume of funding and lowest percentage of total global commitments worldwide at 4 per cent. Moreover, the region witnessed a slow growth in commitments with 4 per cent compared to 17 per cent growth in commitments globally.

Local Banks are playing a significant role in providing 61 per cent of all external funding, but that remains at high lending interest rates. Expanding the sources of funding to quasi-commercial debt will be critical for growth.

Q. From your own perspective how would you best describe a micro-entrepreneur, from the Middle East region?

A. In general, a micro-entrepreneur is an individual who either runs, or works in, the small businesses that constitute the informal sector of the economy.

These businesses can be in a variety of sectors and industries, ranging from agriculture, farming, or fishing, to transportation, small shops or stalls, food production, or artisans.

The structure of these micro-businesses may be individual, familial or collective. Some individuals may be entrepreneurs by choice, while others have become entrepreneurs through necessity due to a lack of employment opportunities. Levels of unemployment can also differ from person to person, from the vulnerable non-poor to the very poor.

Q. Do you think that small-scale entrepreneurs remain excluded from financial services in the region?

A. Absolutely true, In fact it is estimated that over 500 million entrepreneurs remain excluded from financial services.

Micro-entrepreneurs are a very diverse group, they have one thing in common: they are unable to access financial services through formal routes, such as traditional banks, because they do not meet the requirements that many of these institutions set, such as minimum deposits, collateral, a steady income, or a proven credit record.

Today, more than 150 million people worldwide, served by more than 10,000 Micro-finance Institutions (savings and credit cooperatives, NGOs, micro-finance banks) and commercial banks, benefit directly or indirectly from micro-finance activities.

Tags:
This article is part of the special report: