Microcredit Needs Separate Regulator: Nobel Laureate Muhammad Yunus in Cairo

Egypt needs a separate regulator, legal framework and an integrated strategy for microfinance to be able to reduce poverty, said Nobel laureate Muhammad Yunus in Cairo on Sunday.

The founder of Grameen Bank explained how it was necessary for Bangladesh to create a micro-credit law in 1983 to allow for micro-credit institutions to expand.

“You cannot create the bank of the poor with the same architecture as the bank of the rich.”

Yunus also advised for a separate regulatory authority to oversee microcredit institutions than the one regulating conventional banks. “They will not understand the philosophy or the procedures of this (Grameen) bank,” he said.

“The reason why microfinance has failed to take off in Egypt is because those in charge of financial decisions are bankers who do not believe in microfinance one bit,” said Ahmed El Bardai, former Banque du Caire head and founder of Reefy, the country’s first private sector microfinance lender.

In November 2014, Egypt passed its first law regulating microfinance by non-governmental organisations, giving the Egyptian Financial Supervisory Authority the role of regulating the underdeveloped sector.

The Nobel Peace Prize winner also stressed the need for a holistic approach towards micro-finance to be able to maximize its impact on the poor.

“Microcredit in Bangladesh became universal,” added Yunus, saying that it benefited 16 million families.

Grameen bank had a loans portfolio of $1.5 billion and $2 billion of deposits by the end of 2014, which made it financially independent, said Yunus.

Grameen went on to set up a pensions fund, create a telephone company for the poor- Grameenphone, in 1997- and a social business fund for young entrepreneurs.

Egypt’s new microfinance law does not allow for microfinance institutions to accept deposits, which makes them dependent on banks for capital, said El Bardai.

Microfinance and its economic empowerment of women was the main topic of discussion in the “Conference of the Egyptian and Arab Woman 2030 “ hosted by Nisf El-Dunia, an affiliate publication of state-run Al-Ahram.

“Our decision was right from the beginning that half of the borrowers in my program must be women,” said Yunus, as a strong rejection of the banking system, which “was against lending money to women at all income levels.”

But “women were extremely reluctant” to take out micro-credit loans at first, Yunus recalled, because they had not been raised in an environment that empowered them to handle money.

It took six years for women to make up 50 percent of the loans portfolio of Yunus’ programme.

“I think women are better entrepreneurs than men,” said Yunus, who explained that loans given to women had been demonstrated to have a stronger effect on the family’s standard of living than loans given to male breadwinners.

In Egypt, banks make it harder for women to take out loans because they perceive them as being at higher risk of defaulting than men, when in fact, the rate of non-performing loans given to women is lower than for men, said Sahar Nasr, Lead Economist in the World Bank’s Finance and Private Sector Development Department of the Middle East and North Africa (MENA).

Nasr added that small businesses that are run by women are more gender-inclusive, because women are for social and cultural reasons in Egypt more likely to work for another woman in a small-scale enterprise.

Egypt ranked 129th out of 142 countries in the World Economic Forum’s Global Gender Gap Report of 2014.

Source: Ahram Online