This report analyzes microfinance in theMiddle East and North Africa, and offers recommendations onhow to further develop the industry. Microfinance is theprovision of financial services to the entrepreneurial poor,a definition with two important features: it emphasizes arange of financial services-not just credit-and itemphasizes the entrepreneurial poor. The region'semerging microfinance industry differs from those in otherparts of the world. Expectations are too high: microfinanceis not a panacea for, or solution to unemployment, fornarrowly defined, most microfinance institutions only offercredit for business activities, and do not offer savings ordeposit services. Governments are interested in regulatingmicrofinance, and several countries have passed laws onmicrofinance, efforts that risk jeopardizing theindustry's healthy development. Moreover, secondgeneration issues may slow the industry's growth,demonstrated by the fact that many microfinance institutionsare experiencing crises, after rapid initial growth, andneed time to consolidate and restructure. Islamic financemethodologies are being applied by new microfinanceprograms, and existing programs that use Islamicfinance-some of them very large-have become more visible.This report draws heavily on two Bank surveys ofmicrofinance institutions in the region, one assessingdevelopments as of the end of 1997, and the other as of endof 1999. Egypt remains the region's leading providerbut has lost market share, while Morocco is second, havingexperienced dramatic growth since 1997. But other countries,such as Lebanon, and the West Bank and Gaza, saw theirmicrofinance industries stagnate, or even shrink. This wasmainly because microfinance players in these countries wentthrough restructuring, and consolidation as they facedsecond generation issues. The report stipulates that forprograms to reach the scale of microfinance institutions asin other parts of the world, they must raise fundscommercially-including taking deposits, which will alsoenable them to broaden their approach to microfinance,moving beyond credit for businesses. And, by mobilizingsavings and deposits, they will be able to serve many moreclients. Donors and practitioners alike, should be preparedfor the array of new training needs, deciding to transforminto a new legal entity, and institutional form.Policymakers, meanwhile, should be prepared to create legalenvironments appropriate for prudent, but growing microfinance.
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