MICROFINANCE

581 Pages·2006·20.82 MB·English

Tempus-Meda Project
“Microfinance at the University”
MICROFINANCE:
TEXT and CASES

Edited by MARCO ELIA

MICROFINANCE: TEXT and CASES
MARCO ELIA

Basics on microfinance

Case studies from the Arab region

“Microfinance: Text and Cases” is the main outcome of the “Microfinance
at the University” project and the result of the joint efforts of the project
partners who wrote the different cases in close contact with MFIs, who
enriched the resulting project with their personal experiences and
perspectives. The main goal of the project is the introduction of
microfinance into universities and this text, by providing the basics and
illustrative cases from the region and references, aims to stimulate the
discussion on the subject at the university level and ultimately to further
develop microfinance in the Arab states.

This manual uses a practical approach to microfinance integrating theory
and case studies drawn from microfinance institutions (MFIs) in the Arab
countries. It is written for undergraduate and postgraduate curricula of
business schools and faculties of Economics and Social Sciences as well
as for microfinance practitioners around the world.

Part one is the theoretical component of this training support.
Session 1 and 2 are an introduction to the world of microfinance and to the
two approaches that still divide this industry: the institutionist and the
welfarist approach. Sessions 3 and 4 cover in detail the products offered
by microfinance institutions and the methodologies used to deliver them.
Sessions from 5 to 7 present the microcredit interest rates practices, arrears
and defaults and the financial analysis of MFIs through the calculation of
the ad hoc indicators of operational and financial self sufficiency. The last
session is dedicated to the guidelines to write a microfinance case study.

The second part is a collection of 21 case studies of MFIs from seven Arab
countries. The cases cover a wide variety of types of institutions and
approaches to microfinance, from state-owned microfinance institutions
to NGOs and commercial banks. Each case focuses on different aspects
and reflects a different strategy of approaching microcredit and
microfinance: specific topics, such as Islamic microfinance and women’s
empowerment through microcredit, are also covered.

MICROFINANCE: TEXT AND CASES
Marco Elia [edited by]

2006

SAA, School of Management – University of Turin
Via Ventimiglia 115
10126 Turin
Italy
www.saa.unito.it

Printed in Turin, Italy

Front cover photograph by Alberto Garbero

Finance - Financial institutions
Microfinance - Arab countries

DDC 22. 332.09174927

JEL classification: A20 - G20 - O16 - O53

Contents

Acknowledgments
ix

Preface
xi

Background: the “Microfinance at the University” project
xi

The manual development process
xiii

How to use the manual
xiii

PART I: Text

MARCO ELIA

Session 1 What is microfinance?
5

1.1 Microcredit
5

1.2 Microcredit and microfinance
6

1.3 Who are the clients of microfinance
9

1.4 Microfinance and moneylenders
10

1.5 Financial sustainability
10

1.6 Future perspectives
12

References
13

Session 1 related websites
13

Session 2 Microfinance practices : the institutionist and welfarist approach
15

2.1 The institutionists
15

2.2 The welfarists
17

2.3 Key principles of microfinance
18

2.4 Final remarks
22

References
23

Session 2 related websites
23

Session 3 Methodologies
25

3.1 Individual lending
25

3.1.1 Bank Rakyat Indonesia: a successful application of
individual lending in microfinance
26

3.2 Group lending
27

3.2.1 The Grameen model: the breakthrough in group lending
28

3.3 Lending methodologies in the Arab region
28

3.4 Conclusion
29

Classroom discussion: The Agency for Combating Unemployment
(ACU) case
30

References
32

Session 3 related websites
32

Session 4 Products
33

4.1 Loans
33

4.2 Savings
34

4.3 Microinsurance
37

4.4 Money transfer
38

References
39

Session 4 related websites
39

Session 5 Microcredit interest rates
41

5.1 Sustainable interest rates
41

5.1.1 An example of sustainable interest rate calculation
43

5.2 Effective interest rates and loans pricing structures
46

5.2.1 Declining balance vs. flat rate methods
46

5.2.2 Pricing structures
48

5.3 Interest rate ceilings
51

References
52

Session 5 related websites
52

Session 6 Arrears and defaults
53

6.1 Delinquency
53

6.2 Defaults
55

6.3 The portfolio report
56

6.4 Loan loss provisions
58

iv

6.5 Repayment rate
61

References
62

Session 6 related websites
62

Session 7 Financial analysis
63

7.1 Financial Statements
63

7.1.1 The balance sheet
64

7.1.2 Income statement
64

7.1.3 Cash flow statement
65

7.1.4 Portfolio report
65

7.2 Adjustments
66

7.3 Sustainability of a microfinance institution
68

7.3.1 Operational Self Sufficiency (OSS)
68

7.3.2 Financial Self Sufficiency (FSS)
69

References
74

Session 7 related websites
74

Session 8 Guidelines for writing a microfinance case study
75

8.1 Case content 75
8.2 Data collection
76

8.2.1 Using secondary data
76

8.2.2 Primary data
77

8.3 Guidelines for the writing of the case studies
78

8.3.1 General information
78

8.3.2 Outreach
79

8.3.3 Financial sustainability
81

8.3.4 Impact
82

8.3.5 Clients interviews
84

8.4 Conclusion
84

References
86

Session 8 related websites
86

List of tables
87

List of figures
88

List of boxes
89

Suggested resources on microfinance
91

v

PART II: Case studies

1
Microfinance in Egypt – EGYPT
ABDEL RAHEEM M. HASHEM and GHADA NABIL BAZ

97

2
Alexandria Business Association – EGYPT
ALBERTO GARBERO

127

3
The involvement of commercial banks in microfinance: the Egyptian experience–
EGYPT
CHIARA SEGRADO

167

4
Islamic microfinance and socially responsible investments – EGYPT
CHIARA SEGRADO

189

5
Al Amana Association: the promotion of Micro Enterprises in Morocco –
MOROCCO
ALBERTO GARBERO

207

6
The Role of Moroccan Small Microcredit Institutions in Rural Development –
MOROCCO
AHMED DRIOUCHI and EL MUSTAPHA AZELMAD

249

7
Women Empowerment through Microcredit in the Rural Areas of Khénifra –
MOROCCO
AHMED DRIOUCHI, FAIZA AMAHROQ and NADA ZOUAG

277

8
Microcredit in Morocco: the Zakoura Foundation’s experience – MOROCCO
ELEONORA ISAIA

301

9
FONDEP Micro-crédit: Fondation pour le Développement Local et le
Partenariat– MOROCCO (Language: French)
MARINA DAMILANO

323

10 Micro Credit Institution: Caritas Jerusalem "The Holy Land" – PALESTINE
FADI KATTAN and ISSA GHRAYEB

343

11 The role of Palestinian Small Microcredit Institutions in Rural Development –
PALESTINE
SHARIF M ABUKARSH

361

vi

12 Palestine for Credit and Development: Endless Giving - PALESTINE
SAMIR ABUZNAID

379

13 Performance and analysis of interventions of microfinance institutions in Tunisia:
The case of Tunisian Bank of Solidarity – TUNISIA
MOHAMED HADJI BELGAROUI and ABDELFATTEH BOURI

397

14 The Microcredit in Tunis: Enda InterArabe – TUNISIA
LOURDES SUSAETA and ANGELA GALLIFA

421

15 Microfinance in Lebanon - Case Study CHF International Ameen – LEBANON
FADI ASSRAWI

453

16 The micro credit sector in Lebanon: Al Majmoua experience – LEBANON

ELEONORA ISAIA

465

17 Atil Micro Credit – LEBANON
SEBASTIAN VADALA’

477

18 An Experience of Microcredit in South Lebanon: Association D'Aide au
Développement Rural (ADR) – LEBANON
LOURDES SUSAETA and ANGELA GALLIFA

487

19 Al-Ahlia Microfinance Company – JORDAN
NEDAL AL-FAYOUMI

511

20 Microfund for Women: a Case History of Microcredit in Jordan – JORDAN
ELEONORA ISAIA

523

21 The Agency for Combating Unemployment (ACU): a Case about a State-Owned
Institution - SYRIA
MARCO ELIA and REEM RAMADAN

545

Author Index
565

vii

viii

Acknowledgments

Writing a book is never the work of a single person and this is particularly true in the
case of this manual that is the result of the efforts of many people who worked
together with the same objective in mind: to introduce microfinance as a strategic
subject into Universities.

We have a long list of people to thank but first of all we would like to express warm
thanks to the European Commission, Directorate-General for Education and Culture
that through its Tempus-Meda Programme made this project and this manual possible.

The support and commitment of all the project partners has resulted in this text.
They include Fadi Assrawi and Samih Azar (Haigazian University, Lebanon), Abdel
Raheem M. Hashem and Ghada Nabil Baz (October 6 University, Egypt), Nedal Al-
Fayoumi and Bana Abu-Zayed (The University of Jordan, Jordan), Ahmed Driouchi,
Faiza Amahroq, Nada Zouag and El Mustapha Azelmad (Al Akhawayn University,
Morocco), Reem Ramadan and Tarek Al Khaier (Damascus University, Syria), Ghata
Adnan, Fayez Jansis and Rana Hola (Al Baath University, Syria), Fadi Kattan
(Bethlehem University, Palestine), Samir Abuznaid and Sharif Abukarsh (Hebron
University, Palestine), Abaoub Ezzedine, Mohamed Haddar and Ridha Gouia
(University Tunis El Manar, Tunisia), Abdelfatteh Bouri and Mohamed Hadji
Belgaroui (University of Sfax, Tunisia), Lourdes Susaeta and Angela Gallifa
(Universidad de Navarra, IESE, Spain), Eleonora Isaia and Marina Damilano
(University of Turin, Italy). These people actively participated in the project activities
and contributed to the development of this manual: the many discussions with all of
them were critical in determining the scope and structure of the book. We also wish to
thank Issa Ghrayeb, Alberto Garbero, Sebastian Vadalà and Chiara Segrado for their
contribution as authors of the case studies.

A special word of appreciation goes to Marco Elia and Simonetta Cozzi of SAA,
School of Management of the University of Turin, who were in charge of the
pedagogical and administrative management of the project, respectively.

We are grateful to the many microfinance institutions that cooperated with the
project team, which opened their doors and gave precious information for the writing
of the cases and to Sanabel, Microfinance Network of the Arab Countries, and its
director Ahmed El-Ashmawi for the strong cooperation developed throughout the
length of this project.

The list is almost surely incomplete as during its three years of extensive activities
this project involved an unbelievable number of people from both European and Arab
area. To all of those who contributed we extend our thanks and gratitude.

Sergio Bortolani

“Microfinance at the University” Project Coordinator

x

Preface

“Microfinance: Text and Cases” uses a practical approach to microfinance integrating
theory and case studies drawn from microfinance institutions (MFIs) in the Arab
countries. It is written for undergraduate and postgraduate curricula of business
schools and faculties of Economics and Social Sciences as well as for microfinance
practitioners around the world.

Part one is the theoretical component of this training support. Session 1 and 2 are an
introduction to the world of microfinance and to the two approaches that still divide
this industry: the institutionist and the welfarist approach. Sessions 3 and 4 cover in
detail the products offered by microfinance institutions and the methodologies used to
deliver them. Sessions from 5 to 7 present the microcredit interest rates practices,
arrears and defaults and the financial analysis of MFIs through the calculation of the
ad hoc indicators of operational and financial self sufficiency. The last session is
dedicated to the guidelines to write a microfinance case study.

The second part is a collection of 21 case studies of MFIs from seven Arab
countries. The cases cover a wide variety of types of institutions and approaches to
microfinance, from state-owned microfinance institutions to NGOs and commercial
banks. Each case focuses on different aspects and reflects a different strategy of
approaching microcredit and microfinance: specific topics, such as Islamic
microfinance and women’s empowerment through microcredit, are also covered.

This manual is the main outcome of the “Microfinance at the University” project
and the result of the joint efforts of the project partners who wrote the different cases
in close contact with MFIs, who enriched the resulting project with their personal
experiences and perspectives. The main goal of the project is the introduction of
microfinance into universities and this text, by providing the basics and illustrative
cases from the region and references, aims to stimulate the discussion on the subject at
the university level and ultimately to further develop microfinance in the Arab states.

Background: the “Microfinance at the University” project

“Microfinance at the University” is a Tempus-Meda Curriculum Development Project
co-financed by the European Commission. It has a duration of 3 years (2003-2006)
and it is coordinated and managed by SAA, School of Management of the University
of Turin (Italy) with a consortium joining the project formed by 15 universities: 4 from
Europe (Italy, Greece, Spain and U.K.) and 11 from MEDA countries (Egypt, Jordan,

Microfinance: Text and Cases

Lebanon, Morocco, Palestine, Syria, Tunisia). Table 0.1 shows the details of the
partners.

Table 0.1 Project partners
Partner University
Country

SAA School of Management, University of Turin – Project contractor
ITALY

Haigazian University
LEBANON

October 6 University
EGYPT

The University of Jordan
JORDAN

Al Akhawayn University
MOROCCO

Damascus University
SYRIA

Al Baath University
SYRIA

Bethlehem University
PALESTINE

Hebron University
PALESTINE

Al Azhar University
PALESTINE

University Tunis El Manar
TUNISIA

University of Sfax
TUNISIA

Aristotles University of the Thessaloniki
GREECE

Universidad de Navarra - IESE
SPAIN

University of Exeter
ENGLAND

The justification of the project lies in the fact that in the normal curricula of
"Banking and Finance" in universities located in developing countries as well as in
industrialised economies, students learn how "formal" financial systems work: the role
of central bank, the activity of commercial banks and other specialised financial
institutions, the functioning of stock exchanges, bond markets, foreign exchange
markets, derivatives markets, the principles of financial management. Our project
intends to re-focus the topic "Banking and Finance" towards a local dimension, giving
emphasis to the successful experiences of microfinance in individual countries in the
Arab area. The goal of the project is to introduce microfinance as a strategic subject in
undergraduate and postgraduate curricula of Business schools and faculties of
Economics and Social Sciences. Although microfinance has grown very fast in recent
years, in most universities it is still virtually unknown or is unincluded as a strategic
subject. The direct target groups are professors and students of the "Banking and
Finance area" while the indirect target are the MFIs: the goal of introducing
microfinance in universities is to prepare students to work in the field which will have
a great impact on the professionalism of people working in MFIs.

The key challenge that has been faced from the beginning was the little awareness
of microfinance and the difficulty in looking at this industry in a sustainable way.
However the results obtained by the first pilot testing of teaching this subject was
extremely positive and the feedback received from students confirmed that
microfinance can be successfully included as a strategic subject into universities in the
Arab area.

xii

Preface

The manual development process

The training material included in this manual is the final product of three years of joint
work and the pilot course, delivered in Turin (Italy) from the 12th to the 30th of
September 2005, has been a crucial step in this development process. What is
presented in this manual is the result of this process where the pilot course has been
one step, though important, during which the material has been presented and tested.

The first activity was to set up the project website (http://www.saa.unito.it/meda).
This was followed by the second activity where all the partners first gathered in Turin
in June 2004 and planned in detail all the forthcoming activities. The third activity
consisted in writing the case studies. Delegations from the European partners worked
together with the Arab counterparts in the writing of what constitutes the bulk of this
manual. Different kinds of MFIs such as government organizations, NGOs,
commercial banks, associations and projects have been visited and analysed in depth.

Many changes and corrections have been made to the initial draft of this manual
after the feedback received during the pilot course, but space for further improvements
still remains.

How to use the manual

Each session is designed to be used alone or in conjunction with other sessions,
depending on the specific needs of the reader. However they are logically ordered to
build a step by step introduction to the world of microfinance. The following scheme
shows the four main topics covered in the manual. They are introductive sessions,
products and methodologies, financial issues and the case studies. In order to draw a
wider perspective of the subject it is suggested to choose at least one session from each
of these main topics.

Table 0.2 Manual’s structure

Session 1 “What is microfinance?”
1. Introductive sessions

Session 2 “Microfinance practices: the institutionist and
welfarist approach”

Session 3 “Methodologies”
2. Products and
methodologies

Session 4 “Products”

Session 5 “Microcredit interest rates”

Session 6 “Arrears and defaults”

3. Financial issues

Session 7 “Financial analysis”

Session 8 “Guidelines for writing a microfinance case
study”

4. Case studies

Cases from 1 to 21

xiii

Microfinance: Text and Cases

The organizational structure allows the manual to be used for any intensive
curriculum in microfinance lasting from one day to three weeks. Every session covers
a different topic and the purpose of the book is to give the “basics” on microfinance,
leaving the reader references and resources on the web for more details. The cases are
also designed to stand completely independently and while covering all or part of the
topics covered in the sessions, they present the current practice of microfinance in
different Arab countries.

The last session of part one contains a guideline to write a case study about a
microfinance institution. It includes data collection and a summary of the most
important ratios for outreach (number of clients of an MFI and their level of poverty),
financial sustainability and impact. This was included in a session and not as an
appendix to highlight the guidelines that have also been used for the writing of the
cases contained in this manual and to encourage students to update the same cases and
write about other microfinance institutions. The industry is growing and changing with
increasing speed and while the existing MFIs are struggling to achieve financial
sustainability and are introducing new financial products, new actors, particularly
commercial banks, are entering the market: this will be the future field of
investigation.

All of the material developed during the “Microfinance at the University” project,
as well as the manual itself, are available for downloading in the official project
website at http://www.saa.unito.it/meda

Marco Elia

xiv

Microfinance: Text and Cases