Microfinance in Lebanon: NGOs at the Forefront
Lebanese microfinance, which was first introduced 20 years ago, needs to be consolidated. Even though the Lebanese banking system is one of the most developed in the Middle East, microenterprises cruelly lack funding: at the last in depth study, (1), the IFC, a member of the World Bank Group, estimated that only 12% of the sector’s requirements were being met.
A Sector Born in the Mid-nineties.
“The microfinance sector in Lebanon is characterised by a large variety of players, with independent organisations on the one hand and politically motivated actors on the other,” explains the Planet Rating agency. In total there are around twenty Microfinance Institutions (MFIs) in the country. Most of them, like Al Majmoua, the pioneer, created in 1994 by Save the Children, have an NGO status and are represented mostly in the towns.
Two MFIs stand out: Ameen, the only MFI which is a profit making organisation with the status of a financial institution and Al Qard Al Hassan (AQAH), an NGO affiliated with Hezbollah which practices microfinance according to Islamic principals. In total the sector affects 110 000 clients, of which 69 000 come via AQAH and 23 000 via Al Majmoua, the two leaders before the Ameen and Emkan MFIs.
Distinct Types of Microfinance Services
Different services for different types of MFIs: while AQAH offers specific services inspired by Islam such as interest free gold loans, the other MFIs concentrate on regular loans. Most of them offer both group loans based on the model of the Grameen Bank system and individual loans. The services and the type of clientele are in fact often a reflection of the MFI philosophy.
For example Al Majmoua, claims that it “doesn’t discriminate” which means it offers its services to poor foreign workers, in particular Palestinians, but also to farmers who represent 15% of the working population. Ameen, the third largest MFI, relies on commercial banks focusing on loans to microenterprises and personal loans, a perspective shared by Emkan, a new arrival established in 2009 which is expanding rapidly.
However none of these MFIs offer microinsurance or microsavings at the present time. The reason? They are forbidden by the regulations.
Should the Regulatory Framework be Reformed?
At the end of 2010, the United Nations Economic and Social Commission for Western Asia (ESCWA) considered that microfinance in Lebanon is suffering from regulations which are “inadequate,” describing the government policy to be laissez-faire. The MFIs with the status of NGOs are dependent on the Ministry of the Interior, which restricts their access to private funding. The collection of savings funds is reserved for financial institutions, whereas in other countries this enables MFIs to provide a better service for their clients whilst still having a source of additional funding (see our article on “Savings and microinsurance”). One of the rare measures to stimulate the sector was the authorisation given by the Central Bank to commercial banks to use 5% of their legal reserves to finance MFIs, underlined by the ESCWA report. But according to Nadine Chehab from Planet Rating: “this resulted in only a very few loan agreements.” An opinion confirmed by the World Bank for whom this measure has only increased MFI financing by 3,5%. Youssef Fawaz, president of Al Majmoua NGO, would like to see the sector regulated providing that it is not counter productive.
In the end the MFIs are more dependent than elsewhere on international donations and funding, even though Lebanese banks are cash-rich.
Non Financial Services : a Strong Point
This dependence and the bonds which have been woven with the development agencies and foreign NGOs explain in part another characteristic of Lebanese microfinance: the importance of non financial services offered. Hence Al Majmoua proposes free training schemes on various themes: accounting, management techniques as well as improving self esteem and autonomy for women. In a country which has suffered war where widowed mothers make up the poorest category of the population, these training schemes are more than welcome.
Finally in Lebanon, as elsewhere, one of the principal challenges of microfinance remains to genuinely serve the interests of the clients, including the poorest, without falling into the trap of excessive debt or harassment. In other words: protect them. This is the goal of the international Smart Campaign, which was the subject of much controversy in the recent Convergences Forum held in Paris supported by Al Majmoua and Ameen.
(1) Lebanon: A Diagnostic Study on the Demand for Financial Services by Micro and Small Enterprises, July 2008