19 January 2007
BEIRUT: An 82-year-old woman from South Lebanon who sells awarma, kishek, and rose-water to local villagers would probably not have access to standard bank credit.
Nor would a 30-year-old, single, Sidon-woman looking for $3,000 to open a hair salon in her neighborhood.
Loan-seekers with such profiles, especially females, are deemed "unbankable" by all but four of Lebanon's 80 financial institutions. Since residents of the country's most impoverished regions lack steady employment or collateral to guarantee loans, and in most cases education, they look to micro-credit programs provided by groups like Al-Majmoua to raise the necessary capital for investment.
The nonprofit NGO underwrites 12,000 loans per year worth up to $13 million, making it the second largest micro-credit program in Lebanon in terms of volume. Al-Majmoua's credit lines do not exceed $5,000, unlike the other micro-credit facilities in the country that often extend loans of up to $20,000 to small and medium enterprises, says business deve-lopment manager Alia Farhat.
"Our objective is to help unbankable micro-entrepreneurs who are ignored when they ask for bank credit become bankable," Farhat says. "Eventually we want them to graduate to regular banks."
So far only 5 percent of Al-Majmoua's clients have reached this goal, but the illiteracy and chronic under-development in marginalized areas of rural Lebanon will take time to overcome, she reasons.
Al-Majmoua resumed work with its 7,500 active clients - half of which are women - in October of last year after temporarily closing during the war. Most of the program's loan-recipients work in trade or small-scale productive sectors more or less evenly distributed across rural and urban areas - 19 percent in Beirut, 17 percent in the Southern Suburbs, 15 percent in Sidon, 16 percent in Tyre, 10 percent in the Bekaa, 12 percent in the North, and 11 percent in Nabatieh. Less than 10 percent of the NGO's clients work in the agricultural sector.
Micro-lenders are in the business of "delivering credit," explains Farhat, meaning they also offer nonfinancial, technical support services to clients; helping them draft business plans, conduct feasibility studies, and deliver loan proposals to banks - including Banque du Liban and Bank Audi - while simultaneously training potential recipients in management, communication, and marketing skills.
Such full service, while invaluable, is expensive. Micro-entrepreneurs are charged interest rates of 12-22 percent, 2 to 6 percent higher than those accompanying conventional banking loans. The inflated interest payments are necessary to cover cost of borrowing, the heightened risk of default, according to a study by Lebanon's largest micro-credit facility, Cooperative Housing International (CHI).
But the rate of default for Al-Majmoua, and micro-credit in general, is only 1 percent. Though nonpayment of outstanding loans jumped 5 percent immediately after the war, the CHI study said they began stabilizing toward the end of 2006.
"Our clients know they need a clean record of repayment with us because they can't get a conventional bank loan," Farhat says of clients' consistent, timely repayments.
"If they pay late, they've burned their last source of funding," he explained.
Farhat attributes inflated interests rates to high overhead costs. Indeed micro-credit programs require more man-power and leg work than conventional bank loans, deterring more banks from launching similar programs. Multiple officers are assigned to monitor each micro-credit loan, rather than the one or two required for regular size-credit lines. Employees also need to do more leg work to green-light applicants and collect interest payments from many, scattered recipients.
Al-Majmoua has covered its entire operating budget independently for the past two years, whereas other micro-lenders rely in part on grants from international financial
institutions like the World Bank, the EU, and the United Nations Economic and Social Council for Western Asia. They use profit to boost lending and reduce interest rates, says Farhat, because "in the end we are about development."
