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| Volume 3, Issue 1: April 2005 | ||||
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In This Issue Plenary Session: Creating National and Regional Autonomous Microcredit Funds Workshop Session: Transformation of Microfinance Operations from NGO to a Regulated MFI Register now for Latin America/Caribbean Microcredit Summit Meeting of Councils Archived Issues
Vol 3 Iss 1 April '05 E-News Information |
Plenary Session: Creating National and Regional Autonomous Microcredit FundsRemarks by Nasser Al-Kahtani
[B]anks for the poor [in the Arab world] were started through an initiative by His Royal Highness Prince Talal, in 1996. We will briefly discuss three important points. Why is there a need for banks for the poor in the Arab World? What factors are necessary for their success? And, what procedural steps are needed for implementation? ….As everyone knows, microlending has become a powerful tool to reach the poorest of the poor and to alleviate poverty. Based on this premise and its own experience, the AGFUNDS's target group has been women and children; who are the poorest and most marginalized in developing countries. Since its inception in 1980, the Fund has financed more than 900 complete projects, among which, 40 projects were aimed at micro- borrowers. We gained a lot of experience through the MFIs, NGOs, and our partner the United Nations, and the UNDP's MicroStart Project. It has become very clear to us that to serve the poor one must not only increase funding, but one must also create a suitable environment for microcredit to thrive.
…This issue, [the importance of a supportive legal environment], became clear when His Royal Highness the Prince examined the experience of Grameen Bank and visited Dr. Muhammad Yunus in Cairo in 1996. So, we announced that we would implement this type of project in the Arab region. A year later, we announced the Microcredit Campaign in which the AGFUND would participate from 1997 until 2005. [The Campaign has] the goals of reaching the poor, empowering women, building sustainable institutions and [showing] measurable impact. This further pushed the process by making the goal of reaching 100 million families by 2005 a priority for funders. Those were the four principles that the bank would have to expand to accomplish….[I want to thank Dr. Ahmed for the paper] promoting the idea of a national and regional fund. The campaign gave a push for us to adopt this as all agreed that the funds were there. But the mechanism, the infrastructure and capable organizations are also vitally necessary. Then came the goal of [halving] poverty by 2015, when the donors realized that microcredit had become important and is [a necessary] tool to combat poverty. Instead of seeking donors to provide large contributions, we at the AGFUND set out to create the legal environment. Everyone asked, "Why are you creating this bank in cooperation with the government?" In developing countries, and especially in the Arab World, government cooperation is imperative when starting any project. Unfortunately, many governments get involved in a project and [then] they stay forever. They stick with the project while there should be an exit policy, particularly from development projects. So, the first step needed to create a legal environment for microcredit is government support. There is no way to build otherwise. A lot of progress has been made in Yemen and Jordan, but only with their governments' support for the initiatives there. But, when we seek the government's financial support along with that of the private sector, a main requirement should be that the government does not head up the bank. …. Micro-lenders must be supported, encouraged and recognized by the government, financial institutions and central banks. Unfortunately, finance ministries and central banks pose most of the obstacles facing us and the microcredit industry in the Arab world. Despite politicians' conviction of the value of these programs, it takes a long time to get things started…. Further, transparency and clarity are two key aspects that will ensure success. We must be ever mindful of the laws and assistance provided by other agencies serving the poorest of the poor. In many countries, there are MFIs and NGOs that are not legally allowed to offer loans to the poor. Unfortunately, there are community agencies in some Arab countries that reach a large number of people, but they are at the mercy of governments. The governments can close these agencies at any time. For this reason, before a bank is started…a lot of people say, "Brother, you started establishing a long time ago, but you haven't started yet." Our main goal is to be patient with governments and take things step by step so that the environment is suitable for the bank to begin its work. That way, when the bank's work begins, it is effective. Let us look at Jordan, because both Yemen and Jordan have benefited from this project. In Jordan, the bank will begin its work within two months, Allah willing. Now, with special government permission, the bank can provide grants to MFIs in Jordan. This is a good form of support for microfinance in the area. For that reason, we have to implement the best practice without exceptions….Based on experience, we have put in place several steps. At first, we expected that announcing help to the poor would be attractive to all. But we learned otherwise as our first project concluded. This is because the environment is not suitable. You must convince the governments. [We experienced the same delays in convincing Arab governments of the importance of an open learning system for college education.] We are trying to convince governments that a microfinance organization is not a commercial bank. When some say, "We wish to start a bank," some governments say, "You want to start a bank,…You have to deposit a hundred million with the central bank." We respond that in Eastern Europe banks are opened with only three to five million in capital and that grows as the private sector grows. Unfortunately, that does not appear to be possible in the Arab World at this time. There is financial assistance that must go to the selected country, there are rigid criteria, and [these selected countries] are the poorer…and those in most need of help. You must buy elections and convince politicians. Truthfully, without the support of His Eminence, the President of Yemen, the project would not have proceeded in Yemen. Also, without the support of Her Majesty, Queen Rania, the project would not have proceeded in Jordan. AGFUND seeks to convince political leaders because regardless of how hard staffers work in the field, political leaders will not listen if they are not convinced. When the government is convinced, we put together a group called a national committee in which we involve the central bank, the department of social services, the ministry of finance, the NGOs, and the for-profit sector. They all get together to offer recommendations and establish the goals for the bank. These national committees have worked very well in countries like Yemen. The Yemeni government is the first Arab government to have a national exit strategy from the microcredit industry. And why is that? Because of the national committee. The United Nations is also calling for the establishment of national committees that would support this form of industry. This type of international effort could prove invaluable to microcredit. A group of experts has called for identification and limitation of the power exerted by supporters of the project whether they represent the government, private individuals or the private sector. With regards to the partnership issue, we firmly believe that the government should be involved, but the project should be independent. Government, private sector, donor and civic leader representatives should not control the project. We even limit a government's capital contribution to no more than half, because over the long term, the government will become a minority stakeholder and may even exit. In addition, the private sector understands that microfinance is a new industry that can be operated as a business and through which many small loans can be made. Further, the donor should consistently defend the best practice and existing experience. This is an important point to stress about the partnership issue. We vehemently believe that the AGFUND has reached one hundred and thirty developing countries through partnership. We would never have succeeded in getting nine hundred projects going without this partnership. Why? Because, as we say, the government, the private sector, community organizations and the donor are all important and should have a say. But, leadership of the microfinance sector should be independent. |