Case study "The Involvement of Commercial Banks in Microfinance: The Egyptian Experience"

This paper attempts to answer the question, "What are the missing chances for growth for customers and institutions in Egypt?" by analyzing the services provided to the beneficiaries and clients of microfinance institutions (MFIs). The paper:

• Assumes that there are different types of customers as well as institutions that offer microfinance;
• Classifies these customers on a continuum, with the central point as the poverty line, and places:
  • The beneficiaries of broader development interventions on the left side;
  • Those who live slightly under or over the poverty line in the center;
  • Individuals with higher financial maturity, like small entrepreneurs, at the right side.
• Identifies non-government organizations (NGOs), MFIs and banks as financial services providers for these three varieties of customers, respectively;
• Stresses the importance of specialization, diversification and competition.

The paper analyzes the financial services scene in Egypt and finds that commercial banks are reluctant to lend to micro-entrepreneurs for reasons that include:

• High costs, high risks and low profits;
• The banks' lack of marketing, appraisal and supervision capacity for micro-enterprises lending;
• Inadequacy of current lending terms and conditions for small business lending.

The paper concludes by recommending the following ways in which commercial banks can involve themselves in microfinance:

• Refinancing an MFI;
• Offering technical support to an NGO or MFI;
• Creating branches dedicated to microfinance.