Micro-Finance in Lebanon Al Majmoua

Reda Mamari

Joey Ghaleb

Micro-Finance in Lebanon

What is micro-finance– Offering sustainable financial services to micro-

entrepreneurs

What is a micro-entrepreneur– Owner-operator of a business that typically

employs between zero and five employees

Micro finance in Lebanon

Al Majmoua estimates that there are over 400,000 individuals involved in small and micro enterprises in Lebanon

Suppliers of financial services are:– Commercial Banks – Non Governmental Organizations– Money Lenders– Wholesalers

Banks in LebanonBanks in Lebanon• Lebanon boasts 69 banks with a total of 773 branches. Top 5 banks captured in 1999 around 42% of total credits.

•Banks tend to equate consumer lending with micro-finance.

•Credit market favors major borrowers, less 1% of borrowers capturing about 50% of credit funds.

•Biased distribution of credits according to the borrower’s geographic location (Beirut and urban areas) and relevant economic activity (e.g., services).

•Recently a growth in consumer lending (Sep. 2000, 48% of beneficiaries received loans of less than LL25mn, capturing less than 2.5% of total loans in volume)

Micro Finance in Lebanon; NGOs

Non Governmental Organizations

Network of 22 Lebanese NGOs involved in micro finance

Targeting mostly rural areas

Target groups: Men and women entrepreneurs, displaced, farmers,

59.7% of active clients was dominated by top three providers

Legal Framework of Micro Finance

For NGOs:

NGOs abide by legal provisions and restrictions applied to charities

Micro lending is not explicitly regulated by any legal text of authority.

NGOs have limited access to funds and Lebanese charities are not allowed to take deposits.

Their legal structure makes it difficult to access funds from the financial sector in the form of loans.

Consequently NGOs:* highly depend on donor funds (no stability in access to credit)

* Face a greater financial risk in case of default with the lack of regulation; thus growth potential is limited.

Al Majmoua’s Vision

A more open and equitable financial system must be developed that will promote the long term development of the country. This system must be based on transparent and equitable processes, on the respect of individuals for their ideas, their work, their desire to produce and their honesty and not for their assets, their contacts or their lineage.

This is not just about products and services. It is about customer understanding and empathy. It is about ensuring that individuals feel ownership of the financial system that serves them.

Only this will create the necessary system for people to feel secure and respected, thus improving their capacity to plan and produce.

In effect we want to create a country were there are equal financial opportunities for all.

A new breed of financial institutions that inspires people to be productive, invest and

prosper economically.

Al Majmoua’s Mission

What We Are: A point of reference to clients for financial services An institution that is principally dedicated to the provision of diverse financial services and advices National in scope and non-discriminatory (in terms of geography, religion, revenue and gender). We will operate on

Lebanese territory; serving all clientele residing and working in Lebanon Strategy and operations driven by clients' needs and by the quest for service excellence 

What We Will Do: Maximize profitability with the view of offering efficient and diverse financial services that are affordable and client

valued 

For Whom Will We Do This: Productive individual who has financial needs, with a focus on owners of small businesses (1-5 employees) 

Why We Will Do It: Al Majmoua is built on the belief that offering sustainable financial services in an equitable manner is a social good. Creating a financial intermediary that will serve this clientele will create social change and increase welfare Al Majmoua believes that micro-entrepreneurs in Lebanon are the group that is the most excluded from the financial

sector and they represent an important social and economic sector for the development of the country.

Operating Principles Client satisfaction

– We sell a service and our focus must always remain on client satisfaction and service quality

Focus on client needs– Products must be delivered in a prompt and efficient manner. They must be

designed with a clear focus on client needs Synergy

– Synergy must be created between the institution and the client. Staff must empathize with clients. Clients must understand, and believe in, the rules and methods of the organization

Competitive price– Services must be offered at a competitive price, that allows clients to get value

for money and the institution to ensure its independent long-term financial viability

Core Values– Commitment:

Creating national, sustainable micro-finance organizations is hard work. Having committed and passionate staff who believe in the institution’s Mission and Vision, and who are willing to go beyond the call of duty is imperative for success. Moreover, clients’ commitment to the institution’s rule and regulations must always remain a nonnegotiable condition for borrowing

– Inclusiveness Inclusiveness shows the non-biased, apolitical and non-discriminatory aspect of Al

Majmoua. We welcome all micro entrepreneurs legally living and working on Lebanese territory regardless of their nationalities, sects or religions.

- Responsiveness • Responsiveness is key to the success of operations. Micro-finance institutions must

remain aware of their environment at every level of operations and must be responsive to events in order to maximize client satisfaction, preempt external shocks, and make timely use of opportunities

– Transparency Transparency is the basis of all successful micro-finance organization. If financial

services are to be democratized, policies and procedures as well as decisions and accounts must be of the utmost transparency in order to build trust between the institution, its clients, financiers and the the general community

Al Majmoua ProductsGroup Lending (GL) Individual Lending

(IL)Eid Loan

Loan Terms Bi-weekly or monthly repayment over 4 or 6 months duration

Maximum of 12 months Two months

Loan Size $200 to $1300 in a stepped manner

$500 - $5000 + depending on capacity to repay

$100 or $200

Guarantee Based on group guarantee where the members:- are living in the same area- each has a small business- are a minimum of five people- mutually guarantee each other

Based on strength of business and capacity to repay

Can be based on either group or individual guarantee.

Interest 2% per month 1.65% per month Same as GL

Eligibility Client should:- have an existing business- should use loan for growth of business- men and women (predominantly women)

Client should:- have an existing business that is more than one year old- have a clear business plan- any form of eligible guarantee- good reputation in the market and community

For clients who have been with Al Majmoua for more than one year and with a good repayment history.

Key Figures (dec. 2001)

Total loans granted USD 37,028

Total cash disbursed USD 23,274,560

Loans outstanding USD 3,432,081

Active Clients 5,769

P & L ratio 93%

Delinquent loans (over 30 days)

3.65%

Delinquent loans (over 90 days)

2.6%

North22%

Bekaa18%

Beirut30%

South30%

Individual Loans Distribution by Business

1999

Agriculture7%

Services22%

Trade64%

Transport3%

Industry4%

2000Agriculture

3%

Industry9%

Services14%

Trade61%

Transport13%

2001Agriculture

3%

Services24%

Trade59%

Transport6%

Industry8%

163

2110

964

-

9018 8852

650

740474516742

794

8408

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1999 2000 2001

End of Year

Nu

mb

er o

f L

oan

s

IL

GL

Eid Loan

Total

Loans Disbursed

Loans Outstanding USD

-

1,050,014

1,932,189

2,978,336

711,235

203,040

1,930,707

1,047,6291,019,054

688,174

201,900158,800

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

1999 2000 2001

End of Year

US

Dol

lars IL

GL

Eid Loan

Total

Al Majmoua Clients in Lebanon

Al Majmoua Outstanding Clients

2791

5769

3094

1999 2000 2001End of Year

Num

ber o

f Clie

nts

Projected Growth of Al Majmoua

2002 2003 20044,461 4,559 5,2013,652 5,934 9,2298,113 10,493 14,430

1,191,220$ 1,556,045$ 1,979,457$ 3,919,034$ 6,954,757$ 14,577,071$ 5,110,254$ 8,510,802$ 16,556,528$ 41 51 756 8 10

1,105$ 1,423$ 2,013$

GL Outs. Portfolio

Number of ASAverage Loan Size

IL Outs. PortfolioTotal Outs. PortfolioNumber of LAs

GL ClientsIL ClientsTotal Clients

Lebanese Government Policy

Laissez-Faire (no laws, no clear role)

Two key (recent) initiatives– Kafalt– Social Fund (work in progress)

Kafalat- a Lebanese Govt. Initiative

In 1999, the government established a joint stock company, Kafalat, with objective of guarantying up to 75% of the loan value with a ceiling of LL 300mm credit risk of bank loans granted to SMEs– Lending is undertaken trough commercial banks– Client must be operating in the specified sectors of agriculture, industry, handicraft, tourism and

new technologies.– Eligible SMEs benefit from an interest rate subsidy, paying 7% per year (LL).– Loans >$5,000, < $200,000 (< than 3 years).

Kafalat does not address the structural problems of banks and their policy-makers (… no new clients, same old clients but with subsidized rates)

… and staff of Lebanese banks do not “understand” micro-enterprises

Role of Government

The Government should not:

– Get involved in direct or indirect lending (unless warranted by exceptional circumstances)

– Interfere with market conditions (distorting markets)

The Government should:

– Promote Information sharing– Promotion of “best practices”– Develop Appropriate legal environment

Appropriate and enforceable credit laws Appropriate institutional regulation

Govt. Should promote information sharing

Development of an adequate “Central des Risques” to allow for the sharing of information on “delinquent” clients between various organizations

Provide basic statistics on micro enterprises in Lebanon, such as number, location, typical profile etc.

Provide operational tools such as basic maps

Govt. should always promote “best practices”

The success of micro-finance across the globe has helped establish “best practices”.

– No subsidies (interest rates)

– Policies that encourage small loans with short maturities

– Delivery of services in a market-oriented manner

– The grounding of actions in a well articulated long-term plan.

– Promotion of partnerships between donors and the private sector

Develop appropriate legal environment

Appropriate and enforceable credit laws– Appropriate laws that will facilitate collection

and increase accountability of client. Must allow for cost effective enforcement through the courts and on the ground

Appropriate institutional regulation– Government must operate within the

“institutional development” matrix … assist providers to move along the development continuum

 Institutional development matrix

Type of micro finance institution ن#وع المؤسس#ات المالي#ة : الصغيرة

-------------------------------------------------------- --------------------NGO منظمات غيرحكومية Finance corp. مؤسسات مالية Bank مصرف

Sources of funds: موارد األعمال -------------------------------------------------------- --------------------Donors الواهبين Loans from inst. قروض من مؤسسات Savers مدخرين

 

Stages of institutional development مراحل التطور المؤسساتي : -------------------------------------------------------- --------------------Low منخفض Medium مرتفع High وسط

 Regulation continuum الخ#ط التنظيمي: -------------------------------------------------------- --------------------Low منخفض Medium مرتفع High وسط