Egypt Focuses On Microlending And Poverty Reduction. Here’s How

January 22, 2025

 

With the pound’s foreign exchange rate continuing to devaluate toward record levels and annual inflation above 25% since January 2023, according to official data, effectively and quickly reducing Egypt’s poverty is increasingly vital. 

Data aggregator Statistica reported poverty levels in Egypt have dropped by only 0.6% to 27.3% in 2023 versus 2022, continuing a slow downward trend since 2018, when it reached 32.7%.

In October, the Cabinet met to discuss the next phase of tackling poverty, with Prime Minister Mostafa Madbouly saying microlending is essential, as it encourages the least fortunate members of society to start small businesses. Minister of Social Solidarity Maya Morsy will spearhead the development of that new strategy, he said. 

The plan will likely draw inspiration from Bangladesh, India, and Pakistan, as Morsy highlighted the success of those nations during the meeting.

Local microlending

Egypt’s regulations cap microloans at EGP 242,000 ($4,874) to fund companies and startups, not private consumption.

At a January press conference, Mohamed Farid, chairman of the Egyptian Financial Regulatory Authority, which governs microlenders, said the maximum lending limit is regularly modified based on inflation rates to ensure the amount is sufficient to start a business. 

Data published in October from the Egyptian Federation for Funding Medium, Small and Micro-Enterprises shows microlending increased 19% in June compared to a year earlier. The number of subscribers rose by just 100,000, reaching 1.9 million in the same period. Those new potential borrowers accounted for 36.3% of lending. 

Individuals and micro-enterprises can secure funding from NGOs, microfinance companies, and commercial banks via special programs. They also can opt for Sharia-compliant loans. 

In 2022, Egyptian Microfinance Co. (Maksab) became the first, and so far only, Sharia-compliant microlender. Banque Misr and some Islamic banks also offer Sharia loans but with different limitations than conventional microfinance.

Alternatively, the Central Bank has its flagship NilePreneurs initiative, launched in 2019. It has microfinanced nearly 9,000 small entrepreneurs and helped 292 startups through pre-incubation, incubation, and accelerator programs.  

Vibrant sector

Microlending is a low-risk business in Egypt. In August, Mona Zulficar, chair of the Egyptian Microfinance Federation, told state-owned Daily News Egypt that its latest study “found that 97.1% of project owners (clients of NGOs and companies) reported profitability, with 80% reinvesting their profits.” 

That has enticed commercial banks to continue giving credit facilities to microlenders, such as Al Tadamun Microfinance, which has signed four deals worth a combined EGP 820 million this year. 

The low-risk nature also enticed local business associations to secure money for microlending from commercial banks. In October, Emirates NBD announced it signed an EGP 400 million “new loan contract” with Alexandria Business Association “to expend … the latter’s microfinance services,” the press release said

International financing institutions are also interested in microlending Egyptian businesses and individuals. In addition to the 2019 funding agreement signed between The International Finance Corporation (IFC) and Tanmmya, one of Egypt’s biggest microfinance providers, the European Bank for Reconstruction and Development (EBRD) and a consortium of investors announced in September they had acquired government-owned Tamweely Microfinance. “The acquisition will support Tamweely’s domestic growth strategy and boost its competitiveness and resilience,” said the EBRD press release. The new owners will focus on “promoting women-led micro, small and medium-sized enterprises.”

EBRD also gives credit facilities to individual microlenders, such as Reefy Microfinance (EGP 80 million) and Tasaheel Microfinance (EGP 700 million).

Lessons from Bangladesh

During the October Cabinet meeting, Morsy said Bangladesh has been uncommonly successful at combating poverty in the past few years. According to data aggregator Macro Trends, the country’s poverty rate declined nearly 13 percentage points between 2015 and the latest government figures in 2022. 

Morsy recognized Bangladesh’s Grameen Bank, a private microfinance bank, during her keynote address. The bank “is known for its diverse range of microloans that are not only directed to startups, but also to improve the lives of the borrowers, including saving and credit services,” she said.

Established in 1976, Grameen Bank started in a small village in Bangladesh, eventually growing into a national financing institution supporting 10 million poor Bangladeshis, the website said. 

In 2006, it won the Nobel Peace Prize for offering “self-support for the very poorest people by means of loans on easy terms,” the Nobel Prize website said. The bank is positioning itself as the “bank of the poor.” 

“No collateral is required to get … credit,” said the bank. Grameen representatives also travel to potential micro-borrowers’ “comfort zones” to offer loan services. “All banking transactions, except loan disbursement, are done in meetings of borrowers at the village level centers organized by center managers.” 

Grameen Bank’s lending includes education loans, new entrepreneurship loans, and scholarships for borrowers’ children. The bank also has the Struggling Members Program, which offers interest-free loans “to help beggars build financial capacity so they don’t have to beg anymore,” the website said. As of October, “21,383 members have given up begging and become self-sufficient.”

The Borgen Project, a nonprofit NGO, noted Grameen Bank’s success is because “its model focuses not only on providing financial resources but also on creating long-lasting, sustainable change by addressing systemic issues such as gender and power dynamics.” 

Grameen Bank also works “closely with local partners to dismantle traditional gender roles and enable household dialogues where it challenges male-dominated financial decision-making.”

The Borgen Project calculated “repayment rates [at Grameen Bank are] as high as 98%.” That reflects “not only the bank’s successful lending model, but also how committed the borrowers are to improving their livelihoods.”

MicroSave Consulting, a specialized consultancy, also highlighted the role of BRAC, an international development organization, in improving Bangladesh’s microlending landscape. 

BRAC has a “unique ‘credit-plus’ approach, addressing the special needs of various target populations such as rural women, youth and adolescents, the  landless poor, marginal farmers, migrant workers, and small entrepreneurs,” according to its website. Like Grameen Bank, BRAC brings “collateral-free credit and savings services to the doorsteps.”

BRAC also has “village organizations” comprising “15 to 40 women from local communities that come together, share information, raise awareness on issues concerning their daily lives, while receiving support on health, social and legal issues.”  

BRAC has four categories of microloans, starting with its “targeting the ultra-poor program” to helping secure “SME loans from mainstream banks.”

Another microlending institution that MicroSave Consulting highlighted is ASA, which won The Financial Times “Banking at the Bottom of the Pyramid Award” in 2008. It has only two types of microloans: “general microcredit” for individuals and “micro-entrepreneur credit.” 

ASA also offers savings options, where customers pledge to pay installments to replenish a savings account, which accrues interest and can be used to issue payment cards. The microlender also has a “loan security and risk fund [in case of] premature death of borrowers [to guarantee] the unpaid debts [do not] fall on the heirs of deceased.

Lessons from India

Morsy also pointed to the Indian government-supported Micro Units Development & Refinance Agency (MUDRA), launched in 2015, as another success story. 

According to data aggregator Macro Trends, since MUDRA’s inception, poverty in the country has dropped yearly, except in 2020 when COVID-19 forced companies to cut employees and salaries. During those nine years, the country’s poverty rate decreased 7.1 percentage points.  

MUDRA lends to “non-farm income generating enterprises in manufacturing, trading, and services whose credit needs are below nearly $10,000,” said a paper published by Jammu and Kashmir Bank, a public-sector Indian bank. 

Microloans are dispersed by “all of [India’s] public sector banks, regional rural banks, state cooperative banks and urban cooperative banks.” The Indian regulations also allow non-bank financial corporations and monetary financial institutions to offer microloans. 

MUDRA offers 10 types of microloans, ranging from conventional credit for individuals to specialized loans for businesses based on their sector or specific purposes.”

MUDRA’s microloans focus on startups in land transport; community, social and personal service; food products; and textiles sectors.  

Lessons from Pakistan

Mosry praised Pakistan’s efforts to reduce its poverty rate. According to Macro Trends, poverty levels dropped consistently from 2001 to 2023, going from 64.3% to 37.2%

The International Growth Center (IGC), which operates under the London School of Economics and Political Science, said Pakistan has long and storied success in reducing poverty. In the “World Bank … poverty indices, Pakistan was among the top 15 that showed the largest annual average percentage point decline between 2000 and 2015.” 

The government followed that up by pledging to “reduce poverty by six percentage points between 2019 and 2023” in its Implementation of the 2030 Agenda for Sustainable Development Voluntary National Review document.

In 2019, Pakistan’s government “integrated more than 134 fragmented and insufficiently managed social protection programs, and [those] prone to political manipulation under [a unified program] Ehsaas,” the IGC said. 

Ehsaas works with Asia’s largest cash transfer program — the Benazir Income Support Programme — helping the Pakistan government target “ultra-poor families via unconditional cash transfers to women,” the IGC said. 

Ehsaas also launched an “emergency program” when COVID-19 hit “under which low-income households gained access to financial assistance through text messages.” 

Morsy highlighted Karandaaz, a Pakistan-based microlending nonprofit established in 2014, as a successful case study. Its focus is mainly on digital solutions developed by women targeting women. 

In addition to lending, Karandaaz conducts and publishes surveys and contributions from local researchers about less fortunate women in Pakistan. It also organizes competitions for women entrepreneurs, giving them national exposure and recognition.

Key to success

Educating microborrowers is the cornerstone to realizing government efforts to alleviate poverty via microlending. “Education … empowers [borrowers] to use their funds wisely, and [entice them to offer] an education for their own children,” wrote Zar Wardak, vice president of Business and Consumer Strategy at FINCA Impact Finance, a nonprofit microlender. “Education in all its forms is part of a holistic approach … so [micro borrowers] can make informed choices that help them realize their potential.”  

The straightforward solution to the education problem is to make it more affordable via government financial support or legislation. The next step is to ensure “access to quality education … for low-income families,” Wardak stressed, adding that this is the crux of the challenge governments must overcome. 

This article first appeared in Januar’s print edition of Business Monthly.