BEIRUT: The microfinance industry in Lebanon is considered to be relatively small and is estimated to have a potential of 190,000 active borrowers, Ziad Halabi, general manager of Ameen s.a.l said on Friday. "As of end 2008 the market consisted of 54,000 active clients, which means that only 28.4 percent of the market has been served, so we still have a gap of 71.6 percent in the market," said Halabi during a conference held at Haigazian Univerisity in Beirut. The conference aims to discuss the importance of the microfinance industry in Lebanon and the challenges facing it in addition to the potential of its future growth.
Halabi based these figures on a study prepared by Grameen Jamee Foundation in 2008.
Ameen is a non-profit organization which provides small loans to very small merchants, farmers and industrialists.
He admitted that reaching the 140,000 potential clients target is not easy given the amount of work needed for this type of business. "It is very difficult to grow that much in a short period of time. So we are trying to build our internal capacity to be able to hire more people, manage them and outreach more clients," he said. "Our business grew over 40 percent in 2008 so we needed to hire 35 more people and train them. Outreaching to the 140,000 clients might need an additional 1,000 staff members, that's why we need to work on our internal capacity and this is one of the main challenges we are facing," he added.
Another challenge to the microfinance industry in Lebanon is that some international institutions or local figures are interested in establishing microfinance firms, but they tend to give them subsidies in order to reduce the pricing of these loans to the final consumer he said. "Unfortunately, these subsidies can be very harmful to existing institutions because we currently rely on our own revenues to sustain our work and grow. At the end of the day, subsidies will have to end because no international organization is willing to provide them forever. Institutions will finally have to rely on their own resources to cover their expenses," he added.
Halabi maintained that microfinance work was expensive and required a lot of human resources. "The loans sizes are small so the revenue generated by each loan is too small. Moreover, a credit officer has a certain limitation in the number of loans to manage," he said.
"Our rates are relatively expensive and have flat rates ranging from 9 to 16 percent, depending on the loan size and term. Looking at the microfinance industry worldwide we are relatively cheap given that our funding is a private funding. So we also have to add to all our costs the cost of the funding that is coming from banks," he added.
Harout Samuelian, vice governor of the Lebanese central bank, said one of the main challenges to the microfinance industry in Lebanon is that banks usually do not like these kinds of programs because they are very expensive. But, he added, the technologies that are available in banks nowadays make it easy for them to perform a variety of transactions in seconds.
Fadi Asrawi, dean of the faculty of business administration and economics, said rapid innovations have made it possible to conduct banking operations via mobile phone and this means a real breakthrough for microfinance. "Operational costs can be as high as 15 to 20 percent of loans, compared to less than 5 percent for banks in industrialized countries. The introduction of mobile-phone banking now makes it possible to reach millions of people in the fraction of a second and without the high costs of establishing an extensive network of offices. Such cost savings are important for microfinance institutions, as they allow them to reduce interest rate margins while not impairing profitability," he added.
Samuelian said the size of small loans provided directly by banks with the agreement of microfinance institutions amounted to $1.3 million at the end of 2008 with a surprising default rate of less than 1 percent.
Asrawi believes that the government should play a critical role by setting effective policies to ensure the soundness of financial service providers and minimize market distortions, as well as submitting microfinance institutions to the central bank supervision and regulatory requirements.