Microfinance In the Arab States : Building Inclusive Financial Sectors

This survey is the third in a series of publications documenting the state of microfinance in the Arab States Region and tracking the development of this young industry over time. The paper describes the characteristics of stages through which microfinance sector develops:

• Start-up Phase: Introducing semiformal microfinance activities as experimental pilot projects;
• Expansion Phase: Successful microfinance institutions (MFIs) concentrating on expanding the scale of their existing operations;
• Consolidation Phase: Successful MFIs starting to focus on overall sustainability;
• Integration Phase: Leading MFIs becoming integral part of the formal financial sector.

The report gives regional overview of the microfinance sector in the Arab States.It highlights:

• Significant growth in outreach: Increase in the number of borrowers from 129,000 to over 710,000;
• Limited market penetration: Microfinance serves only 22% of the rural populations. An estimated 3 million entrepreneurial poor still lack access to finance;
• Lack of product diversification: Microfinance services in the region remain credit oriented.

For the development of microfinance, the paper recommends:

• Supporting retail institutions: to encourage the entrance of more specialized financial institutions in the market;
• The final integration of the microfinance sector into the formal financial system with the full support of national governments and an enabling policy environment.