Microfinance Sector Development Approach

This paper discusses the "sector development approach" in microfinance. It details the economic situation in Egypt, focusing especially on microfinance and on micro and small enterprises (MSE).

The paper discusses:

• The sector development approach:
  • Targets the deepening of commercial financial services to ensure sustainable access to financial services by poor and low-income people,
  • Aims at creating a shared vision of the participants on the optimal development of the sector, based on which a national policy can be developed.
• The MSEs in Egypt:
  • The huge demand for microfinance is largely unmet,
  • There is no consistent definition of MSE, although it constitutes the backbone of the private economy,
  • The establishment of non-bank credit institutions is prohibited - MSE have to depend on commercial banks or donor-dependent NGOs.
• The NGOs:
  • Have a limited capital and institutional base,
  • Do not have access to refinance facilities from the formal finance sector and therefore have to depend on donor funding.
• The donors:
  • The programs offered are numerous and non-coordinated,
  • There is competition instead of coordination amongst donors.

The paper concludes that the Egyptian microfinance sector faces numerous obstacles on policy, legal/ regulatory and institutional levels. This keeps it from reaching maturity where MSE could operate in a favorable business environment, with an unhindered and commercially sustainable access to a diversified range of financial and non-financial services tailored to their needs.

[Adapted from the author]