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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 3 / May - June 2004 |
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News | Building a National Strategy for Microfinance in Egypt
On 23 February, 2004, UNDP Cairo and the Egyptian Banking Institute of the Central Bank of Egypt entered into a partnership with UNCDF, KfW (the German development agency) and USAID to provide financial services to more poor and low-income people. The project, Building a National Strategy for Microfinance in Egypt, aims to marshal current government efforts for a more coordinated dialogue among stakeholders toward the development of a mature microfinance industry. This intention is founded on the belief that permanent access to financial services for poor and low-income households will be ensured only through the development and gradual integration of the microfinance sector into the formal financial sector. By focusing efforts on developing a national strategy for the development of the industry as a whole, the project intends to define a framework for increasing the efficiency and effectiveness of concerted governmental, non-governmental and donor actions in microfinance. Egypt is currently classified as a “lower-middle-income economy” with a Gross National Income (GNI) per capita of $1470. In 2002, 19% of the female labor force was unemployed though the total unemployment as a percent of the total workforce was less than half that number. The Middle East region as a whole has the highest female unemployment rates in the world. Egypt has been the leader for microfinance in the Arab States since the launch of its first model good practice programmes in the early nineties providing more microfinance services than any other country in the region. But the industry as a whole remains relatively underdeveloped with the huge potential demand for microfinance largely unmet. Rough estimates show that the industry could potentially have between two and three million clients while only an estimated 220,000 currently have access to financial services. To date, donors and the Egyptian government have financed the bulk of support to the industry through direct institutional investments with little attention devoted to the sector as a whole. Thus, this project arose from the recognized need for a more coordinated approach to the development of the microfinance sector, in order to better meet national priorities of job creation and capacity development which are particularly important with a ballooning young population in a country where about 23% live below the poverty line. The approach is based on a common commitment to the eventual integration of microfinance into the formal financial sector as a necessary precondition for sustainable access to institutional financial services for poor and low-income people. The project will promote the development and deepening of the financial sector through the establishment of a more enabling policy and regulatory environment for microfinance and its supportive financial infrastructure. This will be accomplished through the formation of a shared vision for the promotion of a self-sustaining commercial microfinance sector. To support this vision, a national strategy will be shaped to determine the necessary policy reforms, legal and regulatory changes, and the development of the critical financial infrastructure. The resulting action plan will provide clarity and guide priority activities for the government of Egypt. In order to both bridge the outreach gap and ensure sustained access to financing, the project aims to support the gradual integration of the microfinance industry into the formal financial sector thereby offering microenterprises a diversified range of financial services. The commercial sustainability of a mature microfinance industry is necessary to free service providers from their current dependence on donor funding and provide donors with a more defined role that includes an exit strategy. According to Antonio Vigilante, the UNDP Resident Representative in Egypt, “Worldwide microfinance is being used as an instrument to help the poor create secure incomes, and in Egypt we have success stories where microfinance has helped change the lives of the poor. But these efforts need to be scaled up, which involves creating a common vision of a commercial microfinance sector and removing the impediments which at the moment allows about 5% of the demand for microcredit to be met”. The Government of Egypt
has put a high priority on the promotion of the microfinance sector as an integral
component of its strategy for social and economic development in the country.
Policy papers have been commissioned, potential laws have been drafted and various
government agencies are committed to fostering an enabling environment for the
creation and growth of small and micro enterprises.
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