Microfinance woefully underfunded in Arab world, says expert

Barely 10 per cent of those on less than $2 a day in the region are reached with a microloan, says NGO

Current levels of microfinance in the Middle East cover just a fraction of demand, with Egypt and Palestine the most in need of access to capital for poorer would-be entrepreneurs, according to French economist Jacques Attali.

The economist and president of global non-profit PlaNet Finance said there is a “huge need” to boost access to microfinance in the Middle East and North Africa (MENA).

Barely 10 per cent of those on less than $2 a day in the region are reached with a microloan, according to the NGO.

“We know we could afford to be 100 times larger because there is more than 100 times more need to be fulfilled,” said Attali, former special advisor to French president Francois Mitterand. “Microfinance helps the creation of jobs, which is absolutely crucial and vital to the people of the region to fight against unemployment and frustration.”

Joblessness in the region is an acute problem. More than one quarter of the region’s youth – 26.5 per cent in the Middle East and 27.9 per cent in North Africa – is unemployed, according to the World Economic Forum. These figures are more than twice the global youth unemployment rate of 12.6 per cent.

While all countries in the region would benefit from a ramping up of funds for microfinance, Attali singled out Egypt as “number one” due to the sheer size of the 80 million-strong population. Palestine is also in need of more financing initiatives to stabilise its youth population, he added.

Attali pointed to the reach of microfinance in other Muslim countries such as Bangladesh, Pakistan and Indonesia as a way forward for MENA.

PlaNet Finance trains and advises local microfinance institutions to increase access to funds for the poor. The non-profit also runs training programmes in the skills micro-entrepreneurs need to run a successful business. The NGO has raised €2.45m ($2.73m) from the private sector in MENA in the last decade for its projects, including partners such as PepsiCo and the JP Morgan Chase Foundation.

PlaNet Finance aims to raise another €1.5m from private partnerships in the region by 2016. Each €250,000 can reach 500 families over the course of a two to three year project, according to the organisation.

“Every for-profit organisation has a special responsibility,” said Audrey Tcherkoff, Middle East CEO of jewellery house Robert Wan and PlaNet Finance board member. “It’s about empowering people as well.”

Globally, microfinance is underfunded – an estimated two-thirds of budding small entrepreneurs don’t have access to funds for a business, according to PlaNet Finance.

“We think less than 200 million people are reached by financial resources,” said Attali. “And there is a need to reach more than 700 million people.”

Microfinance offers financial services such as loans to start small businesses, savings and insurance to the poorest in developing countries currently locked out of the financial system. Some 2 billion people globally are unbanked, according to World Bank estimates.

Small loans and credit for poorer customers is an efficient tool to alleviate poverty, according to Attali, as each dollar goes directly to the entrepreneur.  

Compared to necessary but time-consuming large development projects, such as building infrastructure, “when you provide micro-entrepreneurs with training and financing, it takes less than a year to create income-generating activities” he added.

Since 2007, the NGO has run 25 support projects in 12 MENA countries, reaching more than 1.5 million people. Current projects help build micro-entrepreneurs’ business skills and access funding in Egypt, Lebanon, Palestine, Morocco, Tunisia and the UAE.

Photo credit: PlaNet Finance