BANKS FOR THE POOR IN THE ARAB WORLD

International Efforts to Fight Poverty:

International efforts joined together in the fight against poverty as a strategic objective, which all parties hope to fulfill. The fight against poverty today tops the list of developmental objectives of the third millennium, which reflects the world’s nations’ aspiration for a better quality of life and a more developed world. This has inspired Regional and International developmental organizations using the Third Millennium Goal as a slogan and working to turn it into reality in the hope to enhance and spread the concept of sustainable human development in all parts of the world.

Microcredit has become a prevalent international trend, where organizations and institutions working in the field of development are integrating the concept in their policies and programs, as it proved to be the most effective tool in fighting poverty and achieving the goals set by the Microcredit Summit Campaign of reaching one million of the poorest of families by the end of 2005 and cutting poverty by 50% by the year 2015- as a contribution towards the fulfillment of the Third Millennium Developmental Goals. The declaration of the United Nations of 2005 as the International Year of Microcredit is yet another confirmation of the importance of such a tool and of the role it plays in eliminating the sources of poverty

The best proof to the impact of microcredit on the international level is the establishment of various financing sectors with the aim of reaching millions of poor people across the world, and the success of such a move in providing the poor with financial service to reduce the poverty they live in. Furthermore, there is evidence that the poorest of the poor are able to utilize credit at limited cost, refuting prevalent belief that this group of people is incapable of benefiting from credit services, and that the cost of financial service rendered to them is high.

In view of such beliefs, AGFUND has assumed a pioneering and distinguished role among regional developmental institutions in the hope to contribute to translating the Microcredit Summit resolutions into tangible results by setting up banks for the poor in Arab states in what was considered a first time initiative on the regional level. AGFUND’s aim is to provide microcredit to the poor people in Arab societies and to continue to support and finance social institutions working in the area of microcredit in the various parts of the developing world.

By examining AGFUND’s strategy, its mission and polity, one would observe that the third millennium goals are an integral part of AGFUND’s objectives, which it has been working to achieve since its establishment in 1980. Since then AGFUND has exerted continued efforts to enhance and spread the concept of sustainable human development in the Third World. Whereas the repercussions of poverty reflect negatively on development goals, fighting and curbing the spread of poverty must be considered among the top priorities of international developmental institutions, including AGFUND, which utilizes a number of available means to fight this phenomenon, foremost of which is the establishment of banks for the poor in the Arab World.

Why Set up Banks for the Poor?

Despite the importance of non-financial services in assisting small and micro projects, the issue of financing remains as the cornerstone that supports these projects. Hence the reasons behind the establishment of banks for the poor in the Arab World, which can be summed up as follows:

Small and micro credit has become a pressing need and a necessity imposed by socio-economic conditions in the Arab World.
There is a big need for small credit in the developing world in general and in the Arab World in particular as stipulated by the prevailing socio-economic conditions.
Microcredit is considered an effective developmental tool, acknowledged by the entire world as a means to alleviate poverty, capable of reaching the poorest and improving their living standards, in addition to creating work opportunities for them and enhancing economic growth.
The formal financial sector has neglected one half of the population in the developing world, offering them much less than what is required.
International donor agencies are paying more attention to microcredit, acknowledging the advantages and its great potential.
Microcredit is now a component in any developmental strategy as it meets the requirements of the shift towards developing the private sector, reviving the role of the civil society and minimizing the influence of governments in the economic activity.

Objectives of the banks for the poor

To contribute to realizing a legal environment conducive for a better application of microcredit practices in the Arab World.
To establish a mechanism for microcredit in the Arab Region as an effective means to reach the poorest by providing them with a service that meets scientific requirements and modern practices.
To design lasting policies and legal framework for microcredit and to try to develop and upgrade those policies.
To provide incentives and to allow the poor an opportunity to acquire extensive financial services, in an accessible and flexible manner.
To support financial institutions working in the area of microcredit for the poor.
To update data on microcredit institutions operating in the region and to make such data easily accessible.

5. Achieve extensive growth by changing the idea that “ low income leads to low savings and low investments which in turn lead to low income ” and create a system in which “ low income in addition to micro-credit and investments lead to higher income, extended credit, increased investments and finally increased income ” .

Factors for the Success of Small and Micro Credit Projects

Following are some of the pre-requisites needed as a basis for the continuity of small and micro credit projects and for those projects to play a role in fighting poverty and fulfill their aspired goals:

Governments must assume a major role in designing micro credit policies and participating in setting up organizational and legal structures for micro credit institutions in the Arab World, out of conviction that microcredit is an effective tool in combating poverty.
Governments must be committed to the independence of credit institutions and should refrain from political and bureaucratic interference in their affairs.
Credit institutions must find encouragement and acknowledgement from the state’s economic institutions, represented by the ministry of finance and the central bank. Credit institutions must also receive appropriate support, supervision and assistance towards their institutional structure.
Sound credit policies are the ones that are based on investment in the human being and in the institution, rather than relying on continued financial support to borrowers and creditors.
Participation in the performance concepts of credit institutions, on the basis of accountability and transparency, is key to a strong, positive and lasting structure, which offers financing services and credit to the poorest of people.
Those in government and in leading positions at credit institutions, who set policies and take decisions, must agree on the basic elements pertaining to credit policies.
There must be favorable laws and regulations that allow for a series of framework and structures that avail financial services to the poorest of people.
Financial institutions providing microcredit must adhere to best practices in this field.
Efforts must be geared towards increasing the support of financers and donors, and new financing windows must be opened to assist small and microcredit.

Middle East / Africa Region Microcredit Summit Meeting of Councils (MEARMS: Amman 10-13 October 2004):

As part of efforts to gear support for its initiative of setting up banks for the poor in the Arab World and to introduce the initiative to Regional and International organizations active in fighting poverty, as well as to contribute to international efforts towards the success of the microcredit campaign, AGFUND, in cooperation with its partners; the Ministry of Planning in Jordan and the Microcredit Summit Campaign in Washington, organized the Middle East/Africa Region Microcredit Summit Meeting of Councils (MEARMS) in the Jordanian capital, Amman during 10-13 October 2004. The Conference came to represent a principal achievement by the organization during 2004 as was considered the most significant event on the regional level during that year. The first of its kind to convene in the region, the Conference was patronized by Her Majesty Queen Rania Al-Abdullah and attended by His Royal Highness Prince Talal Bin Abdul-Aziz, the President of AGFUND. Another factor that highlighted the significance of the Conference is that it drew attention to the major developmental role it would play on the regional level..

The Conference also came at a time when other regions across the world have been witnessing an increasing number of microcredit institutions, unlike the situation in the Middle East and North Africa, where statistics suggest that the number of microcredit institutions in the region is rather small. The timely convening of the Conference served to spread awareness on the advantages of microcredit and to promote the establishment of new financial institutions in the region so as to fulfill the microcredit summit goals, also taking place just a few months before the advent of 2005, which was declared by the United Nations as the International Year for Microcredit.

The Amman Conference also aimed to achieve a number of goals, foremost of which was to fulfill the third millennium goal of reducing poverty rates by 50% by the year 2015 and to realize the goal of the Microcredit Summit of reaching 100 million of the poorest families by the year 2005. <>

The above goals would be translated to reality through the following:

The initiative of Prince Talal to establish banks for the poor was widely supported by most Arab countries, which requested the assistance of AGFUND to combat poverty therein. The first bank for the poor was established in the Republic of Yemen as President Ali Abdullah Saleh approved the establishment of “ Al-Amal Micro-credit Bank ” upon the decision of the Council of Ministers and Parliament. In Jordan, a Memo of Understanding was signed by AGFUND and the Jordanian government to establish the bank and follow up executive steps. In Lebanon, “ Al-Rajaa Micro-credit Bank ” is being licensed. In Sudan, a definition is being worked out for the appropriate form of the bank. AGFUND consults with officials and competent agencies in four Arab states, namely Morocco, Syria, Mauritania and Libya, to find best formula and methods for the establishment of banks for the poor therein.

To increase awareness of the importance of microcredit as an effective tool in the fight against poverty and its adverse effects on the region.
To urge participants, including government and financial institutions representatives as well as donor agencies to integrate into their development policies the microcredit mechanism as an effective tool in the fight against poverty and to place it on the top of its priority list.
To support regional institutions that provide microcredit so as to encourage their work and help develop their institutional structure in order for these institutions to upgrade microcredit services rendered to their populations.
To emphasize the need to train personnel working in microcredit.
To create the appropriate legal environment that promotes microcredit services.
To encourage the private sector to take part in microcredit activities as a profitable tool on the long term.
To exert efforts to change misconceptions about microcredit, which hindered the development of such activities on the level of the region.
To call for strategies and policies capable of fighting poverty and work towards the adoption of best practices in this field.

A total of 650 participants from 75 countries attended the four-day conference. Over 900 people were present at the opening ceremony, including delegates, experts and interested personalities. The four-day program covered five plenary sessions, workshops on 18 topics in addition to 7 training sessions. AGFUND representatives chaired a number of sessions and presented two working papers; one entitled “The role of the banks for the poor in providing microcredit” and the other “The role of financing agencies in funding developmental projects.”

In an address to the meeting, HRH Prince Talal Bin Abdul Aziz called for the establishment of an Arab-African fund for microcredit to act as the umbrella for other institutions working in this field in the Middle East and North Africa Region. This call marked one of the main achievements by AGFUND, and came in harmony with the contents of the paper, which was presented by the organization, on the proposed Fund. The paper touched on the potential partners and the work mechanism of the Fund.

Agfund Initiative to Set up Banks for the Poor in the Arab World

AGFUND has adopted its own pioneering initiative of setting up banks for the poor in the Arab World with the hope of fighting poverty and eliminating its adverse effects on the poor communities in Arab states. Banks for the poor provide microcredit services to the poorest of the poor, relying on the principle of confidence, free from restrictions and guarantees, which are normally imposed by traditional banks. The aim is to upgrade the living standards of this target group and to help them become self reliant and active members of society.

The Target Groups

Microcredit targets the poorest segments of society, which sustain a living by less than one Dollar per day. This same group was also the target of the third millennium, which set the goal of reducing the rate of poverty by 50% by the year 2015. This group has little or no chance of getting a bank loan for inability to provide the required guarantees. Those people need a helping hand to assist them to acquire a skill or obtain a sum of money to start up an income-generating project in order to become active members who can contribute to the development and growth of their society.Microcredit projects are funded in accordance with a flexible system

that focuses on the following:

Identify the target group of the poorest of the poor and the method to be adopted by the bank with a view to the needs of society.
Adopt a flexible lending mechanism, which may not require the borrower to provide guarantees or to mortgage a real estate in return for credit.
Accord borrowers' full freedom of choice as to the productive or investment activity they wish to pursue according to their knowledge and skills.
To include in their activity such programs as those, which promote social development and assist the poor in saving.

Banks for the Poor - Progress

1 - Work is underway to implement the project in several Arab countries, while progress varies from one country to another as follows:

On completion of the executive procedures pertaining to the establishment of the bank, a meeting of the general assembly was held in Amman at the King Abdullah Fund for Development on April 15^th 2005. Attending the meeting were the following:

Prof. Muhammad Yunus, Managing Director, Grameen Bank, Bangladesh, representing AGFUND.
Dr. Alex Pollock, Director of Microfinance and Microenterprise Programme at UNRWA, representing AGFUND.
Mr. Nasser Al-Kahtani, Executive Director, AGFUND.
Mr. Fadi Ghandour, investor and representative of the private sector.
Mr. Tarik Ibrahim Awad, representative of the King Abdullah II Fund for Development.
Mrs. Maha Al- Khatib, representing the NGOs.
Mr. Mustafa Nasseruddin, representing the Jordanian Company for Financing Small Projects.

The meeting culminated in the following decisions:

Approve the bank’s law, with the option of making future amendments on the law, provided those are in harmony with the bank’s executive procedures during the upcoming period.
Approve the membership of Mrs. Fadi Ghandour and the Jordanian Company.

Form the Board of Directors to include the membership of the following:

Prof. Muhammad Yunus, Managing Director, Grameen Bank
o Dr. Alex Pollock, Director of Microfinance and Microenterprise Programme at UNRWA, representing AGFUND
Mr. Nasser Al- Kahtani, Executive Director, AGFUND
Mr. Fadi Ghandour, investor and representative of the private sector
Mr. Tarik Ibrahim Awad, representative of the King Abdullah II Fund for Development
o Mrs. Maha Al- Khatib, representing the NGOs. o Mr. Mustafa Nasseruddin, representing the Jordanian Company for Financing Small Projects.

The meeting also agreed to appoint Mr. Fadi Ghandour as the Chairman of the Board, and Mr. Tarik Ibrahim Awad as Vice Chairman.

2 - Al Amal Bank for Microcredit in the Republic of Yemen:

The project is in the making in response to AGFUND initiative. The bank’s law was adopted by the Yemeni President, while the executive procedures are still under way in preparation for its establishment.
The Yemeni Government, represented by the Ministry of Social Affairs and Labor, is urging private sector entities in Yemen to pay their full pledge to the bank’s capital and to overcome all obstacles that may face the establishment of the bank in the near future.

3 - Syria Bank for Micro Projects:

AGFUND has taken interest in establishing a bank for the poor in Syria along with other Arab States, and intends to support all the necessary procedures and measures relating to its opening. A seminar was held to discuss the prospect of setting up a bank to finance micro projects in Syria and was attended by representatives from UNDP, UNRWA, and a number of Syrian officials as well as interested people from the private sector and civil society.
The main outcome of the seminar was a recommendation to set up the bank in the form of a national financial institution with a special law. The institution would be established through the support of the government, the private sector and local banks, and would provide in addition to lending service, insurance and technical assistance to the projects under execution.
To speed up the necessary procedures for the establishment of the bank, the meeting recommended the formation of a preparatory committee, to be chaired by the Prime Minister, and to represent all the relevant sectors. Under the supervision of the Unemployment Commission, the committee would be entrusted with all the duties pertaining to the establishment of the bank and with drafting the law and regulatory procedures that would govern the work, in addition to identifying the beneficiaries and the sources and mechanism of lending.
Contact is ongoing with the Ministry of Social Affairs and Labor in Syria to hold a joint meeting aimed at pushing forward efforts towards the establishment of the bank.

4 - Al-Rajaa’ Bank in Lebanon:

A memorandum of understanding was signed by the partners on the various aspects relating to the establishment of the bank in Lebanon, including AGFUND, Hariri Institute and The Mediterranean Bank.

5 - The Proposed Fund for Funding Poverty Projects in Sudan:

With the aim of setting up an institution, which would provide microcredit to alleviate poverty in Sudan, and following a successful visit by an AGFUND delegation to Khartoum in March 2002, a decision was issued by the Ministry of Finance and National Economy in Sudan to form a higher technical committee to carry out a study on the best mechanism for the bank.
The recommendations of the committee were sent to AGFUND, proposing the establishment of a fund, with contributions from AGFUND, to be allocated for financing projects for the poor people of Sudan. Such fund is seen as the most appropriate tool that harmonizes with AGFUND’s philosophy on banks for the poor in the Arab World.
During 13-14 January 2004, a meeting was held between AGFUND and a Sudanese government delegation to reach the appropriate mechanism for the establishment of the bank. The meeting also discussed requirements and measures needed to prepare for the actual execution of the project.
The Sudanese side prepared a feasibility study on the prospective bank and drafted its law. The study is being reviewed by AGFUND advisors in preparation for the next phase, which involves procedures to set up the bank.

6 - The Bank for the Poor in Morocco:

In view of the keen interest of AGFUND President, HRH Prince Talal Bin Abdul Aziz, in the prospect of setting up a bank for the poor in Morocco, AGFUND continues coordination with Moroccan officials to have an update on developments relating to the project.
Contacts were made with government officials to intensify efforts aimed at speeding up establishment procedures and to see the foundation stone of the bank in the near future.

7 - Bank for the Poor in Mauritania:

During a meeting between AGFUND President, HRH Prince Bin Abdul Aziz and the Ambassador of Mauritania in Saudi Arabia, His Highness expressed his keen interest in the bank and hopes for cooperation with Mauritanian officials to start procedures for the establishment of the bank as a tool to fight poverty in the Mauritanian society.
Another meeting took place between AGFUND Executive Director and the Mauritanian Ambassador on the organization’s experience in the area of fighting poverty. The meeting also tackled the objectives of such a project, implementation measures and target groups, as well as progress made by other Arab states towards the same goal. The Ambassador said he would contact concerned responsible authorities in his country to convey the wish of His Royal Highness and to call for speeding up preparatory procedures.
Contacts are ongoing with the Ambassador for updates on the progress of the project.

8 - Bank for the Poor in Djibouti:

Following an expression of interest by the government of Djibouti to provide credit services for the poor, a meeting was held at AGFUND offices with the Ambassador of Djibouti in Saudi Arabia to discuss cooperation issues, namely the establishment of a bank for the poor. The meeting reviewed the objectives of setting up such a bank as well as measures to be taken in addition to progress made by other Arab states towards this goal.
The Djibouti Government issued directives to the Central Bank Governor to accord the project full support and assistance and to coordinate efforts for its execution. The Central Bank appointed a representative who would coordinate with AGFUND on issues pertaining to the Bank.