Wednesday, December 30, 2009

The Significant Demand for Microfinance in Syria


December 2009
DAMASCUS, Syria  Traditionally, banks do not provide financial services to clients without resources, meaning with the word resources little or no cash. Banks work for a profit and if a client does not guarantee them with an asset, it would be a very risky business for the banks to incur in some cost without a sort of insurance in relation to their activity. Microfinance can be defined as the provision of financial services to clients with very low income, including in this category also consumers and self-employed that normally do not have access to financial resources.

In the past centuries, different movements have tried to provide low-income people with financial services. Among them it is worth to remember the Franciscan monks, who in the fifteenth century founded the community-oriented pawnshops; then the members of the European credit union movement in the nineteenth century and lastly the founders of the microcredit movement in the 1970s. One of the founders of the microcredit movement is today's well-known Dr. Muhammad Yunus (2006 Nobel Prize for Peace), a Bangladeshi economist turned into a banker who has developed the concept of microcredit.  In 1976, in Bangladesh, Dr. Yunus founded the Grameen Bank, a microfinance institution and community development bank that makes small loans to poor people without requiring collateral. In the last thirty years relevant progresses have been implemented in the field of microfinance but the big problem is how to help those who earn less than $1 per day, especially those living in remote rural areas.   
In the Syrian Arab Republic there is a huge demand for microfinance, but this demand is only partially satisfied. In fact, according to a 2008 report ( by the Consultative Group to Assist the Poor (C.G.A.P.), a policy and research center based in Washington D.C., just 41,500 out one million of potential estimated microfinance clients in Syria are obtaining today microfinance services.

In February 2007 the Syrian government introduced the General Microfinance Decree (Syrian Legislative Decree No. 15), which is the first of this kind in the MENA region (Middle East and North Africa). This legislation is important because it mirrors an important opening of the financial markets. The aim of this decree related to microfinance is to help the large portion of the population who is poor and probably also part of the Syrian middle class in order to have greater access to financial services (in other words, to give financial access to low-income and unbanked people). The decree authorizes the Credit and Monetary Council (C.M.C.) of the Central Bank of Syria to license Social Financial Banking Institutions (S.F.B.I.s) with the target of providing microfinance services like micro-lending, deposit-taking, and micro-insurance to the poor people. In particular, the decree would try to regulate all the microfinance actors like banks, S.F.B.I.s and N.G.O.s, and all the different models of action like charities, relief-oriented microfinance and S.M.E.s lending in order to get a very inclusive approach, capable of really helping the unbanked population of Syria. Decree No. 15 is the first and unique Syrian law related only to microfinance. Previous laws were not specifically linked to the issue of microfinance. It is worth noting that Private Banking Law (No. 28 for the year 2001) and Islamic Banking Law (No. 35 for the year 2005) permit to private and Islamic banks to implement all of the kinds of banking activity including also microfinance. The S.F.B.I.s are all registered as commercial companies. And for this reason, article 13 of the Microfinance Decree requires that all of the S.F.B.I.s have to be governed by Commerce Law (Law No. 149), which dates back to 1949. In fact, in the eventuality of a legal contrast between the Microfinance Decree and Commerce Law, the former shall prevail. The S.F.B.I.s should follow reporting requirements very similar to those set for normal banks. In fact, an audited balance sheet and a profit and loss statement have to be submitted to the Central Bank of Syria following the international accounting standards.   
Until now the most important actors in the field of microfinance in Syria have been both the state and the N.G.O.s. But it should be clarified that the Aga Khan Development Network (A.K.D.N.) is the only real provider of microfinance in Syria and the only one big player. In addition to this, there are very limited microcredit lines thanks to the United Nations Development Program (U.N.D.P.) and the United Nations Relief and Works Agency (Unrwa), which both obtain funds through their parent institutions. The latter is serving Palestinian refugees in the cities of Damascus and Aleppo. Two local non-governmental organizations the Fund for Integrated Rural Development of Syria (Firdos) and Boosting and Inspiring Dynamic Youth Achievement (Bidaya) are also developing microcredit facilities. Firdos gets 60 percent of its funding from the European Union (E.U.) and the United Nations (U.N.), while the remaining 40 percent comes from local corporate social responsibility of Syrian institutions. Previously, the most important public microfinance provider was the Agency for Combating Unemployment (A.C.U.), but thanks to the Legislative Degree No. 39 of 2006, it has been transformed into the Development and Employment Commission (DEC) and will no longer provide credit. It will just service the agreed loans while its main task will be to provide job skills, training and employment opportunities. As it will be explained below, on the public side, today in the field of microfinance, the basic public institution is and will probably be Savings Bank. 

The A.K.D.N. started its operation in Syria in 2002 under a framework of cooperation agreement with the Syrian government. In fact, in 2003 the Aga Khan Agency for Microfinance (AKAM) — the specific agency within the A.K.D.N. that works with microcredit — began to grant the first loans. Now this agency has been denominated the First MicroFinance Institution (F.M.F.I.) and has seven branches in the country (located in: Damascus, Tartus, Lattakia, Aleppo, Hama, Suweida and Maysaf). This agency has been capable of handing out more than 60,000 loans for a total value of 3.76 billion of Syrian pounds($80 million). Since 2007 this has been the most important microfinance operator in Syria. Moreover, it is interested in broadening its actions implementing up to 20 branch offices. The maximum amount for loan that the agency may offer is 141,000 Syrian pounds ($3,000). It charges a flat rate of 1 percent a month. By the end of 2010, AKAM would like to have a lending portfolio of $43 million and to cover all the 14 provinces of Syria with more than one office in the two big cities of Damascus and Aleppo. 

CGAP-Characteristics-and-Indicators-For-the-Five Primary-Microfinance-Providers-in-Syria-2008

In addition to external actors, there is also the microfinance action built up by the Syrian government through the state-owned Savings Bank. In 1968, the Syrian banks, which had been previously nationalized after the Ba’ath Party came to power, were reorganized into six state banks. One of them was the Savings Bank (the smallest of the state banks), that up to 1999 had been just a postal savings bank (with an average deposit of $950). In 1999, this bank was converted into a full-fledged bank with lending operations starting the following year. The bank since then has been quite successful and has considerably expanded its reach in Syria. In particular, this bank has decided to incorporate in its services also microfinance tools.  The experimental project of this bank started this year in the cities of Lattakia, Tartous and Homs with loans for a total of 15 million Syrian pounds ($319,150). The aim of this project is to help people to be able to own a small store. The people covered by this initiative are those who do not have survival problems and who can think of starting a commercial activity. According to the general manager of the Savings Bank, Haifa Younes, his bank will be in a privileged position because Syrians still prefer to deal with governmental banks. Savings Bank would like in the next four years to get around 33,000 clients with an offer of different loans ranging from 9,000 Syrian pounds ($190) to 1.5m Syrian pounds ($ 31,915). The bank will also have the so-called “My Lady Loan” that is specifically implemented for housewives.

Apart from the successful results of AKAM and the other agencies (at the level of S.F.B.I.s, N.G.O.s and state institutions), other operators are interested in microfinance and are planning to develop additional microfinance operations in Syria. Among them there is the Arab Gulf Program for the United Nations Development Fund (Agfund). This is a Saudi-based non-profit organization that was established almost thirty years ago in 1980 by Prince Talal Bin Abdul Aziz al-Saud. It is interested in developing mainly rural areas, distributing in five years up to 360,000 loans through a net of around 40 branch offices in Syria. Dr. Muhammad Yunus is also a partner in this enterprise.

The road for Syrian microfinance is not easy. In fact, there are at least four big issues to be tackled in the near future. One of the biggest hurdles will be to convince clients looking for Islamic banking products that microfinance is sharia-compliant. At the moment sharia-compliant microfinance is almost inexistent totaling less than 1 percent of the global market. A possible solution could be to explain clearly what microcredit is. In this way it could be possible to point out that the microfinance institutions are not accepting interest rates, but that what they take are just collective service charges in order to have additional funds to distribute later to other eventual clients. Another problem is that there are more people that want a loan than the available loans, an issue that will only be partially deflated given the additional microfinance providers that are interested in entering the microfinance market in Syria. The third issue is that in Syria it exists a big black or shadow economy. This is a huge problem on both sides of a microfinance transaction, the one pertaining to the bank and the one related to the client. In fact, the bank if it does not have an official working transcript from the client cannot provide him/her any loan, while the latter many times does not want to produce any paperwork and in this way renounces to the possibility of obtaining a microfinance loan.  Last but not least, providing microfinance loans is a very time-consuming activity and it requires a very well trained staff. Nowadays, it is not easy to find this expertise in Syria as it is also recognized by all the most important bank managers operating in the country, both in relations to microfinance and to the other classic sectors of the banking activity.

In order to continue to develop the microfinance sector in Syria four additional activities could be implemented by the main actors:

  • Training and awareness building. Through this it could be understandable for all the actors that it exists a commercial viability for microfinance in order to help the poor people and in the same time it could be built up locally the capacity to regulate and use microfinance tools in accordance to globally accepted good practice norms.
  •  Networking. Linkages between local, regional and international bodies are of paramount importance in spreading good practices and general know-how, facilitating transparency and encouraging innovation based on local realities.
  •  Alternative models for microfinance. Among them there are at least three main possibilities. The first one is to have greenfield microfinance banks. Given the potential size of the microfinance sector in Syria, there is room to grow the sector through greenfield investments. The second possibility is bank downscaling. The rationale for this is that downscaling could permit banks to really better interact with the local realities to which the microfinance loans are mainly addressed. The third possibility is instead the adoption of the bank servicing model as a very viable alternative to the N.G.O. approach. The bank servicing model will enable a private sector approach of managing microfinance portfolios, while in the same time capitalizing on the strengths of both the private and public sectors of the bank activity.
  • Technological innovations. Technological innovations in the microfinance sector could be of basic importance with reference to increasing operational efficiencies and expanding it to very remote areas of Syria.

If well carried out, these four activities will strongly help improving the results of the microfinance sector in Syria with the final target of integrating the country into the global microfinance industry.   
This paper has been republished by C.G.A.P. Microfinance Gateway

Monday, December 7, 2009

Comment — Damascus' December 2009 Bus Explosion

December 7, 2009

DAMASCUS, Syria  On the morning of December 3, 2009, an explosion occurred to a bus parked at a gas station in the Syrian capital Damascus. According to Syrian officials three people died in the accident, which was due to the explosion of a probably damaged tire while it was being pumped. The Syrian interior minister, Said Sammour immediately ruled out the possibility of a terrorist attack ("There was no terrorism factor behind the bus incident", he said) and he explained that the three dead people were the bus driver plus two gas station workers who were inflating the tire. The minister added on the Syrian TV that the bus was carrying a group of Iranian tourists, but at the moment of the blast the pilgrims were not on-board. Damascus hosts the Sayyida Zeinab Mosque, which is dedicated to the granddaughter of Prophet Muhammad and is one of the most important worship places for the Shiites. In fact, in every season of the year this area of Damascus  around ten kilometers out of the central part of the city is invaded by Iranian buses transporting thousands of Iranian pilgrims.

Source: AP

The bus explosion took place while Saeed Jalili, the chief nuclear negotiator of Iran, was visiting Damascus for meetings with Syrian officials. Syria is the most important regional partner of Iran and the two countries are linked by thirty years of good political relations. Immediately after the explosion and well before the declarations of the interior minister, the common idea was that what happened was probably the explosion of a bomb.

 Photograph: AFP/Getty Images

The images of the blast showed a bus badly damaged in its rear part with clear signs of fire. In addition to this, several witnesses suggested that it was not a tire explosion, but the explosion of a bomb that killed at least six people and caused some damages to the nearby buildings. One report from the Al-Manar TV (managed by Hezbollah) claimed that the blast was caused by a gas canister in a passenger's luggage. Reuters was told by one of the witnesses that body parts were scattered around the bus. A member of one of the Western embassies, speaking under condition of anonymity, had the opportunity to see the damaged bus and explained that according to him a tire explosion would have never being capable of damaging so badly the rear part of a bus. So it is quite possible that, instead of an exploded tire, the accident occurred because of a rudimentary bomb.  What is interesting to point out is that the images broadcast on TV were all related to the body of the bus with no general view of the areas around.

Sayyidah Zaynab Mosque: Exterior  (A. BACCI, 2009)

After a few days, here in Damascus, no one talks at least publicly anymore of the accident, which in the news it is not mentioned anymore. In general, Syria is a very safe country with very tight security controls; a place where bomb explosions are a rare event. All this said, it's true that in the last years something started to change for the worse with reference to acts of terrorism  regarding normal criminal actions Syria is still today a very safe country. As the British newspaper The Guardian says “until recently Syrians were used to seeing such blasts on their television screens rather than on the streets of their own cities, which they considered a rare stable point in the Middle East”. In fact, Syria in recent years started to be hit by bomb attacks. As a simple remainder, in 2008 three important terrorist attacks happened in Syria.  In January, General Mohammed Suleiman, a high-ranking aide to President Bashar Assad was killed in the city of Tartus, in February happened the assassination of Imad Mughnyah, a high-ranking military commander with Hezbollah (some said that it had been the Mossad to kill him), while in September a car-bomb attack on a security complex close to the Damascus airport killed 17 people and injured 14. The latter attack was attributed to a Sunni Lebanon-based Islamist group linked to al-Qaeda. In addition to these main events, both the U.S. and Israel have completed in the last years some raids against targets in the Syrian territory. For instance, three explosions alongside the Israeli raid on a suspected nuclear facility in 2007 and the late 2008 U.S. attack on the eastern border of Iraq.

Sayyidah Zaynab Mosque: Internal Decoration (A. BACCI, 2009)

All these accidents with no doubt risk derailing the process of escaping international isolation, a position in which Syria has been confined for the last decades.       

Assuming that the bus the explosion was not accidental and was due to a bomb, it is not easy to identify the possible culprits. In fact, there are at least four hypotheses, all having a certain degree of probability.  They are:

1) Internal or external Sunni extremists linked or sympathizing with al-Qaeda. They hate Shiites, they hit in the past and they always try to create problems to the Syrian government.
2) Israeli Mossad. In this case the Israeli intelligence service wanted to send a signal to the Syrian authorities. In fact, the explosion happened in the same moment when in Damascus there was Said Jalili, who is the Iranian chief nuclear negotiator.
3) Palestinian factions separated from the Syrian intelligence services.
4) A possible fight between different members of the Syrian security services.   

Of these four hypotheses, probably the first one is the most plausible. The Syrian authorities are really scared by the dangers of Sunni extremism. The father of Bashar Assad destroyed Sunni extremists in the 1980s. In particular, on February 2, 1982, the day of the Hama Massacre, the Syrian Army bombarded the city of Hama, which was at that time a stronghold of the Muslim Brotherhood, which had started to wage an armed rebellion against President Hafez al-Hassad. Between 7,000 people to 40,000 people died and large areas of the old city were destroyed. After the Hama uprising, the Islamist insurrection was defeated, and since then the Muslim Brotherhood has operated in exile while other factions surrendered or slipped into hiding. Now, there are signs that the movement is rising one more time. At the same time, Shiite power increased in Syria thanks to the Iranian influence and Hezbollah, although it needs to be underlined that Syria’s Shia population is very small, i.e., around 13 percent, of whom many are the not very religious Alawites.

A good possibility is that the bus explosion may be linked still in relation to hypothesis A, to locally based militants who operate independently of external militants or powers. This possibility is well supported by the fact that the explosion was very rudimentary. Syria in the last years has facilitated the passage into Iraq through its borders of Sunni combatants desiring to fight in favor of the Iraqi insurgence. These people going back and forth from Syria to Iraq now strongly criticize two points: Syria's alliance with Iran (a Shia country) and the rapprochement with the West that President Bashar Assad is trying to implement. Within hypothesis A, the involvement of external forces is less credible because Syria has recently obtained positive successes in international politics and has partially escaped its decades-long international isolationism. Not long ago, Syria has implemented a d├ętente with Saudi Arabia (with which the relation were quite strained only in 2008) and in addition to this, in Lebanon the newly formed government now includes pro-Syrian elements. In other words, the possible involvement of external backers for terrorist attacks in Syria has decreased during the last year.    

All this said, it is true that following the bloodshed events of the last two years, it's understandable the fears that President Assad and the government have in relation to the future Syrian political development. In the short term the Syrian regime may use the explosions of the last two years to bring about two actions. First, Syria could portray itself as a victim of Sunni extremism and, thanks to this stance, it could continue to march through the international political rehabilitation path. Second, it could control, in an even stricter way, its own Syrian population. Instead, the problem may linger in the long term, when it will be completely understood that this tough and harsh way of governing Syria is providing good results with reference to petty crime but no positive results at all in dealing with terrorism. In fact, Syria is becoming more and more like a chessboard where different radical groups risk fighting one another. A good idea could be for President Assad and for the government not to rule by force but to develop a political strategy involving all the different Syrian groups. With no doubt a very daunting challenge.