This is a thought piece on a potential Arab microfinance development initiative which would cost effectively reach over a million people per year for $1.3 million annually.

1. Developing Microfinance
Institutions in the Arab World
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Social Sector How to affect the lives of 1.6 million people with only $6 million
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2. Microfinance has gained acceptance worldwide as a tool for alleviating poverty and
spurring entrepreneurship; A few Arab institutions have emerged, though Mohammed
Yunus called on Dubai in a Nov. 2007 conference to fill current leadership vacuum …
Yunus Issues Dubai a Call to Action
Late 2002
1990s 2005
Grameen Bank
Microfinance Network of Arab
Countries, membership- UN declares the November ‘07
model finds driven regional network “international year of Mohammed Yunus urges Dubai to adopt
acceptance in of Microfinance Institutions microfinance“ reminding
micro-credit concept, offering to set up
South Asia By 2007, 53 Members in 11 people that millions benefit
system at Leaders in Dubai event
Countries from microfinance
activities
1990 2000 2001 2002 2003 2004 2005 2006 2007
2003 2006
Peer to peer social lending
World Bank estimates 1.2 billion
marketplaces emerge as alternative to
people subsist on less than
banks
US$1 a day, 850 million in rural
areas
2000 Oct/Nov 2006
Grameen Bank receives Nobel
New microfinance paradigm - developing full-service
Peace Prize, highlighting that peace
+ for-profit banks. Offer savings, insurance, remittance
is inextricably linked to poverty.
Other services, and personal and business loans, to help
Bank’s model achieves worldwide
clients grow assets while increasing incomes
Services recognition
June 2007
Formation of Grameen-Jameel Pan-Arab
Microfinance Limited, a joint venture that will focus
on alleviating poverty in the Arab World through
microfinance
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3. In the Arab world, microfinance providers are typically small, local organizations;
increasingly intl. organizations and a handful of larger regional MFIs are offering an array
of financial services to low income clients and SMEs in the region
Microfinance business models
Traditional microfinance model New microfinance model
Comparison Factor
(Local impact, poverty approach) (scale ops, institution building approach)
Low-income households, individuals,
Target Market Microenterprises
entrepreneurs
Working capital loans and other business Full financial services (savings, remittances,
Core Product
credit insurance, education etc.)
Local branches, often in villages and rural Retail outlets, peer-to-peer websites, payment
Delivery Channel
locales systems via ATMs, POS, cards, mobile phones
Promoters such as Microfinance
Client Relationship Mgmt. Loan officer
Institutions/websites
Organizational Structure Decentralized Centralized
Credit Underwriting Integrated, personalized services Specialized, increased automation
Return on Equity (Benchmarks:
13% - Potential to increase with technical Large scale – 11%, medium scale - 5%
UAE Banks 17%, Citigroup 15%,
assistance Potential to increase with technical assistance
HSBC 10%)
Group lending, situational, zero tolerance for
Risk Management Statistical models, risk based pricing
delinquency
International organizations, more sophisticated
Key Players Small, local organizations.
local organizations
Service sophistication is increasing as MFIs have begun to move “up-market,” serving higher-income
clientele and making operations more profitable and attractive to commercial investors
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4. Despite the presence of 75+ MFIs servicing 1.3 million borrowers, there are many
needs to be filled to expand impact and facilitate capital market access
Regional economic variation requires support for smaller poverty reduction focused MFIs and
sustainable, larger institutions to expand microfinance to SMEs & low income clients
Unmet Demand
 MFIs serve only 15-20% of the estimated 8 million micro entrepreneurs with no access to financial services
 The majority of MFIs are in Egypt, Jordan, Lebanon, Morocco, Palestine, Tunisia, and Syria
Focus on Poverty Lending Not SMEs
 Except for Jordan and Palestine, where institutions also cater to small enterprises, loans across the region do not exceed
one fourth of local income; average loan per borrower is $248 in the Arab World
 Entrepreneurship and related job creation impacts require funding access and growth capital not being provided now
Commercial Lenders Not Interested …
 In developed world, SME funding typically provided by commercial sources rather than governments
 Commercial lenders cannot accommodate credit needs of SMEs and microenterprises due to less mature financial
markets;
 Only 20% of microfinance funds come from commercial lenders, versus 60% globally
 To scale up microfinance, increasing involvement of private sector investors is a key priority
… But Potential Unrealized Regional Market Opportunity
 Returns of well managed, sustainable MFIs can be higher than normal commercial banks
MFI Scale and Profitability = More Loans to More People
 Small/medium MFIs lack access to commercial finance
 Economies of scale could greatly expand the activities of Arab MFIs
 As institutions gain in scale, they invest more in productive assets and allocate more to lending
Source: Mix Benchmarking Arab Microfinance, Sanabel 2005 Regional MFI Survey, Deutsche
Bank Microfinance: An Emerging Investment Opportunity | 4

5. How a Microfinance Investment Vehicle facilitates leverage to reach 166,000 borrowers
Assumptions
• Loan $5 million ( $500,000 to each of 10 initial partner MFIs)
• Below market annual interest rate, approximately 1.5 to 2%
• 3 - 5 year term
• Local currency loan with a minimum leverage ratio of 2:1 but could be as high as 6:1
• Loans to micro-entrepreneurs have maturities of six months, doubling lending capacity and ensuring near 100%
repayment
1 Loan
Arab MFIs
Loan $20 M 4
$5 M at 2% APR in local
($20 M increase in
Microfinance currency Micro-
loanable funds
Development Fund entrepreneurs and
annually, reaching
($5 million) other borrowers
roughly 166,000 Repayment
Repayment
5 $5.31 M
borrowers) $44 M
(30% APR is MFI
industry avg.)
2 3 $5 M enables 2X leverage via commercial banks
MFIs leverage $5 M to
generating $20 M in loanable funds
access commercial funds
MFIs pay $5.9 M to commercial lenders
* EIBOR is 4.3% + 1-1.5% risk premium and 1% origination
Possible Technical Assistance Partners
• Grameen
• FINCA
• ACCION Possible Bank Partners (guarantees, lines of credit
• Oikocredit etc.)
• Incofin Arab financial • National Bank of Dubai
• Développement International Desjardins institutions • Mashreq Bank
• Deutsche Bank Start-up Fund • Emirates Bank International
• Microfinance Network of Arab Countries • Dubai Islamic Bank
• Dubai First (Dubai Holding consumer banking entity)
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6. • For Further Information About This Initiative ‫للمزيد من المعلومات عن هذه المبادرة‬ •
To get a copy of the full presentation or to ‫للحصول على العرض التقديمي الكامل لهذه المبادرة يرجى‬
discuss the findings, please contact Wes ‫االتصال بـ ويزلي شوالييه على العنوان‬
Schwalje wes.schwalje@tahseen.ae wes.schwalje@tahseen.ae
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‫وفي تحالفات مع شركة تحسين لالستشارات‬
We are interested in opportunities where our
technical skills and expertise can be used to ‫إننا مهتمون بالفرص التي يمكن من خاللها استخدام مهاراتنا‬
complement or diversify those of potential
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partners to pursue specific government funding ّ
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begin a discussion about entering into an alliance
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with Tahseen Consulting, please contact Walid ‫تحسين لالستشارات يرجى االتصال بوليد العرادي على العنوان‬
Aradi at walid.aradi@tahseen.ae walid.aradi@tahseen.ae
• For Members of the Press or Media ‫• بالنسبة للعاملين في الصحافة أو في وسائل اإلعالم‬
For media inquiries, please contact Wes Schwalje ّ
‫لالستفسارات المقدمة من قبل وسائل اإلعالم يرجى االتصال بـ‬
at wes.schwalje@tahseen.ae wes.schwalje@tahseen.ae ‫ويـزلي شـوالييه على العنوان‬