Aga Khan Agency for Microfinance

On average, the countries of the Middle East and North Africa have experienced the slowest growth in the development of a microfinance sector in comparison to other regions of the world. One of the hindrances has been the lack of enabling legislation that facilitates the formalisation of microfinance activities and supports investment. In 2007, the government of Syria acted to remedy this problem by establishing a legislative framework for the development of the microfinance industry. Syria will play a pioneering role in the region by developing a tailored legislative framework for microfinance, thanks in part to the close cooperation between AKDN and the Syrian government on this issue. This new legislation will be instrumental in helping Syrian MFIs to meet the estimated demand of 260,000 poor households who need business finance, and nearly a million households seeking credit for non-business purposes such as housing, education and health care.

This new frameworks will allow the existing AKAM microfinance programme to make the transition to a regulated microfinance institution that will be able to accept deposits. This transformation has been under way since the beginning of the year; in December, the Central Bank issued a preliminary license for the formation
of the First MicroFinanceInstitution Syria (FMFI-S). The granting of this license was announced by the Central Bank Governor in Damascus at Syria’s first microfinance conference in the autumn of 2007.

Amidst the transition process of programme into microfinance institution, FMFI-S closed the 2007 year with over 13,000 loan clients and a healthy portfolio worth US$ 11.6 million. Portfolio growth was on target despite ending the year with a smaller staff complement than expected – a testament to steady increases in loan offi cer productivity and efficiency. The average loan size remained stable at approximately US$ 880, as did the ratio of
loans disbursed to women who constituted roughly one-third of all borrowers.

FMFI-S has one of the largest housing microfinance portfolios in the AKAM group, with more than 1,800 loans outstanding for renovations and repair. FMFI-S also has a special housing microfinance programme designed to support the work being carried out in Aleppo, Damascus and Maysaf by AKTC’s Historic Cities Programme. These loans allow local residents to rehabilitate and restore their traditional houses. These activities contribute to the attractiveness of the neighbourhoods as a destination for cultural tourism, enhancing economic activity.

FMFI-S underwent a number of organisational changes during the course of the year as well, moving its head offices from the southern city of Salamieh to Damascus and strengthening the management team with the addition of several new senior managers. FMFI-S will also implement the new AKAM network-wide MIS, which will result in additional gains in efficiency and security and allow the institution to begin to mobilise large numbers of depositors.

In the spring of 2007, Salamieh and southern Syria experienced dramatic floods which affected hundreds of households. FMFI-S worked in close cooperation with its AKDN sister agencies, including the disaster relief organization, FOCUS, to provide dozens of families with special grants and soft loans so that they could quickly recover from the disaster and restart their economic activities. FMFI-S has also continued to expand its highly successful “Healthy Villages” programme, which has seen an exceptionally high uptake in the southern city of Latakia. This programme, developed in cooperation with AKF, seeks to promote a wide range of improvements in the quality of life of communities and includes civil society, health and education components.

Looking forward to 2008 and 2009, FMFI-S will expand with the assistance of several new strategic partners who will provide a combined investment, debt and grant financing package worth more than US$ 10 million. With these investments, FMFI-S expects to be able to serve over 17,000 clients by the end of 2008, with an outstanding portfolio valued at nearly US$ 20 million. Depositors are also expected to increase in number to about 16,000. Moving ahead, FMFI-S will develop a number of new SME lending products to meet the enormous demand from medium-sized businesses. It will also continue to increase the number of loans it provides for drip-irrigation projects in rural areas – a project that has already helped to reclaim significant tracts of marginal land from desertifi cation and raise agricultural productivity. New branches will also be opened, and FMFI-S is working with an aggressive growth strategy that will result in near national coverage by 2010.