Mobinil, the leading mobile operator in Egypt by number of subscribers, recently launched a new initiative to support the budding microfinance sector in Egypt.
Throughout the month of Ramadan, Mobinil will deduct LE 1 from each transaction conducted by its 23 million subscribers – whether it’s recharging, paying the monthly bill or buying any of the company’s products – and put it in a fund that will support small business projects.
At a recent press conference, Mobinil CEO Hassan Kabbani said the money will be deducted from the company’s revenues and not customers’ credit.
Also participating in the initiative are the Egyptian Junior Business Association (EJB) and Al-Tadamun Microfinance Foundation as well as Ana El-Masry and Dar Al-Orman charity organizations.
The four organizations operate in a segment of society that has little or no access to traditional methods of finance. Al-Tadamun, headed by Mona Zulfakar, is one of the most active NGOs in Egypt in providing microfinance to underprivileged women.
The EJB focuses more on creating jobs for fresh graduates while Dar Al-Orman has worked in the past decade to support widows and underprivileged women who are the breadwinners of their family.
The sum Mobinil will allocate to the fund will be distributed among the four entities on a need basis and as specified in agreements signed with the mobile operator.
Al-Tadamun Microfinance Foundation, which was the first NGO in Egypt to be granted a loan from a commercial bank without collaterals, is expected to receive between LE 3 million to LE 5 million from the fund.
Mobinil’s initiative coincides with stepped up efforts from both the government as well as private banks to support and expand microfinance in Egypt, but the sector still faces a number of challenges.
According to the Arab Human Development Report 2009, 41 percent of Egyptians live under the poverty line. At the same time, small- and medium-sized enterprises make up a substantial part of the economy, therefore, developing the microfinance sector is seen as essential in the fight against poverty as well as a contributor to economic growth.
However, many working in the sector say it lacks a clear framework that regulates the relationship between NGOs and banks.
“One main challenge is the absence of [specific] laws that regulate the microfinance sector, said Reham Farouk, executive director of Al-Tadamun.
Currently the microfinance sector falls under the Law on Development of Small Enterprises issued in March 2004. According to the law, the “Social Fund for Development (SFD) is in charge of developing and promoting the work of small- and medium-enterprises . and helping them gain access to finance and services they need.
Under the current law, Farouk said, “microfinance NGOs are treated like any NGO working in any other sector, adding that the lack of focus does not support the sector’s growth.
This past July, Investment Minister Mahmoud Mohieldin said that a new law regulating all microfinance activities in Egypt is being drafted.
Another challenge lies in the fact that only around 10 percent of Egypt’s population is banked, and the unbanked segments of society are mainly the target recipients of microfinance.
In 2005, the Central Bank of Egypt (CBE) launched the National Strategy for Microfinance, a project funded by the United States Agency for International Development as well as the United Nations Development Program.
Mamdouh Mortagy, operation manager at the Small Enterprises and Community Development Association (SECDA), who has been working in microfinance for almost two decades, said the strategy did little to get the sector off the ground.
“It would be better if the funds for launching the strategy were directed to people who need financing, he said.
Several Egyptian commercial banks have been foraying into or actively expanding their microfinance departments; the Banque Du Caire, the National Bank of Egypt and the Egyptian Gulf Bank, to name a few.
Commercial International Bank has also expressed interest in entering the sector and has hosted officials from the Grameen Trust, one of the most globally successful models of microfinance.
The Grameen Trust, established in 1989 by Nobel Peace Prize winning professor Muhammad Yunus, uses microcredit as a tool for fighting poverty and provides training and technical assistance to replication projects.
Officials from the trust visited CIB in June 2008 and bank executives explored the possibility of establishing a similar financing model in Egypt.
CIB Chairman Hisham Ezz Al-Arab recently told Daily News Egypt that banks have traditionally and mistakenly lumped both small- and medium-sized businesses together. “What has changed from two years ago is that we separated the S from the M. The mid-cap companies are very much like the big corporates, and they are the future large corporates, he said.
Moving forward, the bank will focus more on their investments in SMEs, he said.
Another company, Tanmeyah, was established with investments from Egypt-based private equity firm Citadel Capital – through its regional investment arm Finance Unlimited – Egyptian Gulf Bank (EGB) and the three businessmen.
The loan sizes at Tanmeyah range from LE 4,000 to LE 35,000 and EGB will make LE 480 million available to the company’s on-lending program.
However, as Mortagy said, the increased attention from private sector companies and commercial banks must be accompanied by efforts from “the government to ease registration procedures, provide marketing training and facilitate access to credit. it.