Microfinance banking in the MENA region

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It is a fact that microfinance is a highly essential tool for expanding business in a region so that people can have adequate levels of liquid finance. Within the MENA region, microfinance banks have experienced a consistent level of growth and popularity. Introducing laws that are specifically related to microfinance can prove to be a highly effective and efficient level of support structure and can allow the sector to thrive to its full capacity. For creating a strong and robust microfinance sector, a highly agile and well developed regulatory and legal framework is required that can develop an environment where individuals that need well developed financial options can thrive. Apart from that, specialized and highly advanced levels of support services including training, information sharing etc., will help in contributing to institutional as well as human capacity development. This will help in scaling up as well as expanding their overall outreach.

For the improvement of the Microfinance sector, international organizations and investors are concerned to improve the condition of microfinance for a wide variety of reasons. One of the most important reasons in this regard is that individuals in underdeveloped countries have been overlooked or at times neglected due to a weak business environment and lack of resources. Interlinked with this issue is an idea that inception of small or microenterprises can help in improving living standards of poor people in underdeveloped countries. Another pivotal point to note is that the change towards private sector development with regards to decline in the role of government has turned microfinance into a critical component for private sector development.

With respect to the MENA region, it is a well conceived fact that microfinance banks can not only help in raising the financial standards of unemployed and poor people but they can create jobs and self employment opportunities and can also help in improving GDP and economic growth. But there is also a depressing fact associated with this institution that illustrates the issue that such entities have very limited access to liquid money. To become sustainable in the long run, all types of microfinance institutions including credit unions, cooperative houses, NGOs and banks have to cover their lending costs and other related expenses. If such important costs have not been covered, the institution’s investment would be at stake and there could be detrimental consequences for the microfinance institution.

Flourishing microfinance institutions provide an opportunity for low income clients to gain access to various kinds of financial services by offering them swift and trouble free savings and loan services. The loans provided by the microfinance institutions are usually short term loans and are based on timely repayments. Moreover, the microfinance institutions provide loans to their clients on the basis of their respective cash flows and their overall market reputation rather than on the basis of their respective assets and documents. Besides that, for the purpose of motivating payments, the microfinance institutions also accept other forms of security as well, such as peer pressure.

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Microenterprise activities are prolific in providing funds in a way that will encourage poor and needy people and also their households to generate enough income for the purpose of fulfilling their basic needs. The core aim of these microenterprise activities is to strengthen the economic capability of this group of people so that they will be able to meet the basic needs of their families, that is, shelter, clothing and food. The second goal of microenterprise activities is to ensure the economic safety of financially disadvantaged people so that they can be able to guard their household resources from erratic actions or forces, whether human or natural.

The third goal of microenterprise activities is to ensure the economic security and higher standard of living for poorer people, but in the longer run, to ensure that their next generations will also benefit from economic security and higher standards of living.

Another option for microfinance institutes is crowd funding. For the microfinance institutions, crowd funding is not only about contributing to the overall economic growth of the society, instead this also promotes the culture of assisting needy people for the purpose of further enhancing the overall economy. Basically, crowd funding provides an opportunity for these people to transform their social lives in such a way that they can also benefit from the advantages which the privileged class enjoy.

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For promoting delivery of critically important services for microfinance institutions within the MENA region, the government can emphasize on providing capacity development measures and also focus on financial support for the Arab Countries. However, microfinance may not always be the answer for consistent changes and development in the MENA region. Though most of the regional developments are constant, new dimensions have also occurred within the MENA region that can help in the growth and development of microfinance. Below are some of the factors where a microfinance program would prove to be beneficial for the MENA region:

Supporting underdeveloped countries: It is evident from the initial initiatives that were made in the region, that there does seem to be an increase in the level of awareness regarding microfinance within the MENA region. Microfinance initiatives have been designed for offering their support to emerging economies in the region and bring in sufficient resources from all over the world.

Portfolio diversification: One important thing to note is that within the MENA region, North Africa in particular, microfinance is more or less about microcredit. Availability of other financial options, savings, investment and insurance, can help to reduce any negative consequences caused at an MFI level. Such a diversification can help in strengthening and improving the essential framework that will further help to support microfinance institutions.

Robust legal framework: Most Governments in the MENA region have supported the idea of microfinance, but for that to occur, they need consistent improvements in legal regulations that can help in governing the sector in a better way. Such a strategy would allow microfinance institutions to provide a broader and more advanced range of financial services in a highly practical and subjective manner.

Istathmir

Istathmir

Financial News Channel at Istathmir
Istathmir.com has been established by specialists in equity and derivative trading and by asset managers. With years of individual experience in various markets around the globe, they have decided to found the financial news and investment advice portal.
Istathmir

About Author

Istathmir.com has been established by specialists in equity and derivative trading and by asset managers. With years of individual experience in various markets around the globe, they have decided to found the financial news and investment advice portal.