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Loans for ideas

What stands in the way of expanding microfinance in Egypt? Ahmed Abu Ghazala reports on a conference that attempted to find out
Microfinance may sound complicated. The principle, however, is simple: small loans lead to big results.

So far microfinance has been available in Egypt largely through NGOs who in turn get their funding from donor agencies. That format, according to Hanaa El-Hilaly, director of general planning and international cooperation at the Social Fund for Development (SFD), is important because NGOs, unlike banks, do not seek profit and their primary target would be to assist the poor and create job opportunities for them.

But not everyone attending the "Banking on Microfinance" conference organised by Global Trade Matters in partnership with the Bank of Alexandria Intesa- SanPaolo saw eye-to-eye with El-Hilaly.

"Microfinance is not a strategy for assisting the poor; it is a method for those who have an idea and need money to implement that idea," said Mahmoud Abdel-Latif, chairman of the Bank of Alexandria. Abdel-Latif underlined that no organisation can continue giving out loans without achieving profits.

In fact, as Karim Fanous, CEO of Lead, a microfinance institution founded in 2003, explained, no organisation can depend only on donations. It must make profit in order to sustain its existence. He pointed out that while microfinance began in Bangladesh as non-profit model, it was commercialised as early as 1990.

The most effective way to implement microfinance is commercially, according to Hicham Bayali, regional programme manager of the microfinance programme at International Finance Corporation, but without leaving aside government cooperation.

Magdy Moussa, head of microfinance at the SFD, agrees. He explained that, "banks have the capital, and microfinance needs capital and that is why cooperation between NGOs, companies and banks is needed."

Egypt is a very demanding market for microfinance, according to Alexandra Steiner, institutional development manager at the Aga Khan Agency for Microfinance. She stressed that both banks and microfinance companies should be engaged in the process to make their services available to all types of clients.

But while banks are important, they might need to package their services differently. Fatma Lotfi, first deputy chairman of Bank of Alexandria, believes that commercial banks are not the best channel of microfinance because a poor person might find it daunting to enter a luxurious building and to deal with people wearing suits and ties.

She added that, "mobile banking is an ideal alternative to that problem, and we should search for the right structure that provides less bureaucracy and centralisation. Until we have a whole national strategy, there will be only a few successful stories and lots of failures. The draft microfinance law that will be finalised [by parliament] soon can provide a solution," she said.

The new law, according to Fanous, is very important for NGOs and companies engaging in microfinance because it will provide a clear legal framework for their operations. Fanous warned, however, against putting any control over interest rates. "Interest rates should be left to market forces."

Khaled El-Gazawi, CEO at the Aga Khan Agency for Microfinance, agrees that interest rates are a delicate issue that should be carefully dealt with by regulators. "If the regulation puts hard limits on interest, no investors in microfinance will come to Egypt," he said.

© Al Ahram Weekly 2009