Micro-Finance in Lebanon Al Majmoua

1. Micro-Finance in Lebanon Al Majmoua Reda Mamari Joey Ghaleb

2. Micro-Finance in Lebanon • What is micro-finance • Offering sustainable financial services to micro-entrepreneurs • What is a micro-entrepreneur • Owner-operator of a business that typically employs between zero and five employees

3. Micro finance in Lebanon • Al Majmoua estimates that there are over 400,000 individuals involved in small and micro enterprises in Lebanon • Suppliers of financial services are: • Commercial Banks • Non Governmental Organizations • Money Lenders • Wholesalers

4. Banks in Lebanon • Banks in Lebanon • Lebanon boasts 69 banks with a total of 773 branches. Top 5 banks captured in 1999 around 42% of total credits. • Banks tend to equate consumer lending with micro-finance. • Credit market favors major borrowers, less 1% of borrowers capturing about 50% of credit funds. • Biased distribution of credits according to the borrower’s geographic location (Beirut and urban areas) and relevant economic activity (e.g., services). • Recently a growth in consumer lending (Sep. 2000, 48% of beneficiaries received loans of less than LL25mn, capturing less than 2.5% of total loans in volume)

5. Micro Finance in Lebanon; NGOs Non Governmental Organizations • Network of 22 Lebanese NGOs involved in micro finance • Targeting mostly rural areas • Target groups: Men and women entrepreneurs, displaced, farmers, • 59.7% of active clients was dominated by top three providers

6. Legal Framework of Micro Finance For NGOs: • NGOs abide by legal provisions and restrictions applied to charities • Micro lending is not explicitly regulated by any legal text of authority. • NGOs have limited access to funds and Lebanese charities are not allowed to take deposits. • Their legal structure makes it difficult to access funds from the financial sector in the form of loans. Consequently NGOs: * highly depend on donor funds(no stability in access to credit) * Face a greater financial risk in case of default with the lack of regulation; thus growth potential is limited.

7. Al Majmoua’s Vision • A more open and equitable financial system must be developed that will promote the long term development of the country. This system must be based on transparent and equitable processes, on the respect of individuals for their ideas, their work, their desire to produce and their honesty and not for their assets, their contacts or their lineage. • This is not just about products and services. It is about customer understanding and empathy. It is about ensuring that individuals feel ownership of the financial system that serves them. • Only this will create the necessary system for people to feel secure and respected, thus improving their capacity to plan and produce. • In effect we want to create a country were there are equal financial opportunities for all. • A new breed of financial institutions that inspires people to be productive, invest and prosper economically.

8. Al Majmoua’s Mission What We Are: • A point of reference to clients for financial services • An institution that is principally dedicated to the provision of diverse financial services and advices • National in scope and non-discriminatory (in terms of geography, religion, revenue and gender). We will operate on Lebanese territory; serving all clientele residing and working in Lebanon • Strategy and operations driven by clients' needs and by the quest for service excellence What We Will Do: • Maximize profitability with the view of offering efficient and diverse financial services that are affordable and client valued For Whom Will We Do This: • Productive individual who has financial needs, with a focus on owners of small businesses (1-5 employees) Why We Will Do It: • Al Majmoua is built on the belief that offering sustainable financial services in an equitable manner is a social good. • Creating a financial intermediary that will serve this clientele will create social change and increase welfare • Al Majmoua believes that micro-entrepreneurs in Lebanon are the group that is the most excluded from the financial sector and they represent an important social and economic sector for the development of the country.

9. Operating Principles • Client satisfaction • We sell a service and our focus must always remain on client satisfaction and service quality • Focus on client needs • Products must be delivered in a prompt and efficient manner. They must be designed with a clear focus on client needs • Synergy • Synergy must be created between the institution and the client. Staff must empathize with clients. Clients must understand, and believe in, the rules and methods of the organization • Competitive price • Services must be offered at a competitive price, that allows clients to get value for money and the institution to ensure its independent long-term financial viability

10. Core Values • Commitment: • Creating national, sustainable micro-finance organizations is hard work. Having committed and passionate staff who believe in the institution’s Mission and Vision, and who are willing to go beyond the call of duty is imperative for success. Moreover, clients’ commitment to the institution’s rule and regulations must always remain a nonnegotiable condition for borrowing • Inclusiveness • Inclusiveness shows the non-biased, apolitical and non-discriminatory aspect of Al Majmoua. We welcome all micro entrepreneurs legally living and working on Lebanese territory regardless of their nationalities, sects or religions. • Responsiveness • Responsiveness is key to the success of operations. Micro-finance institutions must remain aware of their environment at every level of operations and must be responsive to events in order to maximize client satisfaction, preempt external shocks, and make timely use of opportunities • Transparency • Transparency is the basis of all successful micro-finance organization. If financial services are to be democratized, policies and procedures as well as decisions and accounts must be of the utmost transparency in order to build trust between the institution, its clients, financiers and the the general community

12. Al Majmoua Products

13. Key Figures (dec. 2001)

15. Individual Loans Distribution by Business

16. Loans Disbursed

17. Loans Outstanding USD

18. Al Majmoua Clients in Lebanon

19. Projected Growth of Al Majmoua

20. Lebanese Government Policy • Laissez-Faire (no laws, no clear role) • Two key (recent) initiatives • Kafalt • Social Fund (work in progress)

21. Kafalat- a Lebanese Govt. Initiative • In 1999, the government established a joint stock company, Kafalat, with objective of guarantying up to 75% of the loan value with a ceiling of LL 300mm credit risk of bank loans granted to SMEs • Lending is undertaken trough commercial banks • Client must be operating in the specified sectors of agriculture, industry, handicraft, tourism and new technologies. • Eligible SMEs benefit from an interest rate subsidy, paying 7% per year (LL). • Loans >$5,000, < $200,000 (< than 3 years). • Kafalat does not address the structural problems of banks and their policy-makers (… no new clients, same old clients but with subsidized rates) • … and staff of Lebanese banks do not “understand” micro-enterprises

22. Role of Government • The Government should not: • Get involved in direct or indirect lending(unless warranted by exceptional circumstances) • Interfere with market conditions (distorting markets) • The Government should: • Promote Information sharing • Promotion of “best practices” • Develop Appropriate legal environment • Appropriate and enforceable credit laws • Appropriate institutional regulation

23. Govt. Should promote information sharing • Development of an adequate “Central des Risques” to allow for the sharing of information on “delinquent” clients between various organizations • Provide basic statistics on micro enterprises in Lebanon, such as number, location, typical profile etc. • Provide operational tools such as basic maps

24. Govt. should always promote “best practices” • The success of micro-finance across the globe has helped establish “best practices”. • No subsidies (interest rates) • Policies that encourage small loans with short maturities • Delivery of services in a market-oriented manner • The grounding of actions in a well articulated long-term plan. • Promotion of partnerships between donors and the private sector

25. Develop appropriate legal environment • Appropriate and enforceable credit laws • Appropriate laws that will facilitate collection and increase accountability of client. Must allow for cost effective enforcement through the courts and on the ground • Appropriate institutional regulation • Government must operate within the “institutional development” matrix …assist providers to move along the development continuum

26. Institutional development matrix Type of micro finance institution : نوع المؤسسات المالية الصغيرة -------------------------------------------------------- -------------------- NGO منظمات غيرحكومية Finance corp. مؤسسات مالية Bank مصرف Sources of funds: موارد الأعمال -------------------------------------------------------- -------------------- Donors الواهبين Loans from inst. قروض من مؤسسات Savers مدخرين Stages of institutional development : مراحل التطور المؤسساتي -------------------------------------------------------- -------------------- Low منخفض Medium وسط High مرتفع Regulation continuum :الخط التنظيمي -------------------------------------------------------- -------------------- Low منخفض Medium وسط High مرتفع