GIZ-Supported MENA Program: A glimpse at the Regulatory Framework following the Arab Spring

Over the coming few weeks CGAP’s Microfinance Blog, in partnership with Sanabel and the Arabic Microfinance Gateway, is running a special series on the new challenges and opportunities that were created by the Arab Spring. Featuring voices from various countries including practitioners, donors, and regulators, the series will provide a platform to share lessons learned. We look forward to your comments and discussion.
Looking at microfinance in the MENA region, one gets a rather ambiguous picture. On the one side, the sector is characterized by high returns, good portfolio quality, and continuous growth. On the other side, leverage is amongst the lowest of the world. This emphasizes the issue that currently only two countries of the region (Yemen, Syria) have MFIs that are allowed to offer savings. Also, other products, like payments or micro insurance schemes are in a nascent stage with innovation taking up only slowly in this region. Furthermore, despite recent developments, the microfinance landscape is still largely dominated by NGOs. While having experienced an impressive development in the past, by their pure nature, they face limitations when it comes to further growth as well as product diversification.
In order to meet the challenges mentioned above, a well developed regulatory framework as well as a strong support structure for the MFIs in the region is core. Sound regulations will enable the sector to grow in a sustainable way. Well established sector institutions will drive innovation, ensure that policy makers make informed decisions, and enhance the capacities of MFIs.
The promotion of the regulatory and institutional framework of the microfinance sector lies within the heart of a new regional initiative of the German Development Cooperation. Based in Cairo and on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) recently started this six year program. Core partners in the first phase will be the Sanabel network as well as Central banks and supervisory institutions in Jordan, Egypt, and Palestine. The major idea behind the regional dimension of the initiative is to enhance peer to peer exchange as well as to promote common standards. Through the partnership with Sanabel, the organization’s internal procedures as well as services to the industry will be enhanced. A major objective of the partnership is to even better respond to the needs of its members, and thereby play a core role for the future development of the microfinance sector in the region. On the country level, the idea is to support the professionalization of the microfinance sector as well as broaden the services to be offered through interventions on what we call the macro level. Thereby, interventions may differ on a country by country basis depending on the individual situation. For example, in Jordan, a contribution can be made towards the overall design of future regulation, while the PMA in Palestine can be supported in their efforts of non-prudential regulation and supervision.
Business as usual might not be the adequate answer to the recent changes in the region. While some of the observations made above have been reconfirmed, new dimensions have been added.  Let me raise three major areas of consequences the Arab Spring may have for program implementation:

1. Support emerging opportunities: As can be seen from the first initiatives within the region (e.g. Egypt, Tunisia, etc.) there seems to be  an increasing awareness of the need for financial inclusion by policy makers. The program is prepared to offer its support to these players and feed in experience from all over the world, as well as from the region.
2. Enhance product diversification: As already mentioned above, microfinance in the region still is pretty much about microcredit. The availability of other products, in particular savings and insurance might have reduced the negative consequences of the turmoil on the client as well as on the MFI level. Product diversification will strengthen the required framework conditions as well as institutional support to MFIs.
3. Promotion of a joint set of rules and single oversight responsibilities:  The events in the region have clearly underlined the importance of a single independent supervisory body that would be able to take homogenous legal measures to ensure the stability of the system. GIZ will promote the assignation of such responsibilities to a single actor.

–Johannes Majewski