Electronic copy available at: http://ssrn.com/abstract=1472751
Institutional Analysis to explain the Success of
Moroccan Microfinance Institutions
Virginie Allaire (Master's student at Burgundy School of Business)
Arvind Ashta (Professor, Burgundy School of Business, CEREN) [corresponding author]
Laurence Attuel-Mendes (Professor, Burgundy School of Business, CEREN)
Karuna Krishnaswamy (Consultant – Microfinance)
Presented at The First European Research Conference on Microfinance, Brussels, 2-4 June 2009
This paper looks at whether Morocco meets the usual criteria of a country where MFIs can succeed and
what distinguishes Morocco from its North African neighbors (Algeria, Tunisia, Libya and Egypt) where a
priori the culture is similar even though institutions may be different. The paper uses the similarities and
differences of these five countries to identify cultural, institutional, economic and geographic factors
which explain why Microfinance in particular and development in general arrives sooner in some
environments than in others. The objective of the research is to identify controllable institutional factors
which can be introduced in regulation to enable Microfinance to succeed in a country. We used a case
study approach combined with a little bit of correlation analysis. The case study approach is the most
adapted to studying small samples in more detail. The success of Microfinance is linked to population
density, smallness of a country's geographical size and its poverty as well as the amount of international
donor funds it has received. The availability of oil exports as revenues may lead to a delay in developing
microfinance. Establishing a specific legal framework for Microfinance, such as in Morocco, may help
foster the growth of Microfinance. The existence of Apex organizations for centralizing international aid
and redistributing funds may in fact lead to lower donor participation since their choices are reduced and
an extra level of bureaucratic costs is imposed. The results also indicate the need for a better quality
database than that currently provided by the MIX. Biases may come in from the small sample size as well
as from the lack of data on Libya. Future research may focus on correlation with violence, corruption,
women's rights, political risk and economic sanctions. The findings would lead microfinance institutions
to lobby for specific laws, more initial direct donor funding, less government apex distribution and better
information databases. This kind of comparative institutional analysis has not been performed, at least for
Key Words: Institutional analysis, regulation, microfinance, North Africa
Electronic copy available at: http://ssrn.com/abstract=1472751
The ranking of the top fifty Microfinance Institutions (MFIs) by Forbes brought a surprise.
Four of the top fifty institutions were from Morocco. While we are used to seeing the large
institutions from Bangladesh in this ranking, and we imagine that institutions from densely
populated areas would make it into this list, Morocco was a surprise. A relatively small
country in North Africa, with considerable amounts of desert, does not a priori make one
think of microfinance penetration. Nevertheless, half of the microfinance beneficiaries in the
Mediterranean region are found in Morocco. The Forbes study was based on the
Microfinance Information Exchange (MIX) database of over 1000 microfinance institutions
out of an estimated population of over 10,000 worldwide. However, the MIX database is not
representative. It looks at only formal MFIs such as banks, NGOs, NBFI and semi-formal
institutions such as co-operatives. It excludes the proliferation of informal MFIs such as self-
help groups and trade finance. Therefore, we should nuance the success of Morocco and
indicate that it has successfully developed a sector of formal and semi-formal MFIs. A
second problem with the MIX database is that the data is purely self-reported and voluntary.
Nevertheless, it is a database which is publicly available and we can imagine that in terms of
number of customers reached, the MIX data base probably represents a vast majority of the
total MFIs in the world.
What is more surprising in the Forbes study is the relative absence of MFIs from the rest of
North Africa. Out of the other North African countries, one Egyptian MFI and one Tunisian
MFI appear in the Forbes 2007 ranking. Algeria and Libya are absent. A first explanation
might be in connection with the fact that it may be particularly difficult to get data about these
two latter countries. Another explanation may be that there are a number of MFIs which just
missed the top 50 rankings of Forbes but which are located in these other North African
countries. Therefore, we looked at the entire MIX collection. There are 49 MFIs listed in the
North Africa and Middle East region. Of these, 22 are in North Africa. The break-down of
these MFIs is given in Annex 1. The analysis confirms the Forbes sample. Moroccan MFIs
constitute 85% of gross loan portfolio and 70% of total number of borrowers in North Africa.
This is notwithstanding the fact that there are more Egyptian MFIs (11) in the database than
Moroccan (10), with the last being Tunisian. The high outreach of Morocco is because
Morocco has many well-developed MFIs, followed by Egypt and Tunisia. Once more, there is
a complete absence of Algerian and Libyan MFIs in the database. It is possible, a priori, that
MFIs in Algeria and Libya are of the semi-formal or informal type. Even if there is under-
reporting to the MIX from Algeria and Libya, it does appear that there is considerably less
microfinance penetration in these 2 countries. But without data, it is not possible to confirm
All this explains why it is interesting to examine why some countries succeed in establishing
formal MFIs and others do not. A priori, these North African countries share some common
physical and human geographical traits. They are all Mediterranean countries, with large
tracts of deserts of different types. They have a similar historical background steeped in
Islamic traditions. This means that many elements of human geography and some soft
institutions are shared.
The paper would like to use the similarities and differences of these five countries to identify
cultural, institutional, economic and perhaps geographic factors which explain why formal
microfinance arrives sooner in some environments than in others.
The paper conducts a literature review to list factors which are commonly considered to be
relevant factors, based on individual country longitudinal studies or multi-country cross-
sectional studies. These factors are then analyzed for these five countries. Based on this, we
can report whether correlations confirm or negate expected roles attributed to these factors.
After that we go into a deeper institutional analysis of these countries. For this, we first
compare the broad political, economic and legal environment and the financial institutional
framework in the five countries and then we look at the historical evolution of Microfinance
Institutions in these countries.
Preliminary Statistical Analysis
A recent paper by Vanroose (2008) is based on a multi-country survey of over 115 countries.
Three of the six propositions she tested were not validated: no significance has been found.
Two were validated. In one she found the inverse of what she expected. Her research has
been a starting point in order to test other factors for explaining microfinance growth.
Our study, based on different data, tests her results for our five country sample. We also
consider other factors which may explain the success of one country rather than another.
Although a small sample size limits the statistical validity of the research, it permits a deeper
analysis and appreciation of qualitative factors, yielding different results.
The preliminary analysis is based on four or five countries, depending on whether we were
able to find information on Libya. Information for the other four countries was usually
available from mixmarket.org, from the World Bank World Development Indicator and Global
Our results for the different hypothesis are presented in Annex 2. Conclusions about this
preliminary statistical analysis can be dispatched into two categories: economical matters
and political choices.
The proposition according to which microfinance is more present in poorer countries among
developing countries seems to corroborate the mainstream argument (and reverses the
finding of Vanroose (2008)) that richer countries (GNI per capital) have less Microfinance, at
least in the sample of four countries for which we have information. It could be argued that
among developing or middle income countries, microfinance takes root as a poverty
mitigation tool and is therefore more prevalent in poorer countries (Westley, 2005). However,
the correlation is significant only at 89% confidence level. We went a step further and used
GDP corrected by purchasing power parity. Not only the negative correlation got confirmed,
but now the results became significant.
For the relationship between inflation and microfinance, we find low correlation, confirming
Vanroose (2008) results (Jacquier, 1999).
As regards the proposition that microfinance could be spurred by donors (Imboden, 2005),
we find a modest positive correlation between microfinance and aid to GNI ratio.
We have tested for the proposition that larger countries should logically have more
microfinance. The size of the country has been based on three variables: GNI, population
and geographical area. Our proposition on large size of the country affecting Microfinance
provides curious results. There is rather low correlation with respect to both GNI and to total
population. However, there is a strong correlation to geographical size, but ironically it is
negative. This may be due to the fact that most of the large size is desert and that in fact the
large size is related to lower population density. For population density, the four country
survey conforms to conventional wisdom (Hulme and Moore, 2005). There is a high
correlation between Microfinance outreach and the population density of the country.
While Vanroose (2008) finds an insignificant relationship to level of industrialization, we find a
high but, again, non-significant correlation to manufacturing value added figures.
We also looked at economic growth. The hypothesis would be that growing countries would
need more financing or more financing would lead to faster growth (Crabb, 2008 Rhyne,
2001). In either case, we would expect a positive correlation. For the relationship between
growth rate and microfinance, we had found a high correlation with the 2006 growth rate in
GNI. However, growth rates fluctuate. So, we took the average growth rate over the eight
year period 1999-2006. Our analysis does not show a high coefficient of correlation.
Also, since we had data for the cost of setting up business easily, we tested the proposition
that lower set up costs encourages enterprise which should increase the demand for
Other fields have been explored; they are all connected with political or institutional factors.
It is possible that set up costs to create enterprises discourages enterprise and reduces the
need for micro-financing. However, low enterprise registration costs as a function of GDP per
capita also did not show any correlation.
Another explanatory factor could be competition by other sources of microfinance. We find a
strong and significant negative correlation to the rank between percent of population served
by postal accounts. This new channel of financing could replace traditional banks where
microborrowers are excluded from classical banking system.
The correlation to public infrastructure as a determinant of MFI expansion was tested by
looking at the percent of roads that were paved as an indicator for ease of reach. There was
We had expected, in line with the Vanroose (2008) literature review, that the development of
microfinance would be influenced by literacy levels. However, we find a high negative,
significant, correlation with male adult literacy, suggesting that microfinance could be co-
related to low literacy levels which is in turn correlated to lower income levels in those
Having looked at the different explanatory variables, we find that the only high correlation
factors with significance to explain the success of Morocco seems to be population density,
poverty, low literacy rates, extent of industrialization, small geographical size and absence of
Are these factors sufficient or do we need to go deeper into an institutional analysis?
According to Zuberi et al. (2003) even phenomena like fertility rates and death rates could
have structural effects on society, with a two-way relationship. Therefore, we need to look at
specific institutional factors. This will be the focus of the next section.
Institutional Analysis of North African Microfinance
We look at the institutional analysis from five different perspectives. We look at the political
history of these countries, their economic environment, the legal and institutional framework,
the history of the growth of microfinance in these countries, and the characteristics of some
of the more successful MFIs of this region.
Political History. As a brief history of the five countries, we can say that four of the Maghreb
countries (with the exception of Morocco) were part of the Ottoman Empire till the late 19th,
early 20th centuries. Europeans (French, Italian and British) started their occupation of the
Arab countries during the 19th century: the conquest of Algeria, Morocco and Tunisia by
France; the British invasion in Egypt, the Italian colonisation of Libya. Morocco, Tunisia and
Egypt benefited from a protectorate status but Algeria and Libya experienced colonisation
movements. The independence of the five states of North Africa was realized between 1951
and 1962. The results of our historical analysis are in table 1 below.
Table 1: Political comparison of the five North African Countries
Morocco Egypt Tunisia Algeria Libya
Beginning of European
1832 1882 1881 1830 1912
Date of independence 1956 1952 1956 1962 1951
Length of colonization (in
124 70 75 132 39
Political influence Liberalism Liberalism Socialism Socialism
Political government Constitutional monarchy Republic
considered as a
Religion Islam Islam Islam Islam Islam
From table 1, we can see that all the countries share a past with high influence of
imperialism, having gained independence at different dates in the 1950s and 1960s.
Therefore, the fact of imperial presence does not seem to matter, nor does the number of
years since independence have any correlation with the rank in microfinance, nor the number
of years of colonial presence. The latter correlation coefficient increases but does not
become significant if we can increase the number of years of imperial influence of Egypt to
154 years if we add the first attempt in 1798 with the Bonaparte's Campaign of Egypt.
However, whereas Morocco and Tunisia had protectorate status, Algeria was a colony of
France. Therefore, perhaps, the depth of imperialistic influence in the past may have a
correlation with the extent and persistence of nationalistic post-independence influence. This
nationalistic sentiment, in Algeria – where French colonization lasted over 132 years – and in
Libya, may have been responsible for a politically isolationist attitude, thus cutting off
international aid, vital for the development of microfinance. Moreover, the same nationalism
may also have led to a closed mind to try out ideas like microfinance which succeeded
An alternative explanation could be that Libya and Algeria chose a socialist model, aligning
with the USSR, and as such they received little international aid, and hence microfinance did
Libya is considered to have a dictator, Morocco is a monarchy, and Algeria, Tunisia and
Egypt are democracies. Therefore, as far as formal institutions are concerned, Morocco
would be closer to Libya and Algeria would be closer to Tunisia and Egypt. However, a
deeper examination would look at the de facto working of the political party systems to
examine if there is real democracy or one-party domination backed by a military regime in
Algeria (Bouandel 2004)1
Moreover, all the countries share a similar religious Maghreb Islamic culture. Thus, the
influence of this aspect of religion and culture cannot be analyzed.
, for example and whether Morocco is not in fact a constitutional
Monarchy such as UK. These aspects and their role in Microfinance are left for further
Ultimately, our analysis of the political history would indicate that the isolationist and
dictatorial regimes may have had an influence in the retard in the development of
Microfinance in Algeria and Libya.
Future research needs to treat this issue further. As indicated by Zuberi et al. (2003),
colonization and the redefinition of borders in large tracts of Africa creates heterogeneous
societies with conflicts and violence, less inducive for economic development. This issue
needs to be more deeply examined for North Africa specifically to check if borders have
really been shifting and whether it is as affected by migration as sub-Saharan Africa.
Economy. Our comparative economic analysis of these countries suggested additional
possible explanations. Table 2 provides a brief description of these economic indicators
(other than those already analyzed in Annex 2). From this, analysis, we note that Libya and
Algeria are major oil exporters while Morocco and Tunisia are not. We find a significant
negative high correlation between the level of economy dependent on oil exports and
microfinance. Oil rich countries may have other mechanisms of looking after the poor:
therefore, financing micro-entrepreneurs may not be necessary. We find that all the five
countries also import oil. It is possible that they export one variety of oil and import a different
variety. The correlation with microfinance development is even stronger and positive and
1 Except in the 2004 Presidential election of President Abdelaziz Bouteflika, all other presidential elections,
including the first term of Bouteflika were supported by the military or were military coup d'Etats (Bouandel,
significant. The reasoning is inversely similar. If we take net oil exports (indicated in the table
2 below), we again get the same high negative correlation as for gross exports and about the
same high level of significance.
Table 2: Comparative Economic Indicators
Morocco Egypt Tunisia Algeria Libya
Unemployment 15% 10,1% 13,9%
Most important economic
Farming (rural) then tourism
Tourism Hydrocarbons Petroleum
Oil county (Net exports /
imports barrels per day)
-168 140,00 64 700,00 -15 340,00 1 830 890,00 1 454 425,00
We can also observe that countries in the first ranks are touristic countries, perhaps because
politically they are more open. This may be an explanation as far as it can contribute in
developing microfinance. Indeed, in these countries we can find craft shops where owners
may need a small amount of money to begin their business. In this line, we can add that in
socialist countries, contrary to countries with influence of liberalism, entrepreneurship is not
encouraged. This can be an explanation of the poor ranks of Algeria and Libya.
Statistics for unemployment in less developed countries are not reliable since disguised
unemployment plays a significant role, especially in rural economics. However, a correlation
test based on table 2 figures using 20% unemployment for Algeria (the mid-point) indicates a
strong negative and significant correlation. However, the causal relationship is more likely
that microfinance reduces unemployment rather than employment encourages microfinance.
Legal and institutional framework. We have compared the financial and institutional
framework of these countries. In Annex 3, we present the comparison of the financial
legislative framework in which MFIs are operating, and further developments will show the
legal ownership of the MFIs, the supervisory bodies, the funding and financing sources and
the authorized activities of the MFIs. We do not have sufficient information for Libya and we
therefore compare only the other four countries.
The table given in annex 3 provides details of the legislation in the financial sector, including
banks, non-banking financial institutions, development agencies, cooperatives / credit unions
and NGOs. Whereas Morocco and Tunisia have a spefic law for microfinance institutions
(Reille and Lyman 2005), Egyptian and Algerian NGOs are governed by the law on NGOs in
Based on these legislations, the following table 3 summarizes the institutional framework of
Table 3: Comparative legal governance of financial institutions
Type of institutions
Morocco Egypt Tunisia Algeria
Commercial banks State-owned
Mostly state-owned banks
while NBD is the sole private
Six State-owned banks
represent 90% of banking
na Na na
State owned, or joint-stock
Post State-owned State-owned State owned State owned corporation
Development agencies SFD is quasi-governmental State owned
Unions State owned
Cooperatives have to form a
banking subsidiary to
provide banking services
Associations. No legal
path for NBFI
foundations. No legal path for
Theoretical transformation to
corporation is possible but
State owned + founding
members. No restriction on
In all the Maghreb countries, the State seems to play a major part in the banking and postal
systems. This therefore does not allow us to comment on the reasons why Morocco would
fare better than the others in Microfinance.
Although it is expected that the ability of NGO-MFIs to be able to transform to a NBFI
enables them to attract more funds and grow, it is paradoxical that while the first three
countries do not have a legal path for “transformation”, Algeria which has the most enabling
environment in this regard is the worst performer. The MFIs in the four countries are
predominantly NGO-MFIs or state owned.
It should be noted that an overall well-developed financial system may provide the basis for a
better microfinance sector. To this end, Morocco is seen to have a well developed financial
system by regional standards. The table 4 below provides the governance provided by
Table 4: Financial Oversight institutions in North African coutnries
Type of institutions
Morocco Egypt Tunisia Algeria
Credit and Savings National
Committee + Credit
Establishments Committee +
The Central Bank of
The Central Bank of
Tunisia (BCT), the
Minister of Finance
Bank of Algeria
na Na na Bank of Algeria
Post State tutorship
Ministry in charge of
Ministry in charge of postal services.
SFD for Microfinance
Head of Government; Minister
responsible for employment; and
Ministry of Labor and Social Security.
Set up ANSEJ, CNAC and ANGEM
Office of Cooperation
Ministry of Finance +
Federation of Microcredit
Associations + Bank Al-Maghrib
Ministry of Social
The Ministry of
Finance, The Ministry
of Social Solidarity
Ministry of the Interior
In all the countries studied, as expected, banking oversight is provided by the Central Bank.
For NGOs related to microfinance, oversight is provided by a Ministry. In Morocco and
Tunisia, where there is a specific Microfinance law, oversight is provided by the Ministry of
Finance. In Egypt, Microfinance is treated as a solidarity issue and the Ministry of Social
Solidarity provides oversight on the NGOs. Strangely, in Algeria, associations seem to be
"policed" by the Ministry of Interior (CGAP report 2006). Perhaps, this provides a negative
MFIs often need exemption of taxes or subsidies in the beginning to stabilize and a sustained
source of financing for subsequent growth. Morocco and Tunisia have a high degree of
subsidy. Morocco also has a high degree of foreign funding. As regards ability to raise
financing on an ongoing basis, Egypt and Tunisia MFIs face hurdles in raising further
commercial loans and other sources of funds.
Table 5: Financial Governance of financial institutions in North Africa
Type of institutions
Morocco Egypt Tunisia Algeria
None. Private entities may
own shares in state-owned
ODA (40% foreign
funding as of 2003).
Mainly USAID, KfW and
UNCDF; Very hard to borrow
commercially as MFIs are not
allowed to pledge their assets,
restricted fund raising ability
Tunisian bank of Solidarity
(TBS) funds NGOs at zero
interest rates. Highly
subsidized, but attracting
other sources of funds is a
No collection of funds is
authorized except through
appeals to the public,
grants, and possible subsidies
The FNAM (Fédération
ethical codes/ but not
The SFD is in charge of
planning and coordination of
microfinance and does the
liaison with international
donors (EU) for developing
Tunisian bank of Solidarity
(TBS) allocates credits to
SDA / ANGEM provide funds
to commercial banks.
laundering, legal and tax
requirements in loan
Table 5 suggests that perhaps, some restrictive regulations matter may have dissuaded
MFIs to invest in Algeria (Fournier 2002). Indeed, anti-money laundering laws (AML), and
legal and tax laws relating to loan agreements have been enacted there. However, even if
we haven’t yet found information about similar regulation in other countries, we can guess
that antiterrorist financing legislations probably exist in all the countries of the sample, which
might attenuate this conclusion.
In Tunisia and Algeria, foreign aid seems to be controlled and centralized through Apex
bodies like the Tunisian Bank of Solidarity or the ANGEM, who then redistribute the funds. In
Morocco, at the other extreme, individual MFIs seem to be able to receive funds directly from
international donors. This may therefore suggest that donor aid prefers to reach the final
recipient as directly as possible, eliminating national tentatives to centralize and control,
which are seen as additional layers of bureaucracy, thus reducing the final amount available
to the ultimate beneficiary.
The authorized activities of the different financial institutions are compared in Table 6. As can
be seen, all the countries seem to allow banks to offer all financial products except
insurance. Therefore, this factor is not a key success factor.
Table 6: Comparative licensing and authorized activities
Type of institutions
Morocco Egypt Tunisia Algeria
Deposits, credits and investments.
Some microfinance programs, like
the National Bank for Development
(NBD), provide life insurance to
their clients to cover part of the
amount lent in case of default due
Deposits from the public
but limited , granting of
loans, foreign exchange
All banking transactions,
including taking deposits,
granting loans (including pawn
broking, leasing and signature
loans) and managing means of
na na na
All services except taking
deposits and managing means
funds. No loans
National Postal Authority offers
savings. Recently authorised to
start credit and remittances
Savings and postal
checking accounts only.
Saving and checking accounts
and cards only. Has
partnerships for loans
SFD provides credit, technical
assistance, skills, and technological
Social and Economic activities
+ granting interest-free loans
and subsidizing bank interest
Economic and social
services. No deposits
Loans only, No deposits or
Cooperatives no longer
allowed to do banking
operations: have to start a
banking subsidairy. Credit
union may collect and raise
funds and grant loans
exclusively to its members
No deposits. Loans
only. Interest rate caps
exist but not enforced
in practice (maximum
rate in 2008 : 45%)
No deposits or insurance. Loans
only. Interest rate cap exists at 4%
BTS associations: loans
only. No deposits. Interest
rate capped at 5%.
ENDA offers loans + Non-
financial services (training,
etc.). No deposits. Interest
rate cap not enforced on
The nonprofit pooling of
knowledge and resources to
promote professional and
social activities. No savings.
Interest rate caps have been
eliminated since 1995
Also, MFIs are not permitted to take deposits in any of these countries. This is normal to
protect small savers. The four countries offer savings and remittances through the post
office. Morocco anecdotally offers the most number of products though its coverage is low at
10% of the adult population. As we have seen earlier, there is a strong negative correlation
between the ranking and the prevalence of postal accounts, indicating perhaps that countries
which provide microfinance facilities through post do not need to have an informal
As regards interest rates, all the countries except Algeria have interest rate ceilings, but it is
more in letter than in practice in the case of Morocco. It is perhaps a factor in its ability to
raise funds. However the ceilings do impact the profitability and ability to raise funds in Egypt
In Annex 4, we describe some features of the history of microfinance in the four countries.
We have not found information for microfinance for Libya. Perhaps no Microfinance activity
exists in Libya probably because of the high petroleum activity which makes Libya a rich
country. In the absence of information, it is difficult to say. The main limitation is that
historical information for the four countries is rarely available in a uniform manner. Based on
this we can make some broad comparisons, summarized in Table 7.
The first is that microfinance in North Africa is more recent than in countries like Bangladesh,
where it started in the early 1970s. Tunisia was the first North African country to start
microfinance in the 1980s.
Table 7: Comparison of Microfinance Environment
1996 Microfinance started in around 1990
Directly: "Hassan II funds":
100 billion DH (11,7 million
owned Banque du
Caire is one of the two
systems + Tunisian
Bank of Solidarity
Development Agency then
ANGEM (National Agency
for Management of
Specific microfinance law 1999 No 1995 No
Potential borrowers' market
14 or 15 millions but
FNAM's official aim is 5
million until 3 or 4 years
76% (with a weak increase
potential because of law
level of life and education)
About 5 millions households
and 150 000 small firms
Unbanked population 70%
Credits already granted
19,2 billion DH ( 2,2 billion
189 million dinars
(134 million USD)
39 millions DZD (433 000
99% in 2007 decreasing to
95% in late June 2008
85% falling down to 35% in
Rates of lending (in % of
56% 61% 13%
FitchRatings, 2006; Heddad, 2006
The history also indicates that Tunisia has opted for a model of Apex funding to many (227)
small associations in different regions. These small NGOs are not reported in the MIX.
Therefore, the ranking provided by the MIX data may not be perfect.
The history or repayment rates indicates that Morocco has not only the largest Microfinance
sector, but also the highest repayment rates. On the one hand, it seems that the poor in
Morocco are more honest than the poor in other North African countries. But it must be noted
that when microfinance is financed by increasing amounts of donor aid (and Morocco has
received large amounts of this), it is easy to disguise loan defaults by giving new loans to
repay old ones. An extreme example of recent scandals is in Benin (IRIS, 2009). However,
MixMarket. It means that this legal form of not-for-profit may be a key to success for MFIs in
Morocco is also facing increasing default rates owing to the perception of borrowers that the
loans were in fact subsidies. This would explain why they borrowed more in the past.
Study of a sample of largest MFIs in Maghreb.
Finally, we will study a few large MFIs of the region. These large MFIs represent the bulk of
lending. Thus the success of these MFIs could determine the success of the microfinance
sector in a country. We would like to see if a comparison of these large MFIs throws up other
institutional factors determining the success of Morocco. Five of these are from Morocco, five
from Egypt and one from Tunisia. The major limitation of this analysis therefore stems from
selection bias: failed MFIs may also have had the same features. Different features are going
to be explored from the legal form to the size of MFIs in the sample.
It appears from the table that most large MFIs in North Africa
are NGOs apart for Egypt where the Banque du Caire and the
National Bank for Development are banks. However, the
National Bank for Development of Egypt and the Banque
Tunisienne de Solidarité in Tunisia are not represented in the
North Africa. This may be because banks are State owned and perhaps less enterprising.
At a first glance, all MFIs are situated in the biggest
cities. In Morocco, the five largest MFIs are either in
Rabat, the capital, or in Casablanca, the economic
capital of the country. In Egypt, the largest MFIs are situated in Cairo, the capital and Giza
(at the base of the pyramids where there are many artisans). In Tunisia the MFI is situated in
Tunis, the capital. Therefore, the location seems to be a key success factor. This may be
because North African MFIs target urban people rather than rural people who are really
dispersed. Tunisia actually targets relatively more in rural areas through cooperatives. But
the information does not represent the real microfinance situation because many branch
offices may be present in rural areas in each country. For instance, ARDI began with 70
offices, goes up to 250 by the end of 2008 in order to reach 300 at the end of 2009. Among
MFIs in Morocco some have a national coverage, others have a regional focus and finally six
are officially proximity associations. So, there is no uniformity within MFIs in Morocco.
Therefore, this element of location might not be used for explaining the success of these
Age of the MFIs in North Africa
Age of the MFIs
Source : MixMarket
The four top MFIs in Morocco were all created at least ten years ago. Concerning the
Banque du Caire in Egypt, microfinance was launched in 2001 and then it has just practiced
it for 8 years. So, this may be a good indicator of success. Generally speaking, MFIs need
more or less ten years of experience to get mature in microfinance.
Size of the MFIs
The size of the first five Moroccan MFIs varies from ARDI
with 90 employees to Al Amana with 1845 employees.
ABA is as big as BdC which is a bank, both working with
over 700 employees. Surprisingly, Enda has only got 207
employees. Then, we can suppose that MFIs need to
reach a certain size to be more successful in
Our preliminary statistical analysis indicates that the success of Microfinance is linked to
population density, smallness of a country's geographical size and its poverty as well as the
amount of international donor funds it has received.
Our analysis of political institutions and history suggests that the low amount of international
aid to Libya and Algeria may have two sources: an isolationist and nationalistic sentiment
prevailing for a longer time owing to the depth of colonialization in the past, or a choice to
align themselves with the USSR.
The economic analysis indicates that the availability of oil exports as revenues may lead to a
delay in developing microfinance, perhaps because other options are then available of
Our institutional analysis indicates that establishing a specific legal framework for
Microfinance, such as in Morocco, may help foster the growth of Microfinance. At the same
time, the existence of Apex organizations for centralising international aid and redistributing
funds may in fact lead to lower donor participation since their choices are reduced and
perhaps because donors may perceive this as an extra level of bureaucratic costs imposed.
The existence of a well developed postal system offering banking facilities usually means
that formal microfinance is not required and does not develop.
Our study of the history of the MFIs of these countries indicates that Tunisia has gone for an
Apex structure which provides funds to hundreds of small MFIs which are not reported in the
MIX. Therefore, the MIX classification may not represent the correct ranking. This conclusion
is further vindicated by the absence of some major institutions from the MIX data: the
National Bank for Development of Egypt and the Banque Tunisienne de Solidarité in Tunisia
are not represented in the MixMarket.
Our study of the large MFIs of this region indicates that they are primarily NGOs. This again
shows large dependence on donor funds, especially because deposits are not allowed for
NGOs. All these elements gathered are good keys to understand the proeminence of
Moroccan MFIs in the international rankings.
One question for future research could be based on the observation from a study of Algerian
history that violence has marked the country not only during the colonial period, but
thereafter as well (McDougall 2005, Viorst 1997). Although McDougall (2005) would like to
explain violence through socio-cultural analysis rather than use violence as an explanatory
factor, much of history is path dependent and in the real world economics tends to be
evolutionary rather than neo-classical. As a result of violence, political risk is high, creating
high systematic risk for all businesses2
2 For example, Zuberi et al. (2005) indicate that African industries did not develop during the entire era of
slavery because of violence and this created a dependence on imported goods.
. This means that the political climate does not
encourage micro-entrepreneurship. However, we would need to find comparable statistics of
deaths caused by violence for all five countries to perform even superficial analysis. Viorst
(1997) and Turshen (2002) suggest that the strong Islamic movement in Algerian politics
during the 1990s and the early years of this decade was the result of bureaucratic corruption
and indifference of the ruling National Liberation Front (FLN) party, despite being socialist in
ideology. Therefore, microcredit development may be correlated to bureaucratic corruption
rank (maybe Transparency international could provide the sources). Other factors they
suggest for the violence are the tripling of the population creating huge pressures and the
overdependence on natural resources such as oil implying that if prices or world demand go
down, unemployment is created which in turn leads to fundamentalism and violence, which
then discourages microfinance.
This violence has been coupled with a strong reduction in women's rights in Algeria since the
enacting of the Family Code in 1984, accelerating with the strong increase in Islamic
fundemantalism during the civil war of the 1990s (Turshen 2002). This is precisely the period
in which Microfinance started in North Africa. However, if women are not allowed to work, it is
understandable that microcredit, which has been a rather feminised phenomenon, did not
Another area to investigate is the degree of nationalisation. Algeria has gone in for a strong
investment in public sector run enterprises. Thus, again we need to look at the share of
private sector in the total economy.
Lenway's (1988) review of literature on economic sanctions suggests that although recent
authors may prefer them to military pressures, economic sanctions and embargos, such as
those on Libya since 1986, are essentially ineffective, because the target country can turn to
others for import, the target country's political will to defy the sanction creates internal
cohesiveness, and eventually only the punishing country is hurt because its exports reduce.
The question would be whether Libya benefitted from such embargoes to create its own
industries and micro-entrepreneurship base. Unfortunately, data on Libya is limited.
Annex 1: North African MFIs according to MixMarket.org
Name Country Type of
Portfolio in USD
Morocco Al Amana Non-Profit
304 743 477,00
Morocco Zakoura Non-Profit
198 205 389,00
134 291 756,00
51 441 777,00
35 372 853,00
29 982 879,00
21 105 161,00
18 739 959,00
15 609 357,00
10 126 474,00
5 780 163,00
4 718 418,00
4 648 401,00
3 302 287,00
3 301 613,00
3 022 720,00
2 624 821,00
2 350 202,00
1 266 915,00
1 176 593,00
Tunisia Enda Non-Profit
Egypt Al Tadamun
Morocco Al Karama Non-Profit
Morocco ATIL MC
Annex 2: Tests of different hypothesis
Vanroose explanation for the
Findings about the
the North African
Reverse rank for correlation
1. Microfinance tends to exist in
Inflation rate (2006)
Opposing forces offset each
2. Microfinance reaches more clients
in countries that receive a higher
proportion of international aid
Aid to GNI ratio in
But causality could go both
3. The microfinance sector is more
developed in densely populated
Also explains why urban
microfinance spreads faster than
MFIs reach more countries in
Positive, significant Confirms hypothesis
GNI per capita
GDP per capita
based on PPP (2005)
5. Microfinance is more developed
in less industrialized economies
6. Microfinance is more present in
developing countries that have
higher literacy rates
Literacy rates of
males years 15 or
66,00%83,00% 83,00%80,00% 93,00%
grow in poorer
literacy rate is
GDP (current US$;
(thousands - 2006)
57 306 730107 484 037 30 298 491114 727 059
Positive -0,30 0,35
30 49774 16710 128 33 351 6 038
Positive 0,52 0,18
Total area (square
710 0001 001 450163610 2 381 7411 759 540
Due to the large size
of desert that causes
decrease of density
8. Faster growing countries have
GDP per capita
growth (annual %)
average of 1999-
Cost to register a
business (% of GNI
fluctuate, which is a
kind of biases
9. Lower enterprise setup costs
encourage enterprise and financing
Negative 0,15 0,42
10. Countries with better public
infrastrucure should have more
11. Well developed postal systems
should decrease demand for
Roads, paved (% of
total roads - 1999)
% of population
covered by postal
4. Microfinance is more present in
poorer countries (among developing
7. Larger countries have more
develops as a
Annex 3: Legal and Institutional Framework of the four countries (Excluding Libya)
Type of institutions
Morocco Egypt Tunisia Algeria
Banking law (No. 34-03)
Banking Law (The Law of the Central
Bank, the Banking Sector and Money
No. 88, 2003 and amended 2005) +
Banking Regulations (Presidential
Decree No. 101, 2004)
Banking law (Law No. 2001-65, 2001 modified by
Law No. 2006-19, 2006, Law No. 2005-96, 2005)
Ordinance (No. 75-59 ,1975) , Act 90-10 of April
14, 1990 on Currency and Credit, as amended
by Order O3-11 of August 26, 2003
Ordinance (No. 75-59,1975) + Ordinance (No.
Law (No. 88-01, 1988) + Law No. 2000-03,
2000) + Executive Decree (No. 02-43, 2002)
Law (N°24-96) on Post Laws 16/1970 and 19/1982 Postal code (Act 98-38 of June 2nd, 1998)
The Small Enterprise Development Law
No. 141, 2004 names SFD as
Presidential Decree (No. 03-300)
Cooperative law (No. 24-83, 1984
+ amendment 1993)
Unions are covered under
Nongovernmental Organizations law
(Law No. 84, 2002)
OMC 03-11 abolished the monetary authority’s
power to grant a cooperative insurance
company special dispensation to engage in
banking transactions, new regulations required.
Article 81 of the 2006 Budget Act introduced the
notion of credit unions.E44
Law Regulation Associations
(1958 Dahir) + Microcredit law
(No. 18-97, 1999, 2004; n° 04-07,
2007) + Banking law (supervision)
+ Bank Al Maghrib's regulation
Law on Nongovernmental
Organizations (Law No. 84, 2002)
Banking law (Law No. 59-154, 1959, Law No. 99-
67, 1999) + Convention between the Ministry of
Finance and the BTS concerning the
management of the line of credit made available
to associations authorized to grant microloans."
MFI Law (Law No. 95-154, 1995)
Law (No. 90-31 on associations) + Article 77 of
Ordinance No. 03-11. OMC 03-11 allows
Algerian NGOs to engage in lending to their
members without being subject to banking
Fournier, 2002; Moussa, 2006; Reille and Lyman, 2005
Annex 4: Brief history of the development of Microfinance in the North African
The first reference to microfinance was made during the summit on the desertification of Morocco in
Thereafter, key MFI formation dates are:
. Some participants of the Catholic Service Relief (CSR), in partnership with the AMSED
(Association Marocaine de Solidarité et de Développement) decided to experiment in the rural sector
in the « Middle Atlas » region, near Khenifra in collaboration with the local association Oued Srou. The
first loan was allocated to a group of eight women. A few attempts confirmed the efficiency of the
system, well adapted to the Moroccan tradition of unity.
1993 : The association AMOS, Association pour le Microcédit Oued Srou, started its microcredit
activities for 300 clients in the region of EL Kbab
1994 : Extension of the AMSSF program to microcredit (Association marocaine de solidarité sans
1995 : Creation of the Zakoura foundation
1996 : Creation of the ACAET (Association des Cadres et Anciens Elèves de Tanderara) which
became the Al Karama association.
The creation of these agencies was followed by donor aid and government funding. The Micro Start
program of UNDP (United Nations Development Program) started in 1998 providing financial and
technical assistance to six associations with a operational budget of $1.7 millions. Subsequenty,
USAID has granted more than $16 millions largely to the Al Amana association. In 2000, the funds
« Hassan II » supported the sector to the tune of 100 millions DH ( €10millions). This financial
contribution allowed the increase in number and amount of granted loans in particular for the three
main associations: Al Amana, Zakoura and FBPMC.
Initially, microcredit was a component of generalist NGOs activities. However, the enactment of the
law on microcredit (law n°18-97 created the first of April 1999) required the separation of the
microcredit program from their parent/mother NGOs. This law approved and secured the existing
microcredit sector. The institutions are structured in the form of associations in accordance with the
dispositions of the « dahir » law (15th November 1958) which regulates the associative law. But, the
associative form may disappear soon, since a reform is in process. The law now sets 50 000 DH as
the maximum loan size to be termed microcredit.
3 Aziz Heddad, Analyse du secteur du microcrédit au Maroc, Note de synthèse, fin 2006.
The FNAM (Fédération des Associations de Micro Crédit) Is the spokesperson for the sector.
Today, this sector is relatively diversified: three AMCs have a national coverage (Al Amana, Zakoura
and FONDEP), three have a regional coverage and five others are neighbourhood associations and
are limited in scope. Al Amana is the main MFI in Morocco, following by Zakoura, FONDEP and
FBPMC. The five associations are looking to transform to financial institutions,
By June 2007, 4,5 billions DH of outstanding loans had been granted to 1.2 million borrowers, two
thirds being women. Moreover, more than five millions of microloans have been granted since the
launch of the sector (average amount of 3568 DH). The repayment rate is 99% as of 2006. More and
more, new products are being introduced such as housing credit, insurance, (in addition to income
generation loans) innovations adapted to the rural region and a continuous increase of individual
loans. This sector employs more than 3500 professionals.
Despite progress, 75% of the population is unbanked.
Egypt was the early leader in the MENA region with 60,000 active borrowers in 1997, though it has
lost its position in recent years. There is no specific law for microfinance in Egypt. However, MFIs are
subject to laws applicable to NGOs, small and medium-sized enterprises (SME), Companies Law and
the Banking law. Micro-enterprises are defined by a 2004 law as small enterprises in which there are 5
to 49 employees and between EGP 50000 and 1 million paid up capital.
The National Bank for Development (NBD) was the pioneer private sector bank in Microfinance.
Today, the two leading institutions in the MF industry are the State owned “Banque du Caire” (BdC), a
licensed bank, and ABA (Alexandria Business Association). BdC was created in 1950 and is actively
in the MF sector since 1999. Its micro-lending services were designed using USAID funding. It
provides individual loans (attracts more urban and services enterprises) and can accept deposits. ABA
has been in operation since 1990. It grants credits, training, technical assistance and mobilize savings
and targeted small and microenterprises. It has 27 branches throughout Egypt and operates in five
ABA’s challenge is to transit into the formal sector and the NBD’s challenge is to become a
national operator. The NBD, provides life insurance to their clients to cover part of the amount loaned
in case of default due to death (Moussa 2006).
In Tunisia, the first microcredit activities started as components of development programs set up by
NGOs in rural regions in the eighties to alleviate youth unemployment, paucity of micro-enterprises
and poverty in rural areas. The activity in the urban regions is more recent starting from the mid-
Several micro-enterprise systems have been set up: Fonds National pour la promotion de l’artisanat
(FONAPRA); Office National de l’Artisant (ONA), the Programme de Développement Urbain Intégré
(PDUI) et rural intégré (PDRI), Fonds National de Solidarité (FSN), Fonds National pour l’Emploi
(FNE) and the Agence Tunisienne de l’Emploi (ATE).
In 1999, the government authorized and regulated the activity of the microcredit institutions by
establishing a law. This latter determines the rates, periods, the amount of loans, authorises the
eligible associations to do microcredit and affirms that MFIs have to provide non financial services
(training course, orientation and assistance).
The two big actors are Tunisian bank of Solidarity (TBS) and ENDA. TBS is a government body which
provides interest free capital to 227 NGI-MFIs to onlend. This is a highly subsidized program that
accounts for 84% of all active borrowers in the country. TBS has a focus on low income rural clients.
ENDA, an international NGO, was created in 1991 focusing on the environment. Since 1995 it has
focused on the development of microcredit with loans, partnerships and training in the regions of
Etthadhamen, M’nihla, Omrane, Séjoumi, Sidi Hassine and Douar Hicher. Today, it is largely oriented
to women. In thirteen years, ENDA has allowed 122000 micro entrepreneurs to take 372,000 loans for
a total of 189 millions dinars. The sector enjoys repayment rates of over 90%.
The postal savings system is the significant provider or deposits services, with an average of one
savings account per household.There are currently 2,254,000 postal savings accounts amounting to
1,205,763,000 Tunisian Dinars (TD) or approximately US$ 884,639,031.
The Algerian experience in microfinance is quite recent (since the late nineties) initiated by the
government in parallel with other development projects. Today, fifteen NGOS are present in the non
profit sector in Algeria, including Touiza since 1996.
Six state-owned banks comprise 90% of the branches. They lend essentially to large
enterprises and to government undertakings. Foreign banks are only looking at high-end customers.
The main actor was the Social Development Agency (l’Agence pour le Développment Social, the
ADS), a public institution which considers microfinance as a poverty alleviation tool and a support for
small economic activities. Since 1999, it has funded commercial banks for onward lending to
microborrowers. In 2002, the ADS announced a non-repayment rate of 47% (since 1999) mainly due
to past and current government policies. Since 2003, the microfinance portfolio has been transferred
to ANGEM (Agence Nationale de Gestion du Microcrédit) for improved monitoring. Fifty to seventy-five
percent of microfinance funding in the country is by the FNDRA.
Today, the potential market (artisans, shopkeepers, famers and employees) size is about 5 million
households and 150,000 small firms. Further there is a sizeable informal sector with 1,25 million
unbanked workers. It is estimated that only 30% of Algerians are banked.
The main institution providing microfinance services is Algérie Poste, which has a large branch
network, manages 7.1 million postal checking accounts and handles more than a million transactions
daily. A major actor for deposits as well as ATMs and inter-bank cards is the Postal Service which has
85% of inter-bank cards and is setting up its own financial subsidiary. Some 1,400 of Algérie Poste’s
25,000 employees work for its financial services arm.
Touiza (meaning mutual help and solidarity), an NGO created in 1962, has been active in
microfinance since 1996 but has only a tiny coverage at 445 loans disbursed since 1999, with loans
outstanding of 39 million DZD ((1 USD = 90 DZD). But, to get a loan from Touiza, the client must
come up with 30% of the amount required by the project from another source.
Other microfinance bodies have been set up such as SDA, ANSEJ (Agence Nationale de Soutien à
l’Emploi des Jeunes), FNRDA (Fonds National de Régulation et de Développement Agricole), etc. But
these systems are inflexible, bureaucratic, and slow. They do not incentivize the recipients to repay:
the repayment rate varies between 20 to 50% whereas the Touiza association gets better results of
85% owing to better management.
All legal forms of MFIs are permitted while the interest rate has been gradually de-regulated, removing
usury rate caps.
Algeria has low rates of lending to the private sector at 13% of GDP (in 2004) compared to Morocco
and Tunisia at 56% and 61% respectively.
We have not found information for Microfinance for Libya. Perhaps no Microfinance activity exists in
Libya probably because of the high petroleum activity which makes Libya a rich country. In the
absence of information, it is difficult to say.
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