> Posted by Stephen Thomas, Director of Risk Management, Credit Suisse
Morocco has one of the most extensive and vibrant microfinance sectors in the Middle East/North Africa region, with roughly 800,000 clients and $60 million in outstanding loans. The country’s microfinance industry hasn’t always undergone steady growth. After years of early, strong growth in a relatively lightly regulated environment, Morocco’s microfinance industry underwent a period of crisis beginning around 2006. During this time default rates rose to worrisome levels and the financial soundness of a number of microfinance institutions became imperiled.
The country’s government moved swiftly, both over this period of time, and continuing to the present. It enacted a number of laws designed to improve industry regulation. In 2006, it formalized the country’s Central Bank’s regulatory authority over the industry through Law No. 34-03. The Bank then took a series of steps to effectively enforce the government’s laws and expand its oversight of the lending activities. These steps included enacting additional legislation, conducting on-site inspections, and, when necessary, intervening. In September 2009, additional regulatory requirements were issued through the Directive on the Governance of Microfinance Associations. The Directive provided further clarification of managerial obligations with regard to governance, internal controls, external audit, the management of credit, liquidity and operations risks, and transparency. Other government-led measures during these years following the 2006 crisis include enhancements to regulations regarding risk management practices and contract transparency, and formally defining industry client protection principles. Adopted in 2010, these client protection principles were outlined in the Microfinance Code of Ethics and incorporate the concepts that are enumerated in the Smart Campaign’s Client Protection Principles.
As a result of these efforts, Morocco’s MFIs have since improved their lending practices, strengthened their finances, and the financial performance of the entire sector has improved greatly. The percentage of loans at risk has diminished from a high of 6.4 percent in 2009 to 4.3 percent in 2011, and the industry has returned to profitability. In addition, the implementation of industry-wide credit qualification and risk management procedures has greatly reduced instances of clients’ engaging in cross-borrowing beyond their ability to service their debts. The industry is once again experiencing growth at a sustainable rate.
What’s more, the principles of client protection have been incorporated into the operating policies of the market participants, and a culture of client protection is being effectively instilled within the industry.
As a Credit Suisse Virtual Volunteer for the Center for Financial Inclusion, I explored these issues, which you can learn about in greater detail at my newly published Client Protection Library profile, Client Protection in Morocco. If you follow Morocco or the MF industry in northern Africa, we would love to hear your perspectives.
Stephen Thomas is a Director of Risk Management at Credit Suisse. His area of responsibility concerns portfolio market risk in the commodities markets in which the Bank is active. Previous to his three years at Credit Suisse, Mr. Thomas has held a variety of positions in the petroleum industry, the merchant power industry, and the banking industry. He is a member of the Credit Suisse Microfinance Advocates.
Image Credit: microlinks
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December 14, 2012 at 10:01 am
Alex Counts
This is a thoughtful short summary of the journey Moroccan m/f has been on in recent years and the role of client protection. Well done! I have long admired the Moroccan m/f practitioners and also the regulators who have approached growing the industry there in a pragmatic way, and have tried to learn from their mistakes and not over-react to setbacks. The law passed in the late 1990s was not perfect but it was comprehensive and set in motion growth. Through Grameen Foundation’s joint Venture Grameen-Jameel Microfinance Ltd., based in Dubai, we have been involved in this journey and I have encouraged our Dubai team to weigh in on this post.
December 18, 2012 at 12:18 pm
zakia.lalaoui
Morocco has been considered a leader in the MENA region and a recognized success story in the microfinance sector globally.
The strategic vision of the sector by 2020 was unveiled at the first international microfinance symposium held in October 2012, reflects the continuation of the support of governments and financial authorities.
By 2022 the sector is expecting to grow by 30% per year to reach 3 million clients and 25 billion MAD (USD 3 billion) portfolio and this growth will require MAD 40 billion ( USD 4.7 billion) financing, plus capacity building for a full integration of this sector in the financial landscape of the country in terms of standards, ratios, risk practices, supervisory bodies.
Morocco’s government plans to use the mechanism of microcredit to create 2 million permanent jobs. The parliament has recently adopted in December 2012, the amendments to the law regulating the sector allowing MFI’s to transform into limited companies and to attract new investors, and the Finance Act 2013 extends the exemption of microfinance clients of VAT until 2016.
Grameen-Jameel and Grameen-Foundation have been supporting the sector in Morocco since 2005 and has facilitated more than US $25.6 million in local currency financing to its MFI partners in Morocco, as well as access to technical assistance and training and Grameen-Jameel will continue to support the sector and the 2020 vision.
Grameen-Jameel took a close look at the Moroccan Microcredit sector crisis, its causes, how the sector reacted and the lessons learned, to learn more about this experience:
http://www.microfinancegateway.org/gm/document-1.9.59979/microcredit-morocco.pdf
Zakia lalaoui
Relationship Manager-North Africa
Grameen-Jameel Microfinance Ltd
January 2, 2013 at 5:00 pm
hassar
Well done MY freind