11 August 2008

BEIRUT: The potential microfinance market in Lebanon could be worth up to $286.1 million, with only 11.5 percent of this potential demand currently being met by existing financing sources, leaving 88.5 percent of the market untapped, said a report by the International Finance Corporation (IFC), the private-sector arm of the World Bank, as published by the latest edition of Byblos Bank's Lebanon This Week.

The IFC based its findings on a market survey of 539 micro- and small enterprises conducted in Beirut, Tripoli, Tyre and Baalbek. The cities were chosen both for their high concentration of micro- and small enterprises (MSEs) and their geographic distribution within the country.

The IFC said most microfinance institutions (MFIs) and non-governmental organizations' (NGO) microfinance programs in Lebanon are small in terms of outreach, such as number of loans, number of branches and variety of products and services; in addition, the programs lack funding, making it difficult to reach regions that remain underserved.

Also, microfinance programs of commercial banks are still small in terms of outreach and volume, the report said. It noted that, apart from a few programs that have implemented both effective operational processes and work in strategic partnership with commercial banks, most existing MFIs or programs lack funding as well as support for future development.

The IFC indicated that the development of the microfinance sector in Lebanon has been slow compared to other countries in the Middle East. The country has no legislation specific to microfinance, while NGOs that work in the sector are currently supervised by the Interior Ministry and are not licensed to accept deposits.

The survey classified MFIs operating in Lebanon into three groups. The first group consists of MFIs with portfolios greater than $2 million such as AMEEN, Al-Majmoua and Muassassat Bayt al-Mal. The second group includes MFIs with portfolios between $500,000 and $2 million such as the Association for the Development of Rural Capacities, Association d'Entraide Professionelle, Al-Tamkeen, Caritas Catholic Relief Service, the UN Development Program and the UN Relief and Works Agency. The third group covers MFIs with portfolios of less than $500,000 such as the Makhzoumi Foundation and La Mission Pontificia.

Most MSEs surveyed identified political instability (84 percent), competition (23 percent), and inflation (23 percent) as more serious constraints to their businesses than lack of finance (12 percent). Only 35.8 percent of MSEs indicated they would be interested in obtaining a loan in the future.

The IFC said access of MSEs to finance in Lebanon can best be improved by helping existing microfinance institutions and programs develop further, rather than setting up additional specialized institutions.

The report identified an urgent need for staff training on advisory services and training with a focus on best practices in credit methodology and marketing, particularly strategic product development for MSEs. It also highlighted the need to strengthen the downscaling approach of commercial banks and to upgrade the processes and activities of NGOs that provide microfinance. - The Daily Star