Documents
Country Feasibility Studies
Turkey
UNDP Microfinance Assessment Report
Prepared as a component of the MicroStart Feasibility Mission - March,
1997
Kim Wilson, International Consultant, and
Alper Güzel and Erol Taymaz, National Consultants
Table of Contents
A. Turkey's Informal Sector And Microfinance
More than eight million women in Turkey work in the informal sector. They farm, knit clothing, weave rugs and cloth, spin silk, tend bees, perform a variety of domestic services, produce all manner of handicraft, and trade goods whenever possible. These women are the self-employed poor, living in villages, neighborhoods and settlements where incomes are below the national average and in many cases well below the minimum wage (about $140 per month). They often work alongside their spouses while supervising the necessities of the household. Swollen urban economies have no room for them; they are usually uneducated and often illiterate. Self-employment is their means of survival. While they may not have proficiency for formal sector jobs, these women do have skills developed over time, through tradition, and sometimes through training. These skills produce income for their families. But while these women are often major (in many cases the primary) income producers for their families, they lack financial support to increase the success of their activities. Moneylenders charge exorbitant interest rates and typically will not lend to women. Banks consider loans to this sector too costly, and without collateral, too risky.
The growth of the informal sector, which includes those operating on the edges of the economic mainstream, has stagnated. Around the world this sector comprises millions of the self-employed, usually very poor heads of households, often women, operating small scale activities to support themselves and their families. These microentrepreneurs, as they are often called, are repeatedly excluded from formal financial markets and subject to exorbitant rates of interest charged by moneylenders. Some 500 million households living in poverty could benefit from microfinancial services -- meaning small loans to support business activities and a safe place to hold savings. Current microfinance efforts are collectively reaching only 2 - 5% of households worldwide, leaving some 495 million households without services.
The microenterprise sector in Turkey takes into account men and women working in full and part time self-employed activities. In addition to informal sector activities, about 3.6 million small business, many employing just one person, are registered with the Ministry of Finance, TESK (Turkish Federation of Tradesmen and Craftsmen) or both. The feasibility study focused on services to unregistered businesses.
Statistics on the size of the informal sector in Turkey vary. The sources footnoted estimates that 41% of the employed population in Turkey is engaged in informal sector, or about 8.4 million people. Another (the 1990 census) estimates that the self-employed in Turkey is about 5.1 million.1 As under-reporting is common in taking count of the informal sector, it is feasible to consider the first source to be more accurate.
Between 1920 and 1983, state-led economic development programmes characterized by state-owned enterprises, interest rate ceilings and subsidies determined Turkey's business environment. Since 1983, massive changes have taken place to promote a market economy: privatization, deregulation, and more liberal trade policies to name a few changes. However, recent indications show that a residual attitude toward subsidy still prevails in this sector.
Trends in women employment have also changed. Waves of agricultural workers and small farmers have migrated to cities during the past forty years as farming has become increasingly mechanized. As the Turkish economy became increasingly unable to offer urban employment in regular salaried jobs, especially to those who lacked needed skills, women began to turn to microenterprise as a possible means to earn a living. The majority of these women have found their place in the urban informal economy. 2 This same source goes on to say that three factors contribute to the growing involvement in the urban informal sector:
- A slowdown of
the economy makes it necessary for women to help their families through
participation in the informal sector.
- Women, especially
migrants from rural areas, lack the education and skills to find employment
in the formal sector.
- Traditional social responsibilities for housework and child care restrict women's ability to engage in formal sector activities. Religious factors play a role as well.
A number of issues face women employed in the informal sector which to greater or lesser degrees constrain the growth of their economic activities. These issues include:
- Lack of financial
services: Financial services in the form of loans for female entrepreneurs
are scarce.
- Registration:
Businesses
of any kind are required to register with both the Ministry of Finance
and TESK. Registration requires a fee, is a cumbersome process and
often results in high taxes to the individuals registering. For this
reason, many microentrepreneurs avoid registering at all costs.
- Taxes: Taxes can be quite high for the poor operating a small business. TESK estimates indicate that registration prompted entrepreneurs to pay business taxes of a minimum of $400 per year.
In this particular context, microfinance is defined as financial services targeting participants in the informal sector or those operating very small enterprises, particularly poor women. Services include loans for business purposes.
Stakeholders'opinions about demand for microfinance vary widely, with some financial institutions considering the demand for small loans to be limited, while others await the opportunity to explore potential markets for microfinance in Turkey. Most indicative of demand is field research performed by the feasibility team during the preparatory stages of Microfinance Turkey, which substantial demand for uses of $80 to $100 loans as well as $160-$200 loans. (Return to top.)
Supply of microfinance in Turkey is scarce. Research shows that no NGOs or other organizations issued credit directly, though some did finance assets for income generating activities. Credit to small enterprises, mostly in the formal sector, is supplied by Halk Bank (the state-owned Peoples Bank) and to a lesser degree by Ziraat Bank (the state-owned Agricultural Bank). Vakiflar Bank is also reported to provide credit to women microentrepreneurs.
- Moneylenders.
An exact figure on informal moneylending is not available. The feasibility
team confirmed moneylending as a prevalent source of funds, particularly
in villages visited in the GAP region. Tax rates varied greatly according
to the particular context.
- Halk Bank. Halk
Bank loans have reached approximately 7.5% of the 5 million entrepreneurs
in Turkey. Most of these loans are well-above the micro-level of Microfinance;
an average size loan is over $1,000. Statistics on women recipients
were not readily available.
- Ziraat Bank.
Ziraat Bank offers agricultural loans at interest rates between 40
to 50% (highly subsidized if inflation is taken into account) to small
and medium farmers. Admittedly, very few loans went to tiny village
farms, although there is officially no minimun loan size.
- Vakif Bank. This bank has issued 32 loans to women. The average balance is about $1,800. In 1993 Halk Bank launched a Housewives Credit Program. Credit was to be used for machinery in the textile and clothing sector. The bank was disappointed in the results claiming that of the nearly 3,000 applicants, only 900 were eligible for the loans. Funds were terminated in 1995.
C.
Microfinance And Macro Policy
The Turkish government through the State Planning Organization (SPO), an undersecretariat attached to the Prime Ministry, prepares and coordinates national development activities in a five year plan. Currently, the SPO is in progress with its 1996 - 2000 plan, its seventh such plan, comprising twenty major development programs. Microfinance is not specifically identified as part of this five year plan. However, SPO officials indicate that microfinance is a relevant component of two focus areas:
- population
stabilization. Industrial agricultural practices since the 1950s
have triggered massive urban to rural migration as rural workers search
for employment apart from agriculture. Cities have been unable to
meet demand for employment, especially from a relatively unskilled
rural labor force. Microfinance services may offer two areas of solution:
first, microentrepreneurs in rural areas could use loans to grow their
activities and become less inclined to move to cities in search of
work and second, these services could support some of the unemployed
who have recently migrated into cities.
- employment generation through small and medium scale enterprises. In an effort to expand employment opportunities, SPO is seeking to facilitate job creation through smaller initiatives.
Donor and government microfinance is not available in Turkey to the informal sector. Some 80% to 90% of all bank lending requires collateral. Also, banks lend only to registered businesses. The World Bank, European Union, and the state-owned banks such as Ziraat Bank and Halk Bank indicated possible support for this sector.
World Bank. The World Bank has recently commissioned a study 3 on current support to women-owned economic activities in Turkey, a comprehensive study which covers various aspects of such activities. Turkey could provide a sound framework for the implementation of microfinance activities supported by the World Bank, particularly after a few projects were underway and their performance could be measured.
The European Union. The European Union MEDA (Mediterranean Association) will be allocating $4 billion U.S. for the next five years. A segment of the funding will be directed to creating opportunities for women. MEDA covers twelve Mediterranean countries which are not members of the European Union, including Turkey. Some of these funds are specifically earmarked for Turkey; however, various factors have constrained their distribution.
Turkey's macrofinancial system comprises regulatory institutions, banks, non-bank institutions and capital market institutions. Three state banks and two private banks control 56% of commercial banking assets. The Central Bank and the Treasury oversee Turkey's banking system. Banks must provide information on their loans to the Central Bank for risk evaluation and auditing. The Treasury determines the basic operating rules of the banking systems, authorizes bank formation and regulates the closing of existing banks. There appears to be no policy specifically regulating loans to microenterprises. Banks have refrained from microlending because of associated costs and lack of profitability. Other factors relating to the institutional framework for microfinance include:
- Frameworks
to support microfinance initiatives.
Key to the success of microfinance organizations is the presence of
a competent apex organization. KOSGEB (Small and Medium Enterprise
Organisation), an agency under the Ministry of Trade and Industry,
provides advisory and technical support to small and medium-sized
enterprises all over the country. Established in 1990, KOSGEB promotes
small and medium businesses through some 35 centers throughout Turkey.
The organisation has an extensive and influential network of professional
relationships, and counts with experienced and highly qualified management
as well as strong local networks.
- Although KOSGEB
has not focused on microenterprise (especially in the informal sector)
in the past, the organisation is now redirecting its effort to play
a major role in coordinating country-wide microfinance activities.
- Frameworks to
encourage private intermediaries. No regulations prohibit banks from
lending to NGOs for microlending purposes. For instance, the Development
Foundation of Turkey has already established strong relationships
with both Ziraat Bank and Halk Bank. NGOs and other grassroots initiatives
may lend to small enterprise without negative implications.
- Interest rates. Turkey currently has no interest rate ceilings or usury laws to constrain the financial self-sufficiency of microenterprise projects. However, while currently no interest ceilings apply in Turkey, the Treasury has the right to set limits.
D.
Microfinance In Turkey: Special Considerations
Target Regions. Areas that are well suited to microenterprise lending are a cluster of urban sites in Western Turkey and a cluster of sites in Southeastern Turkey. Each site cluster can be easily managed and assisted by minimal staff at the apex level.
- Urban Sites in
Central Anatolia. Major Turkish cities of Central Anatolia, such as
Ankara, are edged with economic activity kept dynamic largely through
the efforts of the informal sector. Densely populated settlements
fringing these cities could put to good use microfinancial services.
Handicraft production, small trading, and textile production are rife
and in need of small amounts of capital to promote their growth.
- Urban and/or Rural Sites in the GAP Region (Southeastern Turkey). Established in 1989, the Southeastern Anatolia Project (the GAP) works from within the State Planning Organization in Ankara with an additional office in the GAP region. The GAP region, consisting of nine provinces and about 10% of Turkey's population, includes watersheds of the Euphrates and Tigris rivers and the upper Mesopotamian plains. The GAP suffers from serious development problems in comparison to the rest of Turkey as well as from massive rural to urban migration. Programs may specifically target the provinces of Urfa, Diyarbakir, Mardin and Adiyaman, all contiguous and within driving distance of one another.
GAP Administration's headquarters are based in Ankara however they have a regional Administration established in Urfa. They have a very simple organizational structure, a chairman two assistant chairmen and 150 staff. 100 of the staff members are located in Ankara and the rest are in the Urfa region. Although GAP initially managed only the irrigation and energy projects, the administration also involved in socio-economic development projects in recent years. Starting from 1995 the GAP Administration established ÇATOMs (Multi-purpose Social Centers) to train basically women in the area. These programs are run by Social Projects division of GAP Administration and they were also very cooperative and helpful while the mission was in the region. In Mardin they established 5 Centers reaching 1000 women. In Urfa they recently started (November 1996) two centers one in Yakubiye, (outskirts of Urfa) and the other in Sağlık (a village 50 km. south of Urfa). They are reaching a total of 250 women in the Urfa region. The main activities of the Centers are basic training such as sewing and knitting. However, they also train women on home economics, childcare and birth control issues.
Microfinance programs in Turkey will focus on both rural and urban microentrepreneurs, particularly low income women. In Central Anatolia, projects will attract a variety of tradespeople, makers of handicrafts, service Southeastern Turkey profiles a likely range of client attributes.
Organizations targeted as having capacity to run microfinance programs:
- Development
Foundation of Turkey (TKV) (GAP Region). TKV is a highly respected
indigenous NGO founded in 1969 to promote agricultural development
in lesser developed areas. TKV has launched a variety of agricultural
projects from honey production to silk weaving. TKV has also developed
strategies to strengthen leadership roles of women in their communities.
While past activities have had a rural focus, TKV is now bringing
its development activities to urban areas. TKV would like to start
at least one microfinance project. TKV Diyarbakir counts with the
respect from the communities in which they worked, and strong government
and banking relationships.
- General Directorate
of Women's Affairs. The Prime Ministry's Office (Central Anatolia).
Established in 1990, this institution aims to improve the educational
level of Turkish women and increase their employment in productive
sectors. A direct service currently provided is the 3B program which
has a data base of 1,000 craftswomen. Currently, the organization
provides tradefair space for several hundred of these women in Kizilay.
The organization believes microfinance is not only suitable for its
current roster of women but for many women working in nearby gececondus
(poor settlements) as well. The organization has many contacts with
local NGOs and is interested in an Ankara Microfinance project.
- Job and Employee
Placement Organization (Corum, Central Anatolia). With a staff
of sixteen this center trained some 200 people in 1996.
- Halk Bank
(either Central Anatolia or GAP Region). A state-owned bank, Halk
Bank issues consumer and business credit through over a thousand branches
across Turkey. Halk Bank indicated an interest in having one its bank
branches launch a microfinance project.
- Ziraat Bank
(GAP Region). Ziraat Bank (Agricultural Bank) operates 1,250 branches
throughout Turkey of which seventy two are in the GAP region. The
bank expressed an interest in launching a microfinance project through
one of its credit cooperatives in the GAP, believing microfinance
to be an excellent way to extend services to a new market. of Senior
management showed both enthusiasm and belief in microfinance, as well
as good understanding of women's issues.
- Sosyal Dayanisma Ve Yardimlasma Vakfi (Social Solidarity and Support Foundation), Sanliurfa (GAP Region). Established in 1985, this NGO or 'Vakif' focuses on charity for the very poor, registering about 20,000 families for its services. More recently, the organization has started employment training in the city of Urfa. Concentrating on 15 of the poorest urban districts, the Vakif is opening training centers in district and plans to train 1,000 young women by the end of 1997. The feasibility team visited the centers and believed they were excellent sites for community outreach activities and would suit microfinance purposes well. The Governor of the Province of Urfa is the Board Chairman of a local NGO.
The SSSF manages extra-budget funds distributed for income generating activities. The Foundations establish carpet-weaving workshops in cooperation with private companies. The foundation in Urfa is Headed by the governor. The members are the Mayor, Chief of Police, Director of Finance, Director of National Education, Director of Health, Director of Religious Affairs (Müftü), Director of Social Services, and three elected members. The Foundation has 18 staff in the office and 30 trainers in the education centers. The Foundation keeps a computer record of the poor in the province and currently they registered 20000 people in Urfa. The foundation tries to support the to poor in by either in kind such as clothing, food, medicine, and in cash such as scholarships to poor students. Recently the Foundation organized a carpet weaving education program in Urfa and they are planning to train 1000 women in 1997. They plan to extend the capacities of the center and expect to reach 2000 women in 1998, 3000 in 1999 and 4000 by the year 2000.
Other interested parties include the Governor of Adiyaman, who is also interested in microfinance as part of a similar Vakif in his province. The GAP Administration in Ankara indicated interest in operating a microfinance site in the province of Mardin, also in the GAP region.
Potential Problems and Risks:
An ethos of subsidy. Both government institutions and NGOs have used subsidies as a tool to stimulate economic growth. State-owned banks offer interest rates well below inflation to encourage borrowing and business growth. Interest subsidies are well-known even in remote areas, therefore 'spoiling the market' even for segments who might never qualify for subsidized loans. NGOs have also practiced subsidizing development activities which could create client expectations that microfinance should be also subsidized.
Dependency on a limited industries. In the GAP region, both NGOs and government seemed to concentrate development efforts on a few industries such as rug and carpet weaving, beekeeping, silk production and specific kinds of farming. Lack of diversity could make the economy seriously vulnerable, thus jeopardizing microfinance programs.
Regional migration and strife. Migration within the GAP region and the constant threat of social strife could also affect the success of microfinance programs. (Return to top.)
E.
Capacity And Commitment Of Government Institutions
KOSGEB provides technical, managerial and marketing assistance to small and medium enterprises in Turkey through a well established network of 35 field offices.
KOSGEB's main field of expertise lays in technical and managerial assistance to SMIs, with the aim of upgrading their competiteveness through well established centres.
KOSGEB provides a wide range of services, such as consultancy and quality improvement, technology development and market research, in addition to common facility workshops, training centres, info-centres and investment consultancy centres. The consultancy services provided through KOSGEB include production methods, product development, productivity, quality insurance systems, cost accounting, job analyses and feasibility studies. KOSGEB has experience with technical cooperation in the provision of consultancy services, employing experts from other national and international institutions whenever needed.
KOSGEB is one of the most dynamic and solid institutions in the country promoting development of manufacturing industry as well as employment generation.
Widespread subsidy. Turkey's history of state-controlled banks combined with the government's strong central planning initiatives, has offered massive subsidy in the form of low interest loans or even suspension of loan payments as a way to fuel economic growth. These initiatives take the form of subsidized agricultural loans - loans are available at 40-50% interest, about half of annual inflation rate - and other small business loans, also subsidized. The presence of subsidy is widely known.
There are conflicting reports about the future of these subsidies. But, in fact, loans at such low interest rates are not accessible to the poor. These loans require collateral and often knowing the right people. Nevertheless, the availability of subsidized loans the poor may be irrelevant.
Hyperinflation. Hyperinflation is in fact an attendant risk to low interest loans. Inflation in Turkey hovers at about 80% per year. Inflation compounds the problem of subsidy in this way: banks and NGOs, shy to charge the poor market interest rates, are doubly concerned when adding high inflation to the mix.
Absence of microfinance activities. Turkey has virtually no NGOs, financial institutions or government agencies practicing microfinance. This situation presents the following risks:
- Some skeptics
believe that microfinance will work in every corner of the world except
Turkey. Turkey, it seems to them, has a unique economy, culture and
sociology that is possibly hostile to microfinance. While these skeptics
might be convinced otherwise, enough of them may influence recipient
organizations to take a more tempered view of microfinance programs
i.e. start slow, subsidize interest, give higher loans.
- A second risk in this category is that Turkey offers no current model from which to train new organizations. This problem might also slow the ramp-up of Microfinance.
Mitigating Factors. The above is based on the perceptions confronting a region new to microfinance. The reality is that a few successes always transform the minds of skeptics. The feasibility study revealed no major risks in the way of "lack of an enabling environment" or lack of competent NGOs enthusiastic and willing to build self-sufficient Microfinances. (Return to top.)
Footnotes
1 Both sources are cited in Supporting Women Owned Businesses in Turkey, December 1996, an comprehensive summary of microenterprise activities published by the Directorate General on the Status and Problems of Women and produced by DAI (Washington, D.C.) and the Strategic Research Foundation (Ankara). (Return)
2 Ibid, pages 5 and 6. (Return)
3 Supporting Women-Owned Business in Turkey funded by Japanese donors, overseen by the Directorate General on the Status and Problems of Women, and understaken by DAI in Washington and Strategic Research Foundation in Ankara (Return)
