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A way out of poverty

In Daqahliya, small loans have made a big difference. Pierre Loza reports

Hamdiya Abbas, a widow from Kafr Bedawei of

Daqahliya, used to sell biscuits and sodas on the
street. She took out a LE50 loan and now owns a
home, supports her children and employs three
people to maintain her livestock of rabbits, chickens
and ducks. Um Ayman (Hamdiya) now feels she is
experienced in business and that she is a more
confident and independent person. When asked if she
thought that loaning is against Islamic law, she said
"if a profit is made, then there is no problem with
paying interest."

With a third of the Egyptian population estimated to

be below the poverty line, these micro loans are a
useful economic instrument for combating poverty
and developing small and medium enterprises
(SMEs).

Small and micro loans can be seen as a lifeline for

impoverished rural populations. Loans as small as
LE50 can often allow people to break into income
producing activities.

A good example of the development of SMEs can be

seen in Daqahliya, in a programme funded by the SMEs are touted as a lifeline for the
United States Agency for International Development poor
(USAID) and managed by the Daqahliya photo: Abdel-Sattar Youssef
Businessmen's Association for Community
Development (DBACD). Launched in May 1998, the first loan was issued on 9 September in the
same year. Today the programme is a self-sufficient entity that has issued 52,369 loans with a range
of LE50 to LE50,000. The organisation does not only act as a credit agency but as an advising body
that fosters business development also. With an interest rate of 16 per cent, many doubted the
programme's ability to help low income groups in rural Egypt. But it seems to be working.

DBACD Executive Director Hassan Farid told Al-Ahram Weekly that his interest rate was much
lower than other SME programmes in emerging economies. Farid believes that this rate allows loan
recipients to make a profit margin that can help them grow economically. Previous to the DBACD's
establishment, the usual practice was that villagers would take out loans from community members at
100 per cent interest rates. "These community loan networks were severely damaged by our
presence," said Farid. The DBACD's establishment was initially met with a bitter propaganda
campaign from traditional loaning networks that labelled its activities as immoral and against Islamic
law. "It is funny to see the people who attacked our presence coming to us for loans," said Farid.

The organisation's activities operate under three community service programmes: the SME
programme, which specialises in individual lending; the Bashayer Al-Kheir ("Blossoms of
Goodwill") poverty group lending programme, which targets matriarchs; and the Information
Technology Centre, which provides Internet facilities and educational services to the Daqahliya
community.

Most of the SME programme's activities are in the service, trade, and manufacturing sectors. To
obtain a loan a client submits a loan application that is reviewed in the SME branch. After the
application is submitted, the loan specialist visits the business location for evaluation and data
collection. As a part of the application process the history of the business, the purpose of the loan,
and an electricity bill are also submitted. In addition to these papers, a financially secure relative
must sign that they will take on the debt should the loan recipient default. For loans higher than
LE3000 a licence, commercial registration, and an income tax card are also required.

With the average loan at LE235, micro loans are at the centre of DBACD's operations. Magdy El-
Azab, head of the Senbilaween branch, encourages his clients to obtain the proper documentation so
they can break the LE3000 ceiling and move into what is called the formal sector. However, due to
the difficulties that come in obtaining a licence, commercial registration and taxation cards, he
understands why many prefer to stay in the informal sector. "For registration there is a hefty monthly
fee as well as a yearly fee, for taxation. Evaluations are generally exaggerated, and a licence will take
you three years of running around to obtain," he said.

Mohamed Nesouhi, of the Shobra Hoor village in Senbilaween, produces sewage pipes from recycled
plastic and prefers to stay at the LE3000 credit level to avoid the bureaucratic hurdles that come with
moving into the formal sector. Within the informal sector, though, Nesouhi was able to buy out all his
business partners, becoming the sole owner and operator of the business.

El-Azab, however, felt apprehensive about a suspended parliamentary decision to cancel the use of
cheques as instruments of ensuring financial credit. "If we cannot use cheques to ensure repayment
our whole operation will be diminished, because that is how we safeguard ourselves against
defaulters," he said. Unlike banks, non-profit-making organisations don't have the power to issue
their own cheques. If such a law goes into effect it will be much more difficult to hold defaulters
accountable.

With growing loan volumes, increasing numbers of branches, and repayment rates between 97 and
100 per cent, the sustainability of such credit programmes has been strongly confirmed. El-Azab
believes that with more government support and operational flexibility a lot more good can be done.

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