76426 CASE STUDIES IN DONOR GOOD PRACTICES No. 11 April 2003 Vision and Consistency: USAID Support of Al Amana and the Law on Microfinance in Morocco by Monique Cohen with Ruth Goodwin-Groen This case study describes how the US Agency for International Development pursued a vision for large-scale micro- finance in Morocco by creating a best-practice microfinance institution and facilitating an enabling legal framework. Overview clients, and an outstanding portfolio of DH 247.7 million USAID entered the microfinance sector in Morocco in (US $28.1 million). Al Amana had reached operational 1996 with a two pronged strategy: 1) to establish a new sustainability in 2000 and financial sustainability in microfinance institution (MFI) that would become a 2002—two years ahead of the original program sustainable, large-scale provider of microfinance, and 2) schedule. to help foster a policy environment favorable to the growth of a professional microfinance sector. USAID’s US $10.5 million investment had resulted in nearly triple that amount in loans to poor clients, and a Al Amana was launched in 1997 with a total project viable institution capable of reaching large numbers of budget of US $15.5 million for eight years, although poor people on a permanent basis. Only Fondation only US $10.5 million was ultimately needed. The lion’s Zakoura, an independent Moroccan MFI, rivaled Al share (two-thirds) of the budget was allocated to tech- Amana in number of clients. USAID’s commitment to nical assistance. USAID also facilitated the adoption of a long-term funding and a supportive policy framework new microfinance law in 1999 that permitted non- had paid off handsomely. governmental organizations (NGOs) to provide micro- credit services in Morocco and freed them from the Setting the Stage interest rate caps levied on banks and financial companies. USAID entered microfinance in Morocco when the sector was still young. Just a handful institutions were By December 2003, at project end, Al Amana was a providing microfinance services, and most were small, profitable MFI with 125 branches, over 100,000 active multi-purpose non-governmental organizations devoted to poverty alleviation. Of these, two were the recognized leaders, AMSED and Fondation Zakoura. AMSED (established with Catholic Relief Services) had four affiliates with a few hundred clients each. Fondation Zakoura was using the Grameen Bank methodology, and had reached 2,000 clients by 1997. These microcredit providers operated informally and were unregulated, but were permitted to function. Developing a Legal Framework for Microfinance USAID’s starting point was a bilateral agreement with the government of Morocco to undertake a microfinance project. This precipitated official interest in formulating a law to regulate the sector. The Ministry of Finance was charged with drafting a new law that would govern microfinance institutions. Over the next two years, Al Amana Clients signing for a group loan disbursement in USAID was an active supporter of the discourse between Kenitra, Morocco. (Photo: Monique Cohen, March 2004) government policy makers and local microfinance Page 2 A DIRECT Case Study practitioners about the law. Such a discourse was critical sustainable microfinance providers to start operations in for achieving consensus and was unprecedented in Morocco. It led to the market entry of many new organi- Morocco. zations, including two major players on the Moroccan market today: FONDEP (Foundation for Local Develop- While the law was being formulated, the United Nations ment and Partnership) and the Fondation Banque Development Programme (UNDP) launched a US $1.7 Populaire du Micro-Crédit (FBPMC), a not-for-profit million technical assistance program in Morocco that offshoot of a state bank. offered support services to six microfinance institutions over three years (1997–2000). “The law served to set the stage for a competitive The UNDP program complemented USAID’s support microfinance market and the provision of high-quality for sector-wide capacity building in microfinance good microcredit services.� practices. USAID’s support included funding Moroccan Fouad Abdelmoumni, CEO, Al Amana practitioners and government officials in international meetings and training sessions such as the Microcredit Summit in New York and the Microfinance Training Not surprisingly, the industry’s requirements grew Program in Boulder, Colorado; supplying information on beyond the parameters of the 1999 law. Responding to similar legislation in other countries; and providing the the pressures of a growing industry, the law was services of a legal advisor to the government, in addition amended in 2003 to permit microlending for housing, to facilitating countless meetings. including home improvements, such as water and electricity fitting/fixtures. These amendments were the The new law, Loi Relative au Micro-Crédit, was result of a renewed dialogue between the practitioner officially adopted in February 1999. However, a draft of community and the government, a process that was the law was recognized as early as 1997, allowing Al again actively supported by USAID. Amana to begin operations. Key features of the law are summarized in Box 1. Launching Al Amana Box 1 Key Features of Moroccan Law on Al Amana was founded in 1997 to provide financial Microfinance (1999) services to urban microentrepreneurs. It used a solidarity 1. Created a new type of association dedicated to group lending methodology, targeted women clients, and providing microcredit offered six-month loans. As the cornerstone of USAID’s 2. Freed MFIs from interest rate caps imposed on program, Al Amana was envisaged as a major MFI that banks and financial companies. However, Ministry of would set the standard for good microfinance practice in Finance retained authority to set maximum interest- Morocco. Three distinct phases of its development were rate caps for “microfinance associations� anticipated: 3. Permitted MFIs to charge fees 1. Institutional development (first 18 months) 4. Relieved MFIs of value-added taxes for five years 2. Product development (with targets of 5,000 5. Required multipurpose NGOs to separate their clients per year for five consecutive years) financial from non-financial services 6. Restricted microcredit loans to productive activities, 3. Institutional sustainability (by December 2003, i.e., microenterprise loans the end of the project) 7. Required microfinance programs to become finan- Sustained high-quality technical assistance—plus cially viable in five years existing good communications, electricity, and trans- portation infra-structure—permitted Al Amana to quickly evolve into a large institution. The MFI made Some believed the law was premature because the remarkable gains in efficiency through rigorous stan- industry was too young to be regulated. Because loans dardization of products and procedures; large, on-going were restricted to microenterprises, for example, it was investment in information technology; and a feared that the law would impede innovations, such as determination to keep administrative staff to a minimum demand-led product diversification. These were reason- while increasing the number of credit officers in the able concerns, but because the law legitimized micro- field. Its growth in clients and portfolio outstanding are finance, it created the conditions for professional, shown in Figures 1 and 2. A DIRECT Case Study Page 3 By December 2003, Al Amana had become an role in the adoption of the 1999 law. He was also instru- exemplary microfinance institution. It had 101,553 mental in the discussions that led to its amendment in clients, 421 employees (74 percent of which were pro- 2003. Paul Rippey, the chief of party for Volunteers in ductive field staff), and a portfolio-at-risk ratio (more Technical Assistance (the US-based NGO that was than 30 days) of 0.2 percent. Information on its opera- awarded the contract to implement the Al Amana tional performance is publicly available and transparent. project) brought extensive microfinance experience to (See its 2003 rating conducted by Planet Finance, at Morocco. Rippey was instrumental in recruiting the www.planetfinance.org and www.themix.org). Having dynamic Fouad Abdelmoumni to become the director of attained financial sustainability in 2002 (two years ahead the newly created Al Amana. of schedule), Al Amana is able to attract financing from On the government side, the collaborative process of a range of commercial sources, e.g., loans from Dexia developing a new law produced champions of micro- Microfinance Fund, Societé d'Investissement et de finance at the highest levels of the state, including Développement International, and the Banque Commer- Minister of Finance and Commerce Dris Jetou (a former ciale du Maroc. businessman who subsequently became prime minister) and Mohammed Ghazali, the ranking official charged Why Were USAID’s Actions Effective? with bringing the law to passage. Both men later served 1. Unwavering commitment to its vision of financial (at different times) as chairman of the board of Al services for large numbers of poor people. The Amana. USAID investment in Moroccan microfinance was driven by the vision of creating an institution and sector In the public domain, the chairman of Fondation that could deliver sustainable financial services to large Zakoura, Noureddine Ayouche, was a media executive numbers of poor people. USAID was consistent and who used his contacts to promote the sector and give outspoken in its desire for Al Amana to be a state-of-the- microcredit visibility. Furthermore, the editor of the art microfinance institution and for the microfinance weekly L’Economiste, was on the Board of Al Amana sector to be dynamic. Its financing reflected this vision. and that magazine was an articulate exponent of microcredit. 2. Technically skilled people in Al Amana and key stakeholders. The success of the project can also be 3. Adapting its role to the sector’s growth. Over the attributed to several technically skilled people working last seven years, USAID’s role in Moroccan micro- for different stakeholders. Jamal Dadi, the USAID finance has evolved from policy advocate and direct microfinance project officer in Morocco, was a well- microfinance investor, to a facilitator/disseminator of informed advocate for microfinance and played a key industry knowledge and standards. Still a significant player, USAID is now investing in smaller MFIs, Figure 2. Value of Al Almana Outstanding Loans (1997-2003) Dirhams 300,000,000 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 1997 1998 1999 2000 2001 2002 2003 Year Page 4 A DIRECT Case Study particularly rural institutions seeking to serve the supported subsequent amendments that permitted the “unbanked� population. The agency is also focusing on sector’s continued development. Its experience in broader industry-building, including support of the MFI Morocco offers valuable lessons to other donors seeking member organization of Morocco as it evolves into a to ensure that the poor have permanent access to representative institution serving the interests of its financial services. diverse members. References Outlook Cohen, Monique, Victoria White, Housni El Ghazi, and Fouad Benjelloun. Microfinance Study. Prepared for USAID/ Morocco today has one of the most vibrant microfinance Morocco, November 1997. Unpublished. sectors in the Middle East and Northern Africa. Twelve MFIs together serve approximately 300,000 active Donahue, Jill, and Elisabeth Rhyne. MicroStart Morocco: Case Study for Midterm Evaluation. Prepared for United clients (in a population of some 28 million) and manage Nations Development Programme (UNDP), December 1999. a collective outstanding loan portfolio of an estimated Unpublished. US $60 million. Four institutions dominate the market— Fondation Zakoura (103,720 clients), Al Amana Duval, Ann. Evaluation du Secteur du Microcrédit au Maroc. (101,553 clients), FONDEP, and FBPMC—with the Prepared for the UNDP and Government of Morocco, October 2001. Unpublished. smaller MFIs serving more rural and poorer clientele. International private sector investors have increasingly PlanetFinance. Credit Rating of Association Al Amana, joined the inter-national public donors and domestic Morocco. November 2003. Available upon request via e-mail private foundations that initially funded these MFIs. (inforating@planetfinance.org) or through the web (www.planetfinance.org). One challenge facing microfinance in Morocco today is Loi #18-97 relative au micro-crédit (Law on Microcredit). the conflicting role of the Ministry of Finance. The Rabat: Government of Morocco, February 1999. Ministry is currently charged with both regulating the microfinance sector and disbursing the $10-million Fonds Hassan II. This is a funding facility created by the Contacts and Websites government to increase the lending capital of existing Al Amana - www.alamana.org MFIs. Jamal Dadi, Microfinance Program Officer, USAID/Morocco, Another challenge is the continuing need to encourage a jdadi@usaid.gov more market-oriented approach to the provision of finan- cial services to the poor, so that MFIs seeking to help the poor can do so over the long term, independent of Photograph on page 2 reproduced with the permission of Monique Cohen. government and donor subsidies and so that a broader Monique Cohen is President of Microfinance Opportunities and a range of financial services are available to poor people. consultant to the CGAP Donor Team. She was previously employed by the USAID Office of Microfinance Development, where she worked closely with USAID/Morocco and followed the development Conclusion of Al Amana from its inception. This case study is based on a review Over the last seven years, USAID has played an of the documents cited above, as well as interviews with Fouad Abdelmoumni, Director, Al Amana; Jamal Dadi, Microfinance important role in helping to develop a robust micro- Program Officer, USAID/Morocco; Jim Bednar, Mission Director, finance sector in Morocco. As an investor, USAID built USAID/Morocco; Kate McKee, Director, Microenterprise Division, a self-sustaining MFI that now operates at a scale USAID/Washington, DC; Paul Rippey, Grants Investment Manager, reached by only one other MFI in the Middle East and Uganda Financial Sector Deepening Project, and former VITA Technical Advisor to Al Amana. North Africa Region. As a policy advocate, USAID facilitated the adoption of a law on microfinance and