- What is microcredit ?
Microcredit is defined as any credit which aims to allow low-income individuals:
- To create and develop their own production or service activity in order to guarantee their economic integration;
- Acquire, build or improve their house;
- Acquire electric appliances or ensure drinking water supply for their households.
The maximum microcredit amount is set by Law n° 18-97 on microcredit at 50,000 DH.
- Which population groups are targeted by the microfinance sector ?
The population groups targeted by the microfinance sector include economically vulnerable individuals that are often excluded from the classical banking system, with income-generating activities which are often informal such as livestock rearing, handicraft and small trades and services.
- What types of credit are distributed by microcredit institutions ?
Microcredit methodologies, mainly based on proximity to borrowers, have been developed around two major approaches: the group-oriented credit approach and the individuals-oriented credit approach.
The group-oriented credit approach:
This credit approach requires the constitution of small solidarity groups of clients, generally composed of four to eight members who know one another and perform their activities in the same geographical area. This credit approach is based on an intangible guarantee, which relies on the solidarity of the members of each group who will stand surety for one another.
The individuals-oriented credit approach:
This credit approach is based on an individual assessment of clients (their will and capacity to pay back their loans), as well as an appraisal of the profitability and operating risks of their microenterprises. The credit thus granted is not associated with any tangible guarantee.
- How does microcredit work ?
The capacity of microcredit to overcome obstacles related to the characteristics of borrowers which exclude them from the classical banking system, lies in its modus operandi. In the absence of guarantees, microcredit institutions have set up a system based on techniques substitutable to collaterals:
A relationship of proximity:
A major characteristic of microcredit lies in the relationship of proximity that links the institution with the borrower and which creates an atmosphere of mutual trust.
The concept of a Solidarity Group:
To offset the absence of a tangible collateral, institutions have used the « solidarity group credit », whereby the members of a group are jointly and severally committed to repay the credit, based on their mutual trust and knowledge. In case of failure by one of the members to repay, the others should remind him of his obligations and, if necessary, ensure full reimbursement of the credit in his place.
- How is the microcredit file analyzed ?
An in-depth analysis of the micro-entrepreneur’s activity is required, before unlocking the credit. It is indeed necessary to make sure that the rate of profitability generated by this activity is sufficient, to know the rate of indebtedness, to avoid over-indebtedness and make an estimate of the actual turnover and charges. It is also necessary to enquire about the candidate’s morality. An indispensable visit to the place of work or the home address will enable the agent to check the facts of the file, and sometimes the prospective guarantor’s file.
- What additional services apart from credit are provided by microcredit institutions ?
In addition to granting loans, microcredit institutions provide non-financial services to their clients with the objective of reducing the impact of certain constraints that hinder income generation and check economic development. This includes:
- Training on the creation of microenterprises and management of microprojects;
- Technical assistance and advice to project promoters;
- Support and coaching of micro-entrepreneurs in marketing their products.
Other financial services may also be offered by microcredit institutions such as micro-insurance and money transfer services.
- Why is the cost of microcredit high compared to bank credit ?
Microcredit is considered to be very expensive compared to classical credits offered by the traditional financial system. But the modus operandi of microcredit is very different from the classical banking system. The financial needs of the target population are in fact modest while the related costs are very significant: in microfinance, credit agents must pay a visit to the client, assess his solvency, based on interviews with the family and the neighborhood. Once the credit is granted, a close and permanent follow-up should be made through visits to strengthen the culture of reimbursement. As a result, transaction costs are very high. These costs are those of financial inclusion and must be added to financing costs as well as the cost of the risk related to financing low-income population groups without having the necessary collaterals. Therefore, microcredit institutions have to apply a higher interest rate than that of the banking sector, in order to maintain financial equilibrium. However, in view of the low amount of loans, the difference in absolute value on the bill to be paid is very small. Customer satisfaction studies carried out with recipients of microcredit show that clients are ready to pay higher interest rates to make sure that they have access to informal financing for their activities.
- What are the resources of microcredit institutions ?
Microcredit institutions’ resources come basically from:
- Equity capital consisting of excess amounts generated by the activity
- Loans from banks international donors. It should be reminded that the microcredit sector in Morocco has been supported by public authorities, Moroccan banks and international donors, since its very beginning.
- What is the legal status of microcredit institutions ?
Law n° 18-97 on microcredit has adopted the Microcredit Association statute as the legal statute for performing microcredit activities. Law n° 41-12 of 28th December 2012 amending and completing Law n° 18-97, has made it possible for microcredit associations to distribute microcredits directly or indirectly through a credit institution authorized to this end and governed by the provisions of Law n° 34-03 relating to credit institutions and similar bodies. Any microcredit association, prior to performing its activity, must be authorized to this end by a decision of the Minister of Finance, following the advice of the Consultative Microcredit Council. In addition, microcredit associations are subject to the control of Bank Al Maghrib, according to the provisions of Law n° 34-03 on credit institutions and similar bodies.
- What are the contributions of the microcredit sector in Morocco?
The microcredit sector has become a key economic sector for the Kingdom of Morocco and a key player for financial inclusion and job creation. The impact of the sector can be summarized as follows:
- More than 40 billion microcredits granted since its inception;
- 5 million microcredit recipients;
- 6,000 direct jobs in microcredit associations;
- Nearly one million jobs created.
Microcredit now represents one of the instruments for the development of social economy through a participatory and integrated approach, which takes into consideration the needs of the population and seeks to upgrade the financial resources available. According to the strategic survey of the sector carried out in December 2010, microcredit associations are «among the first employers in the country (about 6,000 direct jobs) and, more importantly, have generated a significant number of indirect jobs: nearly one million full-time equivalent jobs». Based on an average of 4.5 members per household, more than 4.5 million individuals have ultimately been impacted by the sector in a more or less direct manner. Microcredit thus remains a major player on the employment market in Morocco, namely in areas with high rates of poverty and unemployment.
- What is the positioning of the Moroccan microcredit sector on the international market? Morocco’s microcredit sector is an absolute leader in the MENA region, with more than 60% of outstanding loans distributed in the region. It ranks among the world Top 25 in terms of outstanding loans (5 billion DH) and Top 15 in terms of client numbers (more than 800,000). In addition, the sector continues to invest in capacity building and modernizing its structures, in order to raise its practices to the highest international standards.
- What are the development prospects for the microcredit sector in Morocco?
The study on the strategic outlook of the microfinance sector in Morocco was crucial in developing a national strategy for the next ten years with the objective of turning the national microfinance sector into a key player for fighting poverty by creating jobs and income-generating activities. The sector is also meant to become effective, sustainable and integrated in the Kingdom’s policies. It is expected that, by 2022, the microfinance sector would have adopted the best financial practices and improved its efficiency, and should be able:
- To serve 3.2 million active recipients, which will require a larger geographical coverage and a better satisfaction of the needs;
- To increase its outstanding credit turnover from 5 billion DH nowadays to 25 billion DH in 2022, i.e. 1.8% of GDP;
- To reach the figure of 1.6 to 2 million additional full-time equivalents;
- To maintain the operating ratio at the level of the best practices, i.e. 65%;
- To bring down the PAR (portfolio at risk) 30% level below the world average (3.1%).
- To ensure the financial sustainability of MFIs by maintaining a rate of profitability at the global average level of 17%.