UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 14 / July 2005

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1. You helped start the first microfinance programme in Jordan, Microfund for Women (MFW), in 1994. Can you describe what this experience was like? How has the financial and legal landscape changed since then?

   The program went through a number of legal phases. It started in 1994 as a pilot initiative launched by an international NGO, Save the Children, in order to test the feasibility of introducing the Group Guaranteed Lending Methodology in Jordan. It was the first microfinance program in Jordan which followed best practices. It was a replica of the Grameen Model, but had to be modified over time to fit the economic, social and cultural environment. Later, in 1996, the program was spun off into a local NGO registered under the Ministry of Social Development. Then in 1999, the program was transferred to the newly-established Jordanian not-for-profit limited liability company, Microfund for Women, which was registered under the Ministry of Industry and Trade. Even to this date, there still remains no legal framework specifically for microfinance in Jordan. Up until 1998, Microfund for Women was the only player in the microfinance market in Jordan. Now, there are three other competitive microfinance institutions (MFIs) in the country following best practices in offering micro and small credit to entrepreneurs, and operating on a commercialized basis. There are also a number of NGOs and governmental bodies offering credit, but their programs are subsidized or lean more towards development than sustainability.

2. Why does MFW target women?

   Women make up an integral part of the family, community and country's socio-economic environment. It has been demonstrated that women's credit programs help improve their financial management, and increase their participation in the family's and the community's development. Thus, country-specific issues such as poverty alleviation and battling unemployment may be addressed. Microfund is a financial institution with a social mission dedicated to enhancing the productive capacity of women entrepreneurs with income-generating projects or established businesses. Though women who come from economically challenged backgrounds may lack access to formal lending institutions, they have proved to be credit worthy and tend to run economically viable activities. So, Microfund saw the opportunity to step in to bridge this gap in access to working capital by offering appropriate and speedy lending facilities to female entrepreneurs.

3. In 2004, MFW started providing loans to men. Did you have to make any adjustments to your products and services to meet the needs of this new client base?

   During the final quarter of 2002, Microfund developed its Individual Lending Product and started introducing it to women with established enterprises. It also became evident that there were a number of family businesses partly run by women. However, due to legal issues (e.g., the business registration being in the man's name), and due to arising demand, Microfund decided to expand its target segment to include men. However, strategically, the primary focus will continue to be women.

4. In MFW's annual report from 2004, you said that MFW planned to invest in developing and diversifying its products and delivery mechanisms, as well as extending services to a broader base of clients. What are the new products MFW is introducing? Are they successful thus far?

   The new products referred to in the 2004 Annual Report are still under consideration and/or development, but they include an Education Loan product, a Leasing product and a Microinsurance product.

5. Jordan is developing a strategy to develop the microfinance sector. What are the key components? What are the challenges? If you were writing this strategy, what elements would you include?

   The Jordan National Strategy for the Microfinance was developed recently by the Ministry of Planning and International Cooperation and CGAP. The strategy will be based on the following principles:

   • The development of a microfinance sector as an integral part of the financial services industry. The goal of the sector will be to deepen and broaden the outreach and delivery of a wide range of financial products to all economically active segments of society.
   • The role of the government is to establish a supportive financial, legal and regulatory environment that fosters the development of the microfinance sector. This will help integrate microfinance into the formal financial sector, ensure a level playing field for all participants, encourage transparency, and promote financially viable microfinance institutions.
   • The Government will withdraw from lending directly to the small and microfinance sector of the economy. The Government's role is to establish financial policies that encourage the private sector (diverse institutions such as NGOs, NBFIs, Commercial Banks, etc) to develop sustainable microfinance products that meet the demands of the majority of the micro and small business sectors of the economy.

   It is a good strategy, however, the mechanism which includes the action plan of whom and how to implement this strategy is not clear.

6. A credit bureau law was passed in Jordan in 2003. What was the law, and has it changed doing business in microfinance? If so, why?

   Unfortunately, this law is not yet active. It seems there are some political issues and challenges behind it. This bureau is needed in Jordan, not only for microfinance, but also for other businesses and sectors.

7. Islamic banking law prohibits riba, a term that encompasses usury and interest. Do you think this law inhibits the growth of microfinance in MENA?

   Islamic Lending methodology is not widely adopted or applied in microfinance across the region. However, there are some programs, mainly in Yemen, and Syria, that offer "Islamic" products. The most widely known Islamic approach used is called "Murabaha". The issue with this concept is that it is highly costly in terms of delivery and time. Additionally, it is obvious that many MFIs do not use the terminology "interest", but rather refer to it as "Administrative Fees", especially since all of the MFIs in the region are either NGOs or not-for-profit institutions.

8. What role can microfinance play in job creation in the Middle East and North Africa (MENA)? With an unemployment rate of 13.4% in Jordan, and 15% across the region, what action do you feel is necessary to deal with this problem?

   Unfortunately, no impact studies have been done to demonstrate the actual impact microfinance has had on reducing unemployment rates. However, microfinance targets the poor and marginalized segments of the community, most of whom run home-based income-generating types of economic activities. These segments generally tend to "employ" family member to help run their projects.

9. What is your vision for the future of the financial sector in MENA?

   There is a significant increase in the number of MFIs in the region as well as the number of beneficiaries; it was estimated that MFIs are serving around 700,000 clients in 2003 with more than US$240 million in portfolio, however, this is quite small number compared with the potential market in the region. I can say that the main challenges facing the industry in the coming years are mainly in the ability of these MFIs to move a way from depending on donors and serving more clients through introducing or considering product diversification - as most of these MFIs providing just microcredit and not yet fundamentally offering microfinance products - also in transformation and eventual integration of the sector in the formal financial system.

10. You recently left MFW to become the General Manager of the new National Bank for Financing Microprojects, sponsored by King Abdullah II and AGFUND. What is the goal of this initiative? What challenges do you foresee?

    The main goal of the bank will be introducing microfinancing to those who can't access formal financial institutions in both urban and rural areas as a tool to alleviate poverty. Although there are other MFIs in the market, the main challenges will be in reaching more clients especially at the rural areas and introducing different products that can meet clients needs. We believe at the Bank that increasing competition is healthy and benefits not only clients but also MFIs and the industry itself. Microfinance is very promising in Jordan, and is getting much support from HM the Queen as well as the government.