Microfinance Sector Development Approach

What is meant by the 'Sector Development Approach' in microfinance?
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This paper discusses the "sector development approach" in microfinance. It details the economic situation in Egypt, focusing especially on microfinance and on micro and small enterprises (MSE).

The paper discusses:

  • The sector development approach:
    • Targets the deepening of commercial financial services to ensure sustainable access to financial services by poor and low-income people,
    • Aims at creating a shared vision of the participants on the optimal development of the sector, based on which a national policy can be developed.
  • The MSEs in Egypt:
    • The huge demand for microfinance is largely unmet,
    • There is no consistent definition of MSE, although it constitutes the backbone of the private economy,
    • The establishment of non-bank credit institutions is prohibited - MSE have to depend on commercial banks or donor-dependent NGOs.
  • The NGOs:
    • Have a limited capital and institutional base,
    • Do not have access to refinance facilities from the formal finance sector and therefore have to depend on donor funding.
  • The donors:
    • The programs offered are numerous and non-coordinated,
    • There is competition instead of coordination amongst donors.

The paper concludes that the Egyptian microfinance sector faces numerous obstacles on policy, legal/ regulatory and institutional levels. This keeps it from reaching maturity where MSE could operate in a favorable business environment, with an unhindered and commercially sustainable access to a diversified range of financial and non-financial services tailored to their needs.

[Adapted from the author]

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