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Microfinance in the Middle East & North Africa (MENA) enjoys one of the most favorable environments for growth, due to low market penetration rates combined with generally benign government intervention. The region is mostly free of competition and high financing costs that bog down the industry in more mature markets. Microfinance institutions face lower hurdles than their global peers and can more easily attain profits, all while responding to the needs of the lower segment of the microfinance market.

Overall, a minority of sustainable institutions serves a good majority of the client base throughout the region, while loan balances have remained remarkably low despite a marked decline in its outreach to women. However, the microfinance industry in MENA is slowly starting to show signs of maturity. Access to concessional funds has so far enabled the sector to rein in costs and boost profits, but competition for these limited resources is intensifying. Financial costs are rising, albeit slowly, and institutions are outgrowing the pool of available funds.

The microfinance industry in MENA is at a critical stage of its development, and current legislation may need to be revised to open the door to new financing opportunities, including savings and equity investments. Savings services are glaringly absent from the market in light of widespread government resistance to the mobilization of deposits by non-bank institutions, though the industry has made tremendous strides in micro-credit offering. If institutions in the region can maintain productivity, and at the same time overcome funding and management constraints to building up their institutional capacity, the market is set to grow further.

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