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The microfinance paradox: more vs less regulations

By Abdul Rahman Bazian - Feb 10,2019 - Last updated at Feb 10,2019

AMMAN — Despite remarkable growth rates, microfinance institutions (MFIs) still face various challenges that affect negatively the overall outcome and benefit of the sector’s operations.

Chief among these challenges are those resulting from shortcoming regulations, myopic planning and irresponsible practices by enterprises facilitating microloans informally, sector representatives claim.

According to the Central Bank of Jordan (CBJ), there are nine licensed MFIs, all of whom are members of the Jordan Microfinance Network, Tanmeyah.

Executive Director of Tanmeyah Saleem Nammari warned there are dozens of enterprises operating outside the network.

They operate in the absence of CBJ oversight, he underlined.

In fact, there seems to have developed an unregulated, informal sector that lacks sufficient supervision, Nammari said.

“There are hundreds of them, preying on clients and borrowers with no regards to the consequences of their practices,” he claimed.

While formal MFIs strive to facilitate "consumer-friendly" debt instruments for Jordanians, these enterprises operating informally pose a threat to the sector, Nammari contended.

Shafea Kayed, a former microfinance credit officer at a commercial bank, said: “These microcredit facilities are the lifeline of some small businesses and families, whose members are unemployed or whose salaries are below criteria,” and this is where it gets a little tricky.

The lack of centralised blanket supervision over the sector has enabled the rise of a predatory unregulated segment, sector officials say.

Violations by informal microfinance enterprises go unchecked, Nammari exclaimed, as there are no authorities to monitor them.

“They are ruining the sector’s reputation,” he said.

One of the most pressing public opinion issues is locally known as the “gharimat” case, which refers to the imprisonment of indebted women who fail to make payments on their loans, many of whom claim to have received their microloans from women funds.

The point of microfinance is very different from that of banks, he noted, adding that “MFIs are driven by societal, developmental purposes”.

Unregulated institutions issuing microfinance loans, while operating partially legally, are merely loan sharks, driven entirely by profit, economist Mazen Marji warned.

On the other hand, there are challenges within the regulated sector itself, including policy and fiscal issues that sector representatives claim to hinder MFI growth.

The costs of borrowing and lending for MFIs remains high, Nammari argued, which is reflected in the sector’s average lending rates (read more on the challenges and issues resulting from fiscal and taxation policies hindering the sector, in part two of ‘microfinance paradox’, in Wednesday’s edition).


Additional reporting by Johanne Kalsaas

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Thursday 22 August 2019


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