What is my assessment of microfinance in Morocco?
Morocco is a recognized as a leader in microfinance in the Arab world, serving 40% of customers in the MENA region; it has some of microfinance institutions (MFIs), the most successful internationally.
However, since 2007, the microfinance sector in Morocco is facing an unprecedented crisis. This crisis stems from the uncontrolled growth of the portfolio of assets, lack of efficient risk management and overcoming the institutional capacity of some MFIs especially in terms of credit policies, information systems and control.
In December 2008, the portfolio at risk is 5% of the loan portfolio and a year later, they reached the alarming level of 10%. At the same time write-offs increased significantly, with impact negatively on profitability and solvency of microfinance institutions (MFIs) in Morocco. In May 2009, the Zakoura Foundation, which is one of the leaders of microfinance in Morocco, has a portfolio at risk greater than 30%. She is then forced to merge with Banque Populaire Foundation for Microcredit.
In late 2009, the microfinance sector in Morocco shows an outstanding 4.8 billion dirhams, a decrease of 16% to 307 million dirhams in nonperforming loans, an increase of 2% over the previous year.
Currently, the situation stabilizes. Measures were taken to stabilize the portfolio and allow the microcredit sector to make a fresh start. MFIs have developed recovery plans, which are to strengthen the methodology of credit, to give more importance to the recovery of loans.
Now, the IMF regularly exchange information on their outstanding customer to control the swaps. A credit bureau is even being put in place. With all these measures, the industry should regain normal growth and maintain its position as undisputed leader in microfinance in the Arab world.
• What are the areas for improvement to avoid another crisis in this sector? What is the role of the MFIs and the government in this particular case? Central Bank provisions are sufficient to overcome the shortcomings of the sector?
First of all we must remember that the success of the microfinance sector through 2007 would not
been possible without the support of the Moroccan government. Microfinance Law in 1999 provided a clear framework for sector development. Financial support was provided through a public fund, the Hassan II Fund. The sector also benefited from the support of the international community of donors. Finally, a high specificity Moroccan microfinance sector is the commitment of local banks: commercial banks have created two major MFIs financed 85% of sector assets in 2008.
The Moroccan microfinance sector has responded promptly. To restore confidence and prevent contagion in terms of reimbursement, the government organized the merger of Zakoura Foundation and Banques Populaires foundation for Microcredit. This is the first operation of its kind in the Arab region.
Local commercial banks have kept their lines of credit and development finance institutions have not demanded repayment of their loans.
At the same time, MFIs have significantly slowed growth and reduced the size of their balance sheet. They also put in place recovery plans to scale, strengthening the methodologies used to credit, building teams dedicated exclusively to the recovery of loans and to take legal action against borrowers in arrears. Finally, they regularly exchange information on their outstanding customer to control the swap.
These measures are able to bring out a new area, more mature, with a system of centralized risk and performance improved systems of risk management. From customers who contracted multiple loans it decline from 39% in October 2008 to 29% in September 2009.
For its side the government has set up in collaboration with the central bank and the National Federation of Microcredit Associations (FNAM), a plan for consolidation. The four priorities of this plan are: to strengthen the MFIs, the swap control and prevent over-indebtedness, secure the liquidity of the sector for future needs, and improve the regulatory framework. These measures are already helping to restore confidence in the microfinance sector.
• What are the projects planned for the coming years to boost the microfinance sector? What vision for the future of the sector?
Seen on a more operational level we can see that when facing high levels of indebtedness of clients and therefore the rapid deterioration of the quality of the portfolio of loans, the Moroccan government has developed a plan in collaboration with Central bank and the National Federation of Microcredit Associations in Morocco (FNAM), to restore confidence and credibility of the microfinance sector in the country. As part of this plan, the Ministry of Finance launched an investigation in 2009 to assess the current state of the sector and provide recommendations for improving the regulatory framework for the latest developments. The Moroccan government has also considered options for industry consolidation and transformation of the largest MFIs.
Thus, the amendments which have been made to the law governing microcredit can:
The practice of microcredit activities, either directly by an association of microcredit, or indirectly through another microcredit association or limited liability company licensed by Central Bank, as a credit institution subject to the provisions of the law 34 -03, relative to credit institutions and similar bodies.
the submission of merger of two or more microcredit associations, as well as those relating to the acquisition of one or more microcredit associations by another association, the granting of a new authorization by the Minister of Finance and after consulting the Advisory Board of microcredit.
Finally, a more strategic reading allows us to predict:
First, a shift from issue of promotion of microcredit to the most ambitious building inclusive financial systems and the move to inclusive financial services will continue.
It is indeed every reason to believe that the current interest in microfinance is intensified so as to include most of the poor who still lack access to financial services. This would mean that the issue would move to the "promotion of microcredit" to the more ambitious, "creating inclusive financial systems."
Therefore, the future of financial services to the poor is linked to changes in the financial sector in general and not just a few specialized agencies.
On the other hand, the demographic changes that Morocco can have will be determining factors for access to financial services the next few years as customers of financial services will be younger, more urban and more interconnected and informed.
From the perspective of access to financial services, these developments are on one side, positive as they will reduce the cost of services but on the other, they raise the question of youth unemployment which is likely to worsen and the key issues are: how the labor market reaches there to absorb new entrants (creating self-employment or employment)? How does the supply of innovative financial services can help these young underemployed or unemployed to integrate into the labor market?