Damascus Turns to Microfinance to Combat Poverty
Wednesday, February 3, 2010
A regional front-runner in microfinance legislation, Syria is still struggling to find a sustainable model to finance its rural poor. Currently, NGOs geared toward poverty alleviation dominate Syria’s microcredit market, but further expansion of their role is inhibited by outdated government regulation. The entry of more private players is needed to increase market competition and efficiency, which will in turn help the microfinance network to realize its social goals.
While the government has done much to liberalize the financial sector since 2001, Syria remains under-banked and its financial services are limited. Private commercial banks are slowly expanding, having distributed $6.4 billion (LE 34.8 billion) in credit in 2008. However, most of that is oriented towards high-income clients and small and medium enterprises, leaving the many people lower on the economic scale out in the cold.
In particular, those subsisting on agriculture have suffered in recent years due to drought and other climate problems. The UN estimates that 803,000 Syrian farmers have lost their livelihoods since 2006.
Microfinance in Syria came to prominence as the banking sector opened up, in the form of the Fund for Integrated Rural Development of Syria (FIRDOS), an initiative by the first lady Asma Al Assad. The modest success of this lending venture, which operated a multi-million dollar portfolio, and those that followed, enabled Syria to reach an unprecedented milestone: Law No. 15, governing microfinance, was passed in 2007.
“Syria was the first country in the Arab world to issue specific legislation dedicated to the area of microfinance,” says Adib Mayaleh, Governor of the Central Bank of Syria. “Yemen has recently approached us for help in this area, which shows that our standards are held in high regard.”
Law No. 15 established a licensing process for social financial banking institutions (SFBIs), defined as those that, “help families create opportunities for owning and increasing the accumulation of assets.” This does not imply that all SFBIs must be charitable by nature. On the contrary, the legislation specifically paves the way for profit-making businesses to legally disperse microloans. Despite this, Syria’s microfinance market has been dominated by non-profit organizations that are not permitted to charge an interest rate of more than 9%.