11/07/2014

Only about a tenth of the Middle East’s needs for microfinance are currently being met, estimates Heather Henyon — and some new thinking may be needed as the sector loses some of its novelty and momentum.

Henyon, who currently heads Balthazar Capital and is also the founder of the Women’s Angel Investment Network (WAIN), said she was always seeing the potential for lifting households and individuals into creating new businesses across the Middle East and North Africa.

In Morocco, she had worked with a woman over 10 years to grow a family farm from a couple of sheep to 200 — and raising and selling Arabian horses, producing cheese, providing jobs for her family and provisions for her community.

“This is a woman who comes from nothing. We’re funding someone who probably is like a Bill Gates,” Henyon said. And there were many others like her out there. “When you see that, you just realise there’s so much need.”

According to Findex, the region has the lowest percentages of adults with a formal bank account, at 18 per cent, and of poor people with formal access to financial services, at nine per cent. Only 13 per cent of women have an account at a formal financial institution, compared to 23 per cent of men.

Surveys have highlighted that up to 40 per cent of people targeted by microloans would not consider them for religious reasons. Islamic microfinance products are looking to fill the gap.

Henyon said the question for the region was building enough channels to reach populations. This was never easy — it required good organisations with strong management and boards to become long-lasting institutions for communities.

Large international bodies often prioritised South Asia or Africa over the Middle East so they could reach larger populations. Existing organisations were doing the best they could, but there was room for more.

There are other avenues, such as the funding of startups, that can address similar goals — even if they are not about directly providing funds to poorer demographics. Technological capacity and innovative organisations have the potential to make a huge difference.

However, in some countries around the region, regulatory hurdles can often sink new ideas, Henyon said. A mobile money company Henyon had worked on in Jordan, which could significant lower costs of transactions and entry, had ran into the difficulty, as had a team out of MIT pursuing a layaway-like system. “There’s no shortage of capital. There’s a lot of liquidity right now. But creating distribution channels, institutions and stronger organisations — that takes time.”

Henyon said she hoped more entrepreneurs would look at tackling the challenge, even if innovations in financial services generally required much more capital than the typical tech startup.

In the past few years, many Islamic banks, including in the UAE, have begun offering Islamic microfinance. More than 60 percent of low-income survey respondents in the West Bank and Gaza claimed a preference for Islamic products over conventional products, with more than half saying they preferred such products even if they came at a higher price, according to a Planet Finance survey from 2007. In Jordan, studies by USAID and the International Finance Corporation, a member of the World Bank Group, showed that 25 to 32 per cent did not seek conventional loans out of religious reasons. Almost one in five said religion was the most important factor in their decision on obtaining a loan. In Algeria, Yemen and Syria, the rates of demand for Islamic microfinance products have been recorded at about 21, 40 and 43 per cent, respectively.

Henyon said funding for microfinance often came from big investment banks, whose clients frequently liked to see microfinance or another social aspect among their portfolios. For the region, the percentage stood at about four per cent, and she had been making an effort to try to increase financing from traditional funds.

Some recent criticisms of microfinance — basically showing that it isn’t always a clear-cut saviour — have taken away some of its shine and momentum.

And yet the need remains. Three out of four working-age women in MENA do not participate in the labor force and constitute 80 to 90 percent of its inactive population, according to the World Bank.

At the Women’s Angel Investment Network, the goal was as much about providing women-led startups advice and guidance as it was about providing capital, Henyon said. It was the same principle as in microfinance: when capital just gets dumped, it can pollute the market.

The network has been founded with 10 women who are mid- to senior-level professionals looking for a different way to get involved. The makeup may be different to microfinance, but it still shows there are many ways of making a contribution if you have the will.

“You don’t have to be ultra high net worth to get involved — that’s something people don’t understand,” Henyon said.

Heather Henyon - Khaleej Times