Microfinance and the Arab Spring in Egypt

A woman creates idols for a Hindu festival

Revolutions that have occurred, or the so-called Arab Spring, in some of the Arab countries have had a direct impact on the microfinance industry, like all other sectors. However, the impact has differed from one country to another, according to the relevant background of each country. It also differed within the same country, based on the geographical location of the industry’s operations, infrastructure, and institutional culture.

With regard to Egypt, the key factors and effects were:

  1. Some facilities were exposed to looting or destruction (with only a limited impact in Cairo and Alexandria).
  2. Most businesses, whether public or private, especially the banking sector, were closed (for longer periods in Cairo and Alexandria).
  3. There was an absence of security and law enforcement, subsequently leading to the so-called security chaos.

For Dakahleya Businessmen Association for Community Development (DBACD), the impact was as follows:

  1. There was no effect of the destructions or lootings of facilities within the geographical location of our operations
  2. Work interruption lasted for a week in rural areas and two weeks for urban areas. Alternative plans were developed for the timely collection of the due repayments through the Association’s branches until the banking sector returned to work normally.
  3. Lack of security and law enforcement did not have an immediate or direct impact when the revolution occurred;

    however, security issues were addressed by increasing security precautions at the branches and adjusting ways to deal with customers. However, if the period had lasted longer, there may have been a negative impact on our operations.

At the beginning of and during the crisis, the Association’s strategy was to wait and not send any messages or make any decisions until determining what the reactions of our customers would be.

When it turned out that most of the clients were committed to making timely repayments, loan disbursement for group lending stopped for only one week while individual lending stopped for only two weeks. Collection has continued since the first day of the revolution, which has had a positive impact on business continuity.

All the above-mentioned factors are external ones, which are out of control of the MFIs. That means the strategy to deal with external turmoil would be different according to the capacity and business scope of each institution. However, worth mentioning is the ability of the institutional infrastructure and culture to deal with such circumstances. For example, some institutions had been under pressure by their employees to improve wages and working conditions and to develop policies for strict internal control. As these factors are well established at the Association, they had no considerable effect, and the Association did not face any type of institutional disorder.

Source: www.cgap.org

Category: Payday loans

Similar articles: