A Bit on Micro Finance

Here is a summary of our lecture with Shymaa. I refer to this link in my "Part 2" post..


This system provide services to the unbankable (the poor) who don't have credit history or money records to get loans. Typically, these services go out to women who don't have the rights to the accounting of their husband's money. 70% are women but there have been some men receiving services as we. The women receive very small loan amounts to get a project going (projects include selling butter, making cheese, selling baked goods, making bellydancing outfits, etc.) If the women are successful, they can get larger loans. The concept is to do group lending so that a group of women can help each other in times of crisis and encourage each other to do well. The groups are between 3-5 women, can't be a relative, but the loan officers can't force women to group together (they get to pick their group). There is also individual lending which is mostly for the youth that are facing high unemployment. The loans start out at 500 Egyptian Pounds which is less than 100 U.S. Dollars. They also have extremely high interest rates (40% for the group, 18-20% for individuals). The rationalization for this is that, because the women earn a daily income, they don't feel the strain of paying out such a high percent. These loans are usually 2 month terms with weekly payments.Some reasons for the high interest rates are that these loans are very high risk because of lack of collateral and the location of the projects (businesses) are not typically in easily accessed places. They are usually located in or around the neighborhood of the business owners in the slums. Also, the operating costs are very high for the nongovermental organizations, banks, and private companies that offer micro finance loans.

Shymaa stated a fact that I found very interesting, when the women begin to earn money to live more sustainably, the first things they do when they acquire savings are to provide basic needs for their household and family. For example, a television, refrigerator, and good medical services. When the men begin to earn more money they tend to go get married to other woman and look for more prestigious things. Another interesting part of micro finance is that the default rate is nearly zero percent; and this is a more worldwide fact. One thing Shymaa hopes will happen after the presidential election and establishment of a new government is that micro finance will begin to be regulated and regulation laws will be more implemented so that these services may be more organized and be able to reach more of those living in poverty.