PROMISING APPROACHES IN MF/MED SERVICES FOR VERY POOR PEOPLE

TOWARDS SELF EMPLOYMENT PROGRAMME

ABA – SME

ALEXANDRIA - EGYPT
CASE STUDY FORMAT
 TABLE OF CONTENTS

Executive Summary.............................................................................................................i
1. Context ...........................................................................................................................1
1.2. Local context – target area.......................................................................................2
2. Organizational Framework...........................................................................................16
2.1. International Organization.....................................................................................16
2.2. Local organization.................................................................................................16
Some of the other institutions in the area of activity of ABA who address the needs of
very poor people are ABA’s partner NGOs. For the time being 9 charity NGOs are
sending some of their beneficiaries (the ones who match the requirements and want to
initiate a small business) to ABA-SME for the TSEP. Most of them are for orphans and
their mothers, or for extremely poor people of a specific area..........................................27
The NGOs are interested because the aim of TSEP is to encourage poor people to take
care of them selves and graduate to Blossoms. So the NGOs can take care of more needy
people.................................................................................................................................27
Charity NGOs are very common in Egypt. Almost every area has its own charity
association. They provide food, medicines, basic vocational training, literacy classes, new
clothes for the orphans on the religious celebrations… Some of these NGOs have their
own community clinic where they provide medical care for free (or symbolic fare) for
their members and use the money collected from other patients to cross subsidize their
activities.............................................................................................................................27
3. Description of “Very Poor” Target Group....................................................................28
3.1. Individual and Household conditions
........................................................................................................................................28
3.2. Socioeconomic conditions.....................................................................................30
The major vulnerability very poor beneficiaries and clients can face is illness or death of
the bread winner. They rely on solidarity whether community or charity. .......................31
1. 4. Poverty Targeting and Assessment............................................................................32
4.1. Poverty measurement practices..............................................................................32
4.2. Available Poverty Data..........................................................................................34
4.3. Poverty Targeting...................................................................................................34
No use of a poverty targeting tool.....................................................................................36
..........................................................................................................................................36
2. 5. Products and Services................................................................................................37
5.1. Financial Products..................................................................................................37
5.2. Microenterprise Development Services.................................................................38
5.3. Non-financial Services...........................................................................................40
5.4. Design and Product Development: .......................................................................43
5.5. Implementation Process ........................................................................................46
6. Results...........................................................................................................................47
6.2. Impact....................................................................................................................47
6.3. Cost Effectiveness and Sustainability ...................................................................50
Bibliography.....................................................................................................................52
3
 ACRONYMS

ABA : Alexandia Business Association

ABA-SME: Alexandia Business Association – Small and Micro enterprises Project
BOD: Board of Directors
EGP: Egyptian Pound
EHDR: Egypt Human Development Report
ILO: International Labour Organisation
LO: Loan officer
MED: Microenterprise Developement
MF: Microfinance
MFI: Microfinance Institution
MIS: Management Information System
NGO: Non governemental Organisation
SFD: Social Fund for Development
TSEP : Towards Self Employment Project

4
 TITLE PAGE

Title of Project/Program: Towards Self Employment Programme

Organization Name(s): Alexandria Business Association – SME Project
Location – Country: Alexandria area - Egypt
Author(s): Yousra HAMED (ILO)
Month/Year: SEptember 2007

SEEP Network’s Poverty Outreach Working Group’s MF/MED Approaches Targeting

Very Poor People
Case Study No. X
Executive Summary

Alexandria Business Association (ABA) was created in 1983 as an association of

businessmen to provide support to the private sector, promote the interests of the business
community, and provide networking opportunities. It acted very much like a chamber of
commerce or employers’ association. However, its activities soon developed beyond
advocacy to encompass community service. In 1988, ABA became an NGO.

In 1989, ABA and the United States Agency for International Development (USAID)
signed a seven-year exclusive cooperation agreement. This resulted in the creation of
ABA’s Small and Micro Enterprises Project (ABA-SME), which is one of the many
activities and projects of ABA. USAID provided financial and technical support to ABA,
and ABA implemented a programme to offer financing to the existing small and
microentrepreneurs of the governorate1 of Alexandria. ABA-SME was launched in 1990
and it became for a long period the market leader in SME financing in the Middle
East/North Africa (MENA) region. It started by providing enterprise loans in Alexandria,
and then expanded its activities to neighbouring governorates (Behira, Menoufia, Kafr El
Sheikh and Matrouh). Later, the ABA model was replicated by other USAID-supported
organizations in other governorates of Egypt using the same methodology.

Under the pressure of the donor, financial self-sufficiency was a primary goal for ABA-
SME. It opted to provide individual loans mainly to men, targeting existing small and
microentrepreneurs who are mostly above the poverty line. Before starting
experimentation with poverty products, ABA-SME preferred to have a strong base of
operations, both methodologically and financially. Once the requirements of the donor
were met (after two years of activity), ABA-SME began to go down market serving more
vulnerable populations. In 1999, it introduced a new poverty product “Blossom of
Microenterprise”, for female-headed households using a solidarity group methodology.
The new product brought down the average loan size per borrower and increased the
share of women borrowers. Besides the usual goals of income generation and better yield
for the microentrepreneurs, this programme aims at improving social, cultural and health
standards among borrowers.

In 2001, ABA-SME strengthened its down market operations with a grant scheme, the
Towards Self Employment Programme (TSEP). This programme aims to help
unemployed poor people to start or strengthen business through a two-part conditional
grant (150 EGP / 30 US$ each) funded by ABA’s Zakat Charity Committee. TSEP
rounds up ABA-SME’s products proposed to clients with an underlying concern:
graduation. As ABA-SME says, their objective is to “reach down and scale up”.
TSEP is the result of a partnership between ABA's Zakat committee and its SME project.
It is separated from the MFI (in terms of inclusion in its income statement or balance
sheet), but supported on the ground by the SME staff members, in the headquarters by the
top managers, and funded by the Zakat committee of the business association

1
A governorate is an administrative division. Egypt has 27 governorates.

i
This case study focuses on ABA’s “Towards Self Employment Programme” (TSEP) as it
deals with the poorest. It also gives details on the Blossom group loan scheme, which has
enabled ABA-SME reach out to poorer clients, particularly women, and facilitates the
transition out of poverty. The contrast between Blossom and TSEP operations, and how
they are perceived by ABA-SME’s management is worth the comparaison.

TSEP targets female-headed households with many children, or where a husband is

unable to work (e.g. due to disability or old age), particularly households having
insufficient income to pay for basic needs, such as food and shelter. To participate in the
programme, one must have a business idea and the willingness to put it into practise.
Once the beneficiary gets her business started and demonstrates a sufficient commitment
to running it, the second part of the grant is disbursed. The project staff remind the
recipient about the possibility of subsequently accessing a loan, and suggests that they
contact a Blossom branch.

Since the inception of the different products on different periods, the proportion of TSEP
clients is 2 per cent and the number of grants disbursed (1st and 2nd part) is 7 681 and the
number of graduates to Blossom group loan is 245.

Over the years, the TSEP scheme has been housed in a variety of different places in
ABA-SME, and none have been an ideal fit. To minimize the costs of issuing grants,
ABA-SME has relied primarily on staff volunteers. Currently, the Operational Audit Unit
assumes responsibility for the grant programme, in addition to its primary responsibilities
of auditing the branches periodically. To assist the Audit Unit’s efforts to manage the
grant scheme, ABA-SME collaborates with a variety of charity NGOs, which assume the
primary responsibility for identifying and selecting beneficiaries. In addition, the NGOs
also provide other services not connected to ABA, such as food aid, beginning of school
year aid, which complement the efforts of ABA and assist the grant recipients to move
out of poverty.

ABA-SME used many innovations to serve the bottom end of the market, including:
• Similar to the Trickle Up approach, the conditionality of the second part of the
grant encourages beneficiaries to take their business activity seriously, at least
until they receive the second tranche.
• Partnership with charity NGOs allows for a geographic targeting (area of NGO’s
activity) rather than an individual one. It allows also using the knowledge of the
NGO about its members for screening purposes. This partnership significantly
reduces the costs, even if the additional layer impedes the information flow
between ABA and TSEP beneficiaries
• By using staff that is not involved in its lending activities to give grants, ABA-
SME avoids sending mixed messages both to beneficiaries and to borrowers. The
fact that the Operational Audit staff is experienced in evaluating and flushing out
dishonesty is a plus.
• Use of the Operational Audit staff unused time to do another activity saves costs

ii
 • ABA calls the commitment of staff with TSEP volunteering. This enhances their
image in a society where charity is important and motivates them.

The NGO partnership is an important method to reduce costs. In combination with the so-
called volunteering of staff, which is part of a disguised cross-subsidization, ABA
benefits from substantial economies. It is appreciable because even though the resources
are not a problem for ABA to fund TSEP, this cost reduction gives a guarantee to the
donors that their money goes to the needy and not to cover inefficiencies.

TSEP is funded from the contributions of ABA members to Zakat Charity Committee.
Members allocate funds specifically to this programme. Zakat is one of ABA’s
committees and coordinates the social and welfare activities of ABA. It collects the
religious charity contributions of ABA’s businessmen members. Zakat is an obligatory
duty and one of the five pillars of Islam. It is an amount of money that Muslims have to
pay to support the poor and needy, which typically should amount to 2.5% of the
untouched fortune of someone during one year, although “fortune” has to reach a certain
threshold for zakat to be due. Above this threshold, Zakat is obligatory. As Zakat is due
every year, it is a relatively secure source of local funding for TSEP.

Muslims are also encouraged to give voluntary charity. According to ABA-SME

management, TSEP is a top priority for ABA and its Charity Committee. Even if the
funding comes up short, the president of the board (and ABA’s founder) is willing to
finance the programme personally, which already happened.

The results of TSEP are measured by number of grants disbursed and of graduates to the
Blossom loan programme. Since inception in 2000, ABA has disbursed 7681 grants (1st
and 2nd parts) to x individuals; the total amount disbursed has been xxx EGP (US$). In
2004, 75% of the grant recipients were eligible for the second part of the grant, but in
2006 the “continuity ratio” was only 58%. This drop is because of the housing change of
TSEP among different units of ABA-SME. Since inception, only 245 TSEP beneficiaries
graduated to Blossoms. Some of the reasons for the low graduation rate include a non
continuous responsibility of the programme under a unique department, a philosophy
based on charity which makes management not queen on fixing objectives and
motivating staff to reach them. The non formalized procedure is also a hinder.

It is difficult to assess whether or not this is a success since the results cannot be
compared to any planned targets or objectives. Many aspects are ‘deliberately’ missing in
the results measurement of TSEP performance:
• No evaluation and translation into monetary terms of the time dedicated by
Operational Audit staff to the TSEP activity. This would make it possible to
calculate the cost of moving someone out of poverty and graduating him or her to
Blossoms.
• The graduation timeline is missing as a measure of success
• The continuation and repayment rates of graduates through Blossoms is not
measured either

iii
The TSEP SWOT analysis shows that the strengths and opportunities make it very easy
for ABA to upgrade TSEP into a more professional and organized programme, if it wants
to. TSEP is a breeding ground for future clients, faithful and risk free. Once it is seen this
way, weaknesses can be solved by strategic planning involving all the actors, and through
additional training, particularly for the partner charity NGOs.

Strengths
• The backing of the Charity Committee and its network
• Availability of funds
• TSEP is now under a neutral department with highly motivated staff (for now)

Weaknesses
• TSEP has not been sufficiently planned or managed
• Results are not properly measured
• TSEP is considered much more as a charity programme than as a standing alone
product
• The operations are not formalized through an operations manual
• Lack of monetary incentives for poverty outreach (even for Blossom)

Opportunities
• The only programme in Egypt doing this activity
• No interest in this segment by other MFIs, for now.

Threats
• Disagreement with Zakat and Charity Committee
• Downscaling banks are a direct competitor on the upper segment. Focus shortage
on the down market position might generate missed opportunities

iv
1. Context
1.1. Country Socioeconomic and Poverty Data

Table 1.1. Country Statistics

.
1.1.1. National Currency
Amount Year
1.1.2. Population (millions) 72,6 2004
1.1.3. Population density per square kilometre 68 2003
1.1.4. Percentage urban population 42,7% 2004
1.1.5. Inflation 10% 2005
1.1.5. Nominal Exchange Rate (current, X Currency per US$1) 6 EGP/ $ 2005
1.1.6. PPP Exchange rate 1,372 2000
1.1.7. HDI value 0,702 2004
1.1.8. HDI ranking 111 2004
1.1.9. GDP/Capita (PPP US$) 4211 2004
1.1.10. Local currency equivalent of $1-a-day international poverty
line
16,7% / 90 -2003
1.1.11. Population below national poverty line (%) 1
20,16 2004
1.1.12. Population living below $1 a day (%) 3,1% 90-2004
1.1.13. Population living below $2 a day (%) 43,9% 90-2004
1.1.14. Population living below $2 a day (%)
1.1.15. Population growth rate 2,1% 75-2004
1.1.16. Life expectancy 70,2 2004
1.1.17. HIV prevalence (% ages 15-49) < 0,2% 2004
1.1.18. Tuberculosis cases (per 100,000 people) 35 2004
1.1.19. Population undernourished 3% 2001-03
1.1.20. Children underweight 9% 2004
Male 83%
1.1.21. Adult literacy 2004
Female 59,4%
Male
1.1.22. Net primary enrolment ratio 2004
Female 94%
Male
1.1.23. Net secondary enrolment ratio 2004
Female 77%
1.1.24. Physicians per 100,000 people 54 90-2004
1.1.25. Health expenditures per capita (PPP US$) 235 2003
1.1.26. Gender-related development index (GDI) rank
1.1.27. Gender-related development index (GDI) value
Source: EHDR [2005], WHO [2004]
1
Poverty level (PL) measurements are based on income or consumption expenditure per
capita of individual households. The cost of basic needs methodology is used to construct
household region-specific poverty lines. The food poverty line varies for each household
and for each of the seven country subdivisions [EHDR, 2005].

1
 1.2. Local context – target area
1.2.1. Briefly describe local socioeconomic conditions

ABA is active in five governorates with the individual and group lending. The
conditional grant product, TSEP (Towards Self Employment Project) is limited to
Alexandria governorate. In the following sections we will concentrate on the local
context of Alexandria. We will refer to the context of the other four governorates
when the data is available and the differences worth mentioning.

1.2.1.1. Geographic reference of location and size of population

ABA is active in the governorates of Alexandria since its inception and, since 1997; it
expanded its geographical coverage to other neighboring governorates: Kafr El
Sheikh, Behira, Matrouh and Menoufia.

Table 1.2: population, density and rural population in the five governorates of activity
and Egypt
Total population * Density (person / km2 Rural population (% of total)
Alexandria 4 110 015 1605 0
Kafr El Sheikh 2,618,111 987 (lower Egypt) 78.2
Menoufia 3,270,404 987 (lower Egypt) 81.2
Behira 4,737,129 987 (lower Egypt) 81.5
Matrouh 322,341 41 (Frontier Govs) 46.2
Egypt (26 Govs) 72,579,030 896 (Frontier Govs) 58.4
Source: [EHDR, 2005], * [CAPMAS, 2006]

ABA’s zones of activity

2
 1.2.1.2. Local population characteristics:

The five governorates that ABA covers belong to three different administrative divisions.
Alexandria is part of Urban Governorates, Kafr El-Sheikh, Menoufia and Behira are part
of Lower Egypt and Matrouh is part of Frontier Governorates.

The three areas are different in terms of urbanization, human development and intensity
of economic activity.

According to the average Human Development Index (HDI) values, Urban governorates
are the top performers in terms of HDI. Frontier Governorates continue to rank second
followed by the Lower Egypt Governorates in the third ranking [EHDR, 2004]. While
Alexandria is in the top 5 (4th best performer in the country) the three governorates of
lower Egypt rank 12 for Menoufia, 14 for Kafr El Sheikh and 16 for Beheira out of 27
Egyptian governorates.

When we look closer at the composition of the HDI, the literacy rate is really high in
Alexandria (80%) compared to the average country rate and to the other governorates
where it is between 67.5% in Menoufia and 56% in Beheira and Matrouh2.

The economic conditions are also better in Alexandria. The real GDP per capita in PPP$
is 1.5 times the average national GDP per capita and almost twice as important as the real
GDP of the 3 Lower Egypt governorates. Public authorities in Alexandria took advantage
of the economic vitality of the governorates to implement public private partnerships that
rank high as a strategy in the development agenda [EHDR, 2005].

Undoubtedly Alexandria is the most developed governorate among the 5 where ABA
operates. The fact that it is totally urban and more industrialised impacts the level of
human development of its population and the nature of most common services and
products offered by ABA. This performance is also linked to the decentralisation
experience that the central government has increasingly allowed over the last 10 years.
Among 27 governorates, the governorate of Alexandria achieved a measure of
distinction. Local government strategy to rely on private sector enterprises and on more
personalised links to businessmen as anchor partners for development goals allowed an
invigorating path.

One can also note that urban governorates show higher health status indicators. Even
tough life expectancy at birth is almost the same and corresponds to the national average
(around 71 years); the other indicators, such as infant mortality, access ti piped water,
show a slight imbalance towards Alexandria, for instance.

The deprivation table below shows the disparities between Urban and Frontier
Governorates (Matrouh) on one side and Lower Egypt (Kafr El-Sheikh, Menoufia and
Behira) on the other side. Urban Governorates are the least disadvantaged group with
reference to human deprivation indicators. Their relative shares in total numbers of
2
The national average literacy rate is 65.7%.

3
persons suffering from human deprivation are much less than their relative shares in total
population (18.3 %). [EHDR, 2004]

Table 1.3: Percentage distribution of total deprived persons among governorates

Source: EHDR, [2004]

Indicators in Table 1.3 reveal the urban/rural human development imbalance in Egypt,
even though gaps have been narrowing during the period 1990-2004 [EHDR, 2005]. In
Lower Egypt the population is largely rural (around 80% for the 3 governorates) and
much higher than the national level of 58.4%. Matrouh is rather urban (54%) and
Alexandria totally urban (Table 1.2).

Box 1.1: Implication of the business community in the development of Alexandria

“When the governor of Alexandria was appointed in the late 1990s, the city began a revitalizing
trajectory that totally transformed it. The governor relied initially on the contribution from and
support of the local business community, and the executive branch of the governorate established
a highly successful working partnership with business to implement various renovation projects
in the city. The projects’ visible successes widened the scope of the partnership and increased the
governorate’s negotiating power vis à vis the central government. The governor was selected two
years ago as the most effective visionary Arab manager by the Dubai Program for Performance
Distinction”.
Source: EHDR [2004]

4
 1.2.1.2.1. Ethnic groups

The main ethnic/religious groups are Muslims and Coptics. Thorough statistics
though do not exist. On the national level, Coptics are estimated to be 10% of the
Egyptian population.

1.2.1.2.2. Most important economic activities

Table 1.4 gives the main economic activities in the five governorates as well as on the
national level where the services sector absorbs the largest share of the labour force
(58%) followed by the agricultural sector (30%), then the industrial sector (12%).

Table 1.4: Labor force by sector and wage earners by gender

% of labor force (15 +) Wage earners (% labor force)
Agriculture Industry Services Total Female
Alexandria 1.2 34.4 64.5 68.4 8.7
Kafr El Sheikh 44.1 10.6 45.3 44.4 9
Menoufia 32.4 19 48.6 60.4 11.8
Behira 64.3 9.4 26.4 28.8 5
Matrouh 0.3 18 81.8 74 15.8
Egypt (26 Govs) 29.9 12.4 57.8 54.1 51.7
Source: [EHDR, 2005]

In Alexandria the industry sector has a much highesr share of labor force than the other
governorates. Industry in ALexandria employs 3 times as many as the national industry.
It confirms the position occupied by this governorate in Egypt’s national economy. 40 per
cent of Egypt’s industries are located in Alexandria, and yet the importance of Alexandria
as an industrial city is increasing due to the Amreya industrial free zone, the Borg El
Arab El Guedida industrial zone and the two airports in Dekheila and Nouzha. In
addition, 80 per cent of Egypt’s trade passes through Alexandria port, one of the biggest
harbors on the Mediterranean.

The third sector is the most important employment supplier and at a level higher than the
national level. Lower Egypt governorates are rather balanced in terms of labour force
employed in agriculture and services. The percentages are close to the national level
except for Behira, the most rural region where agricultural activity employs 64% of the
labour force of the region, more than twice the national percentage. In this governorate
only 29% of the labour force is wage earner.
Even with almost half of its population living in rural areas, Matrouh’s labour force is
only marginally engaged in agricultural activities.

It is noted though that urban density has been rising as a result of internal migration, the
transformation of many villages into towns and cities, and the exploitation of the mining
resources, including oil wells and natural gas as well as quarries of limestone, dolomite,

5
and gypsum. It has boosted transformation industries, chemical and petrochemical
industries

Comparatively in the five governorates, the percentage of wage earners in the total labour
force is positively correlated with the importance of the second and third sector in terms
of employment. The more the economy of the governorate is industrialized and service
oriented, the greater is the percentage of wage earners. In Alexandria where the second
and third sector employ 99% of the labour force, wage earners are 68% and in Behira, the
rural agricultural governorate (only 36% of the labour force are employed in the second
and third sector) the wage earners are only 30% of the total labour force.

1.2.1.2.3. Cultural and religious background

The Egyptian Constitution provides for freedom of belief and the practice of religious
rites; Islam is the official state religion and the primary source of legislation. Al Azhar
Mosque and University, located in Cairo, is famous throughout the Muslim world as a
center for the study of Islam, Arabic and metaphysical sciences. Muslims represent
approximately 90% of the population; roughly 10% of the population is Christian with a
majority that belongs to the Coptic Orthodox Church.

1.2.1.3. Natural resources, economic activities, markets, unemployment

According to official figures, open unemployment in Egypt declined from 12per cent in
1986 to 9 per cent in 1996 and 7.4 per cent in 2000. It increased again to 8.8 per cent in
2001 [The Egyptian Center for Economic Studies, 2002] and 11.2 per cent in 2005
(reaching 2.2 million). On this same year, female unemployment amounted to 25 per
cent, while that of male was only 7 per cent. It is widely believed that these figures are
underestimated; according to some analysts unemployment was as high as 17.6 per cent
in 2001 [Khedr, 2004].

Table 1.5: Unemployment (2004)

Unemployment Unemployment rate Unemployment rate by education
rate (15+)
Total Urban Rural Below secondary university
secondary
Alexandria 7.1 7.1 0 1.6 13.1 8.6
Kafr El Sheikh 14 18 12.6 0.2 27.6 25.3
Menoufia 9.9 13.6 8.9 0.4 18.7 16.6
Behira 8.6 17.4 7 0.2 25.5 21.7
Matrouh 9.7 15.3 1.7 0 15.5 19.6
Egypt (26 Govs) 9.9 10.1 9.7 0.9 19.8 14
Source: [EHDR, 2005]

In addition to the increasing labour force, due to demographic factors, dropouts of the
education system join the labour market every year in search of jobs increasing the
unemployment rate of the youth. The breakdown by level of education shows a higher
concentration of unemployment among educated youth.

6
Although external migration played a significant role as a "safety valve" for the labour
market from the mid 1970s until the early 1990s, it can no longer absorb the surplus of
Egyptian labour supply to the same extent.

In all governorates, the urban unemployment is much higher than the rural one being
probably related to internal migration from rural to urban areas and to the decline of the
public sector’s share in total employment.

1.2.1.4. For rural areas only: most important crops and livestock activities, water
supply (irrigation, rain fed), seasons and number of harvests, land availability,
ownership patterns and contracts.

This section is not relevant as ABA does not provide services for agricultural activities
and that our main focus is on Alexandria, a 100% urban governorate.

1.2.1.5. Occurrence of droughts, floods, natural disasters or conflicts

This section is not relevant as ABA does not provide services for agricultural activities
and that our main focus is on Alexandria, a 100% urban governorate.

7
1.2.2. Describe government policies aimed at the very poor
1.2.2.1. Social protection schemes by the government.

The Health Insurance Organization (HIO) is the largest health insurance body in Egypt
and currently covers around 50 per cent of the population, mainly public sector
employees. The HIO has been running a budget deficit resulting from increased costs of
health services while price of services were kept fixed since 1964, as well as because of
the very high administrative costs of running the organization where a significant
proportion of the financial outlay supports a disproportionately large and ineffectual
bureaucracy.

In addition to the HIO there are some private health insurance companies, but their
coverage does not exceed 1 per cent of the population.

Welfare services (education, health and food subsidy) have been provided over the last
fifty years. However, the welfare system has been inefficient, as it was not directed
towards those who need it most. It, therefore, served middle income groups more than
lower income groups and the ultra-poor, who lack access to public services and
institutions.

Special situation and needs of poor population and specific vulnerable groups, such as
students, have not been addressed. The current system does not provide room for
progressive premiums based on household income. Mechanisms to make available
credible social protection scheme have touched only a small share of those who are most
likely to benefit. Thus, even though Egypt's welfare and social security system on paper
seem generous, expensive, and even ambitious, some observed factors question this
perception [EHDR, 2005].

Subsidies in the health sector support the richer segments of the population more than the
poorest. Since social health insurance requires methods of organization to collect
individual or group contributions, the very poor are usually left out. Those are the people
who are not in formal or in organized occupations, the unemployed and housewives.

The situation is quite similar for pensions. As the contribution rates, especially the part
paid by the employer is quite high, the evasion rate is also high. This is evidenced by the
fact that about 30 per cent of private sector enterprises do not pay contributions for their
employees at all or restrict their payments to some of them only. The poor and non
empowered employees will be the first ones to be pushed aside for cost reduction
purposes. In the informal economy, where employers are estimated to be 85 per cent of
the total Egyptian employers according to the 1996 census, evasion is rather the rule for
employees and also for employers or the self-employed themselves.

Box 2: Social protection

According to TSEP coordinator who started his career as a social controller in the
Ministry of Social Affairs, the kind of aid that a family can aspire to is:

8
 - Pension if the individual who worked in the public sector or a well established, big
private company
- Aid for partial disability (monthly from the ministry of social affairs)
- Pension for total disability starting from 21 years old even if parents are civil
servants (monthly)
- Aid for widows, divorced or left women (monthly)
- Aid for orphans (monthly)
- Aid for women whom husband cannot work (monthly)
- Aid for illness or old age (150 EGP once)
- Annual Students’ aid, children of parents eligible to anyone of the aids above
(annually)

Usually and according to the size of the household, the aid is between 70 and 100
EGP (15 and 20$) monthly and for the household.

1.2.2.2. Policies aimed to integrate the very poor, such as anti-discrimination and
affirmative action laws.

1.2.2.3. Property and land rights.

There is an inheritance law, following the Islamic regulations, which gives the women
50 per cent of what is due to the man, but give the child full rights.
According to the law, all citizens are equal in respect to the property right whatever
their social classe is.

1.2.2.4. Local government and non-governmental development programs.

Several governmental development programs exist, in different aspects such as social,

health, infrastructure, etc… Several NGO's supported by International donors and
local charity NGOs are as well active in ABA’s area of activity. The Social Fund for
Development (SFD) supports different aspects within the same frame.

1.2.2.5. Other

1.2.3. Brief profile of microfinance environment.

1.2.3.1. List microfinance institutions (other than subject of case study) and other
financial institutions/services accessible by the poor.

The institutions providing microcredit in Egypt can be subdivided into 3 groups: 1)

USAID supported institutions (seven institutions), 2) other NGOs (partly financed by the
Social Fund for Development - SFD) and 3) downscaling commercial banks. The non
banking microfinance institutions have the legal status of NGOs. The leading institutions,
in terms of number of clients, professionalism and financial autonomy are part of the
USAID supported MFIs. However they were focused on the upper end of the market and

9
downscaled with the introduction of group loans product once they had reached financial
self-sufficiency.

Table 1.6: Major microfinance providers in Egypt

Total active % of clients in Average loan / GNP Intervention zone
group loan per capita (%)
borrowers 2005
DBACD 56 370 32% 15% Dakahliya
ABA 49 642 35% 24% Alex and surrounding
governorates
Lead Fd 39 375 8% Cairo, Giza
ASBA (2003) 35 452 54% Assiut
SBACD 26 568 22% (2003) 15% Sharkiya
ESED 20 035 31% 32% Cairo
CEOSS 12 896 10% Upper Egypt
Al Tadamun 11 028 100% 11% Cairo
SEDAP (2003) 3 980 40% Port Said
Source: Web sites of the institutions, ratings and MIX, ILO Data (GIAN project)

Egypt has more than 50 banks with a network of approximately 2 000 branches, although
they do not meet the vast demand of microentrepreneurs and poor.
The majority of the banks are not interested in lending to this population; they do not
offer loans below 25 000 EGP (4 000 US$). The exceptions to this are National Bank for
Development (NBD), a private commercial bank that has established a separate unit to
provide financing to the entrepreneurial poor (22 600 active borrowers in 2003)3, and
Principal Bank for Development and Agricultural Credit (PBDAC) that provides small
and micro loans focused on agriculture and rural needs though very subsidized and
presenting difficult conditions. The banks that partner with Social Fund for Development
(SFD) through the downscaling programme financed by KfW and the USAID initiated a
programme with Banque du Caire to provide microcredit as well.

Banque du Caire (recently acquired by Bank Misr) is a state-owned commercial bank

with private sector management. It’s the third largest public commercial bank in the
country with 180 branches. Since mid 2001, it has provided microfinance services to the
upper part of the low income class using the individual lending methodology through 99
of its branches. Loan sizes range from 1 000 to 10 000 EGP (160 to 1 600 US$) with an
average loan per borrower comparable to the average of the Egyptian NGOs (around
300$). It has 30 600 active borrowers.

3
In collaboration with USAID, NDB established in 1987 the Small and Microentreprise Division with
micro lending operations in 4 of its branches. In 2003, microcredits were being delivered in 44 branches to
22 600 active borrower with 8.2 millions US $ outstanding [Iqbal & Riad, 2004]

10
 1.2.3.2. Describe dominant microfinance models and services.

Due to legal framework rigidities, credit has been the main type of microfinance product
offered to the Egyptian market in the form of micro-loans predominantly provided
through nongovernmental organizations (NGOs).
Credit products offered to microentrepreneurs are dominated by two types: 1) individual
loans that provide working capital for existing enterprises operating for at least one year,
predominantly in the retail and mercantile sectors in urban and semi-urban areas; and 2)
group lending for income-generating activities of women, especially female heads of
household in the lowest income categories.

Non banking institutions are not allowed to capture savings. Due to its extensive outreach
and low-cost application procedures the National Postal Authority remains the dominant
provider of micro-savings. However, low-income population prefers informal savings
mechanisms. They are reluctant to deal with a banking institution which in the meantime
is unwilling to adapt its procedure to small savings [Moussa 2006].

1.2.3.3. Demand versus supply of microfinance services.

Egypt has one of the largest potential markets in the MENA region but still a small
penetration rate. The estimated number of potential clients is 1 630 855 from which, only
16% (256 000) have effectively access to microcredit4 [Brandsma & Burjorjee, 2004].
Our calculations for 2005/2006 add up to 378 550 active clients.
The bulk of the demand emanate from microentrepreneurs working in the informal
sector. For the most part, microentrepreneurs must finance their activities through family
members’ loans, ROSCAs, pawnbrokers and money lenders [UNDP, 2003]. The demand
met by MFIs is expressed by 40 per cent of microentrepreneurs working in trade, 30 per
cent in manufacturing, 15 per cent in services and 5 per cent in breeding [PlaNet Finance,
2005].

1.2.3.4. Depth of microfinance outreach.

The average outstanding loan balance as a percentage of GNP per

capita is commonly used as a proxy for the poverty level of the client:
the lower the loan balance, the poorer the client.
The group loan (blossom) was introduced first at the end of 1999 in ABA and then, step
by step, in the other USAID supported MFIs. It reached around 5 per cent of the total
outstanding portfolio in 2003. This downscaling movement was impulsed by the donor
which encountered the MFIs will to refocus on the social aspects of microfinance. This
new methodology brought down the average loan outstanding and increased the share of

4
Only 16% penetration rate based on estimation established on national poverty line + 20%, considering
that many people (37% of population) live at income levels that are not more than 30% higher than the
poverty line. External shock could throw these people back into poverty overnight.

11
female borrowers. In 2003, female borrowers constituted a third of total clients being
served.

1.2.3.5. Existing MF/MED initiatives (other than case study) aimed at the very poor.

Al Tadamun is an NGO dedicated entirely to female borrowers using only the group
loans methodology which allows the institution to target and serve down market clients.
It is specialized on that market segment: average loan per borrower is about 70 US$ (less
than 5% of GDP) compared to 300 US$ for the group loans product of DBACD for
example. In 2003, Al Tadamun served more than 7 000 women under the national
poverty line. In mid 2005, this number approached 10 000 clients with a repayment rate
of 100% and a retention rate of 99.5%.

1.2.4. Poverty
1.2.4.1. Existing Poverty data and geographic areas of the country where extreme
poverty is most concentrated.

The EHDR [2005] found that poverty is localised and masked by averages. The
distribution of wealth groups between rural and urban settings was significant.
The poor live in primarily rural areas; the majority have no social security, are
significantly not connected to the piped water, not linked to sewage system and drains,
have no flushes and their households are poorly equipped (74% of the poorest households
have no refrigerator).
Over a third of the heads of households in the poorest quintile are agricultural workers
(36.2%) and another 11.3% are peasants farming their own land. Almost half (47.2%) are
ultra poor rural households.
Poverty is found to be concentrated in Upper Egypt.

12
1.2.4.2. Does the target area fall within these extreme poor regions?

ABA-SME was created by an association of businessmen from Alexandria to help the

development of the governorate. Obviously, its first area of activity was the
governorate of origin it self. The expansion strategy was guided by geographical

13
 proximity to Alexandria rather than by level of poverty of the areas. When it was
possible to expand activity, ABA-SME has chosen the surrounding governorates for
evident reasons of easier operational follow up of the branches. As a consequence of a
past law confining association’s activities to one governorate, the majority of MFIs are
specialized by geographical area. Only banks have a national coverage.

ABA-SME’s target area falls within an area where the poverty incidence 5 is not the
most severe. 4 to 10% of the population of Alexandria, Kafr Echeikh, Behira and
Menoufia are considered to be poor. While between 10 and 25% of Matrouh’s
population are considered to be poor.

No expansion is planned for the time being. The stress is put onto the consolidation of
the activity in the 5 governorates.

1.2.4.3. If known, what is the proportion of population in the target area living below
$1-a-day and/or within bottom 50% of people living below the national poverty line?

Table 1.7: income distribution and poverty in the five governorates

Income share of lowest Gini coefficient Poor persons (as % of the
40% of people population)
Poor* Ultra poor**
Alexandria 18.9 38.1 9.4 2.1
Kafr El Sheikh 22.6 29.8 9.9 1.4
Menoufia 26.5 22.4 15 0.8
Behira 26.4 23.5 21.1 2.7
Matrouh Not available Not available Not available Not available
Upper Egypt 22.6 29.6 34 9.6
Egypt (26 Govs) 20.3 35.2 20.2 4.7
Source: EHDR [2005]
*the poor being the population under the national poverty line
**the ultra poor, the ones not being able to obtain their basic food requirements even if they
spend all their expenditures on food only.

With half the national proportion of poor population and compared to the poorest region
of the country (Upper Egypt), the target area (mainly Alexandria and Kafr El Sheikh)
seem to be less affected by poverty. Though, with a Gini coefficient higher than
Menoufia and Behira, these two governorates show inequalities in the income
distribution.

Even though Alexandria seems wealthier (or less poor) with the lowest percentage of
poor population among the four governorates, it has the second highest share of ultra
poor. The hypothesis of inequlity in income distribution is confirmed by a Gini
coefficient, by 3 points higher than the national level.

Menoufia and Behira, the more rural governorates (table 2) show an assumed correlation
between rural areas and incidence of poverty. Behira seems to have a homogenous poor,
rural population while Menoufia has a better off, also homogenous population.
5
It is the proportion of families with per capita incomes below the poverty line.

14
15
2. Organizational Framework
2.1. International Organization
ABA is a national association. This section is not relevant.

2.2. Local organization

2.2.1. Organizational development

Table 2.1. Institutional Background

Issues Observations
Alexandria Business
2.2.1.1. Name of the organization or institution
Association – SME project
Governorates of Alexandria,
2.2.1.2. Geographic area of operation Menoufiya, Bahira, Kafr El
Sheikh and Matrouh
2.2.1.3. Legal structure NGO
under the Ministry of Social
2.2.1.4. Registration status
Affairs
2.2.1.5. Regulation status
2.2.1.6. Date established as an NGO 1988
Specialised in financial
2.2.1.7. Specialized (MF/MED) or multisectoral
services (microcredit)
2.2.1.8. Start of MF/MED activities 1990
2.2.1.9. Core business (f.i. credit, savings, …) Credit
2.2.1.10. Business model
Existing Small and micro
2.2.1.11. Target market – MF/MED
enterprises / poor women
2.2.1.12. Number of active borrowers (dec 2006) 59 526
2.2.1.13. Number of staff (dec 2006) 751

2.2.2. Organizational development

2.2.2.1. Mission and vision
The institution aims to develop and promote existing small and micro enterprises, to raise
the income of SMEs, to help the transformation of SMEs from the informal to the formal
sector, and ultimately contribute to solving the radical and chronic unemployment
problem.

The different grant and credit products offered by ABA help to graduate poor people to
microcredit. Its approach is summarized in their leitmotif “reaching down … scaling up”.

16
 2.2.2.2. Brief history

The Alexandria Business Association (ABA) began its activities in 1983 as the Economic
Committee for Businessmen under the auspices of the Chamber of Commerce (semi
governmental body). Its objectives were purely those of an employer organization such as
providing support to the private sector, promoting interest of the businessmen, and
representing the sector to the government…). Beyond advocacy, it soon included
community service work, as members became involved in building and improving
hospitals, schools and institutions for the elderly. It then registered with the Ministry of
Social Affairs in 1988 as a private non profit organization.

In 1989, ABA and USAID signed a seven-year exclusive cooperative agreement. It

resulted in the creation of ABA’s Small and Micro Enterprises Project. USAID provided
financial and technical support to ABA which implemented a programme to offer
financing to the existing small and microentrepreneurs of the governorate. ABA-SME
was launched in beginning 1990.

ABA – SME Project

ABA-SME is the oldest and one of the leading MFIs in Egypt. After the success of this
experience, it was replicated by USAID in other governorates of Egypt using the same
methodology.

Like for the other USAID supported programmes and under the donor’s pressure,
financial self-sufficiency was a primary goal for ABA6. It adopted a methodology that
minimized costs and risks: it provided loans to existing small and microentrepreneurs
who were primarily men. The average loan per borrower in 1996 was more than double
of the present average loan and exceeded the GNP per capita. Once the donor’s
requirements were met, ABA turned more down market with the introduction in 1999 of
a new credit programme targeting female-headed households, based on solidarity group
methodology and named “Blossom”. The new product brought down the average loan per
borrower and increased the share of women. Besides the usual goals of income
generation and better yield for the microentrepreneurs, this programme aims at improving
social, cultural and health standards through the friends meeting that brings together
members of 5 groups or so and get information about topics like personal hygiene or
vaccine. It is as well, a way for women to exchange ideas and to build their social
network.

In 2001, it strengthened the down market position with a grant activity programme called
TSEP, aiming at helping unemployed poor people to start business through a two parts
conditional grant. By the end of 2004, 75% of the grants beneficiaries sustained their
businesses and have graduated to the second part of the grant.

In 2006, ABA-SME introduced “Development path” as an intermediate step between

Blossom and SME. It is a more flexible version, in terms and conditions, of Blossom.
6
The operational self-sufficiency was reached in 1992, after two years of operations.

17
 2.2.2.3. Objectives

ABA-SME’s main objectives are to promote existing small and micro enterprises, to raise
the incomes of SMEs and to help their transformation from informal to formal.

2.2.2.4. Organizational culture, leadership, innovation

Vision and mission were found to be understood and strong among staff. The
headquarters staff, where work conditions are easier than the field, are very motivated.

The Egyptian population is very religious; helping others is an important value in Islam,
so for ABA-SME staff it is much more than work to deal with poor people. The TSEP
team leader who is also in charge of operational audit, values much more the group loan
“blossoms” as a product than the SMEs loan because, as he says, he feels more useful to
help poor women that head families that might not be able to get food and education for
their children without ABA’s help (TSEP or blossoms) than microentrepreneurs who will
just make their lives better with the loans.
The situation in the field among groups loan officers is different. The turnover is high
because loan officer can take the job without thinking about the difficulties and discover
afterwards that it is complicated and demanding and that they need to work hard to get a
better pay (incentives around 50% of the pay). Even though the training of new LO starts
with the core value and includes all the aspects of how to deal with poor, it does not seem
to have influenced their motivation and loyalty to ABA-SME; the ones that are socially
sensitive value the work, the others are motivated more by their pay.

The longer the employee’s history with ABA-SME, the stronger is his commitment to the
vision and mission. The staff who were there since the inception of the project (whether
they were part of the technical or support team) are the more fervent when talking about
ABA-SME mission. It can be also that the evolution of ABA-SME they have seen and
their own progression in the association give them stronger motivation than a new recruit.

Leadership and innovation encouragement

The strong personality of the former executive director, Nabil El Shami, gave a strong
push that ABA needed during the first period but also established a top-down kind of
leadership strengthened by the hierarchical culture of the Egyptian society. The current
executive director is conscious of this situation and tries to encourage his personnel to
suggest ideas and innovations. For example, to avoid the shyness of the staff he has a box
of anonymous ideas that he exposes during staff meetings and motivates the decisions on
integrating them or not.
As an example of innovation contributing to reach the poorest, the collaboration with
charity NGOs as a primary control and a selection criterion for TSEP7 was proposed by
the operational audit team. It does not seem though to be fully integrated by the top
management. The new TSEP forms were also a proposition of the team.

7
It allows cost reduction too.

18
 2.2.2.5. Organizational structure, roles and responsibilities (diagram may be helpful)

ABA is governed by a general assembly of 331 members (in 2005). They elect a 15
member Board of Directors. Third of the governing body of ABA are the different
executive committees8. There are 25 and among them the executive committee for ABA-
SME project.

ABA’s operations are decentralized. The branches have full power to manage loan
approvals up to 10 000 EGP (1 667$). Disbursements and collection are made directly at
the branches for SME loan and in the group president house for the group loan. Data
entry for loan data, loan repayments and accounting is also managed on the branch level.
Each branch has a full staff: a manager, accountant, cashier, MIS officer, lawyer, deputy
branch manager, supervisors and loan officers [PlaNet rating, 2004].
For the TSEP project the decision is also decentralized. Two signatures are required; the
one of the field visitor and the supervisor but most of the time the field visitor’s decision
is applied. The supervisor is involved just in case of complexity.
The possibilities of collusion are decreased through the partnership with charity NGOs
that constitute a first filter and ease decision taking.

The top management team is composed of the Executive Director and three Deputy
Executive directors for Operations, Finance and Information system and consulting
services. A human resources manager, a lawyer and a chief internal auditor further
support the team.

8
They are committees of members charged by the General Assembly to look into and follow up a particular
topic of interest to the association. It can be related to economics, social activities or politics and lobbying.
Some committee examples are investment committee, youth committee or energy and environment
committee.

19
 Mana
2.2.2.6. General qualifications and profile of field staff

The field staff with direct client contact are Extension officers for SME loans and
coordinators for group loan, which are exclusively female as this product is only for
women. The SME extension officers are university graduates.
Most group loans coordinators have a diploma (6 years of high school from an industrial,
commercial or agricultural high school) and some have an ‘idadi’ diploma (3 years of
high school).
The main duties (job description) of a group coordinator is to prospect for new clients,
either by going door to door in new areas, or by reference from her old clients of new
clients or by prospection in other districts in her old area. She has to visit them, see their
activity, and collect the paper work: ID, electricity bill, picture and the form filled in and
the client stamps.
The coordinator checks on the situation of the potential client by asking the neighbours
but often it is not a necessity as the coordinator usually lives in the same area where she
works and knows the people.
Once the group is set up, she helps the members pick up a president and explains what
are her duties.
The loans attribution committee (branch manager, chief coordinator and the coordinator)
look into the form and either the supervisor or the branch manager visits the client and
decides on the amount.
Once the agreement is done, the coordinator informs the group about the disbursement
date and meets them in the house of one of them. She also informs them about their dates

Legal Dpt. M
of repayment and explains that the group members should bring their instalment to the
president and give her their follow up note book where she should sign that she received

20
the money. She is also supposed to do the monitoring and to try solving repayment
problems upstream.

No specific working experience is required for the coordinators even less a prior
experience with very poor people. The coordinators’ school friends from the same region
are usually working as saleswomen or are unemployed. Recruits with curiosity and taste
for challenge are preferred and are probably thought to be more suitable to serve the
poorest.

The requirements for coordinator is to be more than 18, female (the programme is 100%
for women), high school completed, good family history, living in the same area where
she wants to work. This last condition allows for a homogenous profile of clients and
coordinators. No ethnic or religious distinction is made. Contrarily to other charity NGO
which are religious community based, ABA serves anyone without religious
consideration. And the coordinators are from either religion serving any client. ABA does
not ask about the religion of clients.

TSEP staff, which are also operational auditors9, are already trained staff. They are used
to the field, have experience and are trained to see what is wrong in the activity or if the
client or beneficiary is trying to show that he is less well-off than what he is truly. But no
specific training to deal with extremely poor is provided for them.

2.2.2.7. Training/sensitization (of staff, managers, board) on mission and poverty

outreach

The sensitisation with respect to reaching the poor starts with the first steps of the
recruitment process. The applicants receive a leaflet with all the info about ABA, its
mission, the different products, and their benefits. There are also statements from 3
different persons about ABA’s work and its social and economic orientation: a religious
leader, the first imam of al azhar mosque, the minister of co-development and a USAID
representative.

All the staff whatever their hierarchical level is, are aware of the mission, and support the
depth of poverty outreach strategy with a religious sensitivity. Even though the social
value of their work with the poor is acknowledged, the more we go down on the
hierarchy the more the religious pride for their work is predominant to the social value.

Training is mandatory and is an ongoing concern for staff and managers, not including
BOD members, as they are not participating by any means in day to day management.
The field staff receive training when hired. Besides the practical aspects of the work, it is
supposed to include sensitization for the specific features of the clients. It is provided by
the management.

9
More details on page 34 - 5/ Products and services

21
They start with 10 days classroom training on mission, vision, formalities, the target
group, their features, the specificities of this part of the market, how to evaluate the
quality of their work... This is followed by 50 days of on-the-job training, 20 of which the
coordinator is accompanied by the branch manager and the last 30 she does the work but
under the control and supervision of an experimented coordinator who will report about
her performance. Refreshment programs are conducted later and more advanced training
is given for senior field officers.

Apparently the training does not insist enough on specific poverty outreach areas as many
coordinators do not remember this aspect. The primary focus is the on-the-job training,
which is a practical training (dealing with old clients, prospecting for new clients,
procedure for a first loan and for a renewal) done with the branch manager. As
coordinators get their knowledge on the field, their awareness of the mission and poverty
outreach aspects are better stressed when the branch manager is sensitive to this
importance and keeps reminding his staff about the social value of their work. This
transmission is linked to the personality, motivation and commitment of the branch
manager and the experimented supervisors.

2.2.2.8. Incentives for poverty outreach

There are no incentives for TSEP since it is done on a voluntary basis 10 neither for the
coordinators of the group loans. The incentives are just based on repayment rate and
productivity. Though, incentives are much more non-monetary. It is the moral-religious
reward for TSEP staff. It is also mentioned among group loans staff (more among branch
managers and supervisors than among coordinators).

One can expect to find tension between financial and social job performance. According
to the management, there is no such tension. It happens that coordinators choose better-
off clients in order to get a better track record on repayment. This case is considered to be
beneficial for the group and its dynamics because group members help and monitor each
other and sometimes partner. The case of a lady that is not in need for a loan but in need
for the monitoring structure of the group was given as an illustrative example. She was
the group president and wanted to use the group to monitor the working abilities of her
group members and to hire some of them to work with her later.

2.2.2.9. Governance

ABA is governed by a General Assembly of 350 members. They elect a 15 members

board of directors which has no legal ownership; funds would be owned by the
government in case of liquidation. The Board of Directors’ current president is Mohamed
Ragab who is the founder of ABA and has been a member of the board since inception.
He is very enthusiastic about TSEP and is one of the main founders and contributors.
ABA-SME is governed by an executive committee of seven elected members out of the
15 Board of Directors plus the Executive Director.

10
More detail on this on p 21 section 6.3.2.1 Tailoring of products

22
The board and executive committee members have valuable business backgrounds,
diversified skills and strong community relations. They share the same vision and goals
as the institution.

ABA-SME is very transparent about its goals and performance. The management and
board take decisions that keep the institution in line with its mission even if it makes it
sacrifice on outreach increase (but not to the targeted population) or yield less profit; they
refused granting commercial and consumption loans.

2.2.3. MF and MED11 services

2.2.3.1. MF model and products/services.

As an NGO and following the Egyptian law, ABA can only provide credit.

Table 2.2: ABA’s different loan products

Individual lending SME Group lending – Group lending –
Development path Blossoms (women)
Min-max loan amount 100 to 100 000 EGP 500 to 1500 EGP 100 to 800 EGP
% of total outstanding 93% 0.5% 6.5%
portfolio
% of total active clients 45.5% 10% 44.5%
Repayment frequency monthly Bi-weekly weekly
Term 6 to 24 months 10 to 40 weeks 10 to 40 weeks
Grace period none none none
Guarantees Guarantee checks for the Group solidarity (3 Group solidarity (3 to 6
full loan amount, members per group with members per only
relative guarantors for maximum 1 men) and women group) and
the older clients, third guarantee checks guarantee checks
party guarantors for
businesses registered in
other names
Effective interest rate 28% 35% 52%
Overall portfolio has an average duration of 9.5 months and an APR of 30%.
Source: ABA data of June 2007

2.2.3.2. Description of main target group (if not the very poor).

The main loan product (SME individual lending programme) targets micro and small
enterprises that have up to 5 and 6 to 15 employees respectively. In 2007, it represented
93% of the total outstanding portfolio and 45.55% of the total active clients. The average
SME loan size and term are 3145 EGP and 10 months respectively. Only 17% of SME
clients are female.
SME clients are active more in trade (48%) and services (34%). Manufacture (14%) and
food (4%) are the least represented among the clients activities.
11
ABA-SME offers non financial services such as business development services (marketing, bookkeeping,
business planning), market linkage, literacy courses. Details are provided in page 36.

23
 2.2.3.3. Selection and/or eligibility criteria

For loan products the eligibility requirements depend on some formalization steps of the
existing business. They are tied with assistance and business development services to the
clients to accomplish them.

Table 2.3: Eligibility criteria – Towards formalisation

Loan size Requirements
< L.E. 3,000 (US$ 500) Personal ID Card
A fixed business address
> L.E. 5,000 (US$ 800) Ability to read & write
> L.E. 7,500 (US$ 1,250) Social Security Certificate
> L.E. 10,000 (US$ 1,600) Tax Card
> L.E. 15,000 (US$ 2,500) Bank Checking Account
> L.E. 20,000 (US$ 3,300) Financial Statement for the Business + Tax
Statement

For TSEP, the person asking for the grant should not have income besides public aid, is
in a difficult social situation (female headed HH with many children, sick husband unable
to work, may have nutrition problems…), and the existence and willingness to put into
practise a business idea or expand a nascent one.

For the Blossom loans requirement are similar to TSEP but favour future clients with an
existing business for the family and less experienced living difficulty. They have also to
comply with the eligibility criteria in Table 3.2 if they want bigger loans or when they
graduate.

Development path are the former Blossoms clients that have been in the programme for a
certain number of cycles. It is a way to encourage them to graduate to individual loans.
They are not allowed to stay more than 6 cycles in the programme. Men are allowed in
the groups but have to be supported by at least a woman from the group.

Eligibility verification is done through field visits. For SME loans, the extension officer
checks the conditions of the business and the activity (raw material indicating that there
are orders, business open, are there clients…). He also asks for supporting documents
(attesting identity, ownership of assets, fiscal and social security status…). For the group
loans the verification concerns the infrastructure of the household (water supply, latrines,
equipment…), area of living (shantytowns...). As most of the time, the coordinator lives
in the same area, she already has the information. For TSEP, a first verification and filter
is done by the partner charity NGO, then the field visit (household infrastructure) and
finally the verification of the electricity and phone bill, the number of dependant children
through their birth certificates, the certificate of death of the husband or divorce.

2.2.3.4. Use of poverty assessment tool

24
Poverty of clients is assessed but not through a formalised method. ABA relies on the
judgement and experience of their staff. A non formal balance used by TSEP
volunteering staff is the threshold of 100 EGP per month per household member, in terms
of income.

2.2.4. Resources and external assistance

Table 2.4: Balance sheet (USD) – 2006

Assets 38 530 838

Short term assets 30 088 897
Long term assets 8 441 941

Liabilities and equities 38 530 838

Liabilities 6 755 253
Short term borrowings 6 511 648
Accounts payable 243 605
Equity 31 744 585
Donated equity 31 646 244
Retained earnings without donations and reserves 129 341

ABA has been funded mainly by donated equity, in the form of USAID subsidies for
operating expenses and collateral deposits that help to back up the bank overdraft
facilities. These overdraft facilities are the short term borrowings referred to in the
balance sheet. They are loans from local commercial banks where the donated funds are
deposited. ABA is not allowed to take savings.

Table 2.5: Performance indicators - 2003

Portfolio yield 28.3%
ROE 2.8%
ROA 2.3%
Operational self sufficiency 127.7%
Financial self sufficiency 116.8%
PAR (31 +) 8.8%

2.2.5. Relationships (networks, partnerships, other institutions)

2.2.5.1. Networks

ABA is a founding member of the National Network, of the Regional Arab Network
“Sanabel” and of the international network MicroFinance Network “MFN”. The national
network is a basis for MFIs and MEDs to lobby for a better regulatory framework and
also to have a critical mass to help these institutions in their negotiation with banks for
the creation of a credit bureau. The regional Arab network was the main regional training
provider and through this activity allowed networking and exchange of experiences

25
among middle management and the staff. MFN is a platform for exchange of ideas and
information on a top level.

2.2.5.2. Partnerships

ABA-SME established many partnerships with charity NGOs to better serve the poorest
through the TSEP product.

This partnership is seen as a win-win-win situation. ABA increases its outreach to the
poorest with an additional filter (that insures the beneficiaries are needy), with a reduced
cost since the NGO makes the first selection, screening and advertises that ABA selects
only the ones with a business idea. The charity NGO gets an additional service to its
beneficiaries and helps them get out of this vicious circle by providing them with
entrepreneurship opportunities. The charity NGO will so be able to address the needs of
other persons unable to work and in a worse social situation. The beneficiaries have the
grant help, access to business minded staff that interact with them, provide them with the
basic observations and constructive criticism on their business ideas. They also have the
possibility to graduate to poverty lending, expand their business and get out of the aid
circle, although the possibility to access group loan was not advertised enough with all
the TSEP beneficiaries and even with some of the partner charity NGOs.

The NGOs are thoroughly selected. Clarity of mission and a good track record are a must.
ABA-SME reviews their audited accounts, a list of their staff and their activities before
starting the collaboration. Yet they don’t provide them with trainings neither are linked
by a formal contract.

ABA has another partnership with the governmental institution organising literacy
classes. The classes already exist and are sponsored by the government but both
organisation of the courses and attendance rate are perfectible. ABA gives monetary
incentives to teachers and personnel of the schools so they are more effective and
motivated. They also give food incentives to the Blossoms clients to encourage them to
attend the classes.

2.2.5.3. Other institutions

26
Some of the other institutions in the area of activity of ABA who address the needs of
very poor people are ABA’s partner NGOs. For the time being 9 charity NGOs are
sending some of their beneficiaries (the ones who match the requirements and want to
initiate a small business) to ABA-SME for the TSEP. Most of them are for orphans and
their mothers, or for extremely poor people of a specific area.
The NGOs are interested because the aim of TSEP is to encourage poor people to take
care of them selves and graduate to Blossoms. So the NGOs can take care of more needy
people.

Charity NGOs are very common in Egypt. Almost every area has its own charity
association. They provide food, medicines, basic vocational training, literacy classes, new
clothes for the orphans on the religious celebrations… Some of these NGOs have their
own community clinic where they provide medical care for free (or symbolic fare) for
their members and use the money collected from other patients to cross subsidize their
activities.

27
3. Description of “Very Poor” Target Group

The efficient loan tracking system (MIS) and data consolidation for all branches starting
on a daily basis provides ABA management with regular, rich and reliable portfolio and
client information by type of business activity, geographic region, address, age, gender,
etc. However this application does not profit to the beneficiaries of TSEP grants. Even
though the forms have diversified data, the only data that is available on the MIS is the
name, the address and the activity. The report that the MIS can provide is limited to the
number of part 1 or part 2 grants and the total amount disbursed.

3.1. Individual and Household conditions

3.1.1. Gender:
The group loan product “Blossom” is exclusively for women. They represent 17 per cent
of SME loan clients and 88 per cent of Development path clients.

3.1.2. Age

Table 3.1: SME’s clients age distrubution

Age class Number Percentage
21-30 14192 12%
31-40 33072 27%
41-50 35008 29%
51-60 25796 21%
61-70 9287 8%
70< 3145 3%
Total 120500 100%

Table 3.2: Age distribution for Blossoms

21> 1940 2%
21-30 30018 34%
31-40 22228 25%
41-50 18366 21%
51-60 14014 16%
61-70 2140 2%
70< 151 0%
Total 88857 100%

3.1.3. Disability and chronic disease (not in MIS)

3.1.4. Culture or religion: not asked nor reported

3.1.5. Ethnicity: Not applicable

28
3.1.6. Membership to socioeconomic groups, such as caste and class: Not applicable

3.1.7. Household type, composition, marital status:

Table 3.3: Marital status of SME’s clients (available data)

Single 5807 20%
Married 22302 75%
Married and Supporte 1106 4%
Single and Supporte 2 0%
Divorced 23 0%
Widower 520 2%
Total 29760 100%

Table 3.4: Marital status of Blossom’s clients (available data)

Single 153 5%
Married 561 19%
Married and Supporter 1631 54%
Single and Supporter 300 10%
Divorced 53 2%
Widower 314 10%
3012 100%

3.1.8. Literacy only for SME

The overall illiteracy rate in urban governorates is 19.2%. Women are illiterate at 31.1%.
The situation is better than the national one (34.3% and 44.8%). The situation in Lower
Egypt is almost the same than the national one.

3.1.9. Education: available only for SME (available data)

Single 3353 7%
Can read and write 15103 31%
Elementary 1543 3%
Preliminary 1978 4%
Middle Certificate 21176 44%
Up Middle Certificate 1620 3%
Collegiate 3204 7%
Total 47977 100%

29
 3.2. Socioeconomic conditions
3.2.1. Refugee or IDP status
Not applicable

3.2.2. Economic conditions

3.2.2.1. Underemployment

3.2.2.2. Income Sources

The main income sources for very poor people are family support, charity and public aid.
They can also be resourceful and initiate income generating activities in different sectors
according to the environment.

3.2.2.3. Land ownership

Poor clients of TSEP do not significantly own or lease land because Alexandria is 100%
urban and even the remote areas of the governorates that used to be rural or agricultural
disappeared with the urbanisation. However, TSEP beneficiaries still have traditional
activities close to their agricultural history (manufacturing of poultry cages, beans
transformation and selling on the markets…),

3.2.2.4. Asset ownership

The assets owned by very poor people are typically land, houses, shops or livestock.

3.2.2.5. Income level

The daily wages levels for labor whether male or female, and according to the experience
and type of job is 15 to 35 EGP per day (US$2.6 – 6.09).

3.2.3. Geographic conditions

3.2.3.1. Rural/urban, remoteness from trading centers and roads, population density

TSEP is just applied in Alexandria which is an exclusively urban governorate. The

beneficiaries have access to trading centers and road, markets, banks, doctors and clinics
…
In the other governorates, where blossom loan product is provided, it seems that ABA is
present in areas not far from the town, which are not perhaps as easily accessible as the
center but which remain easy to get to.

3.2.3.1. Access to markets

30
 3.2.3.1. Access to banks

3.2.3.1. Access to doctors and clinics

3.2.3.1. Proneness to natural disasters

The target group does not experiences different natural calamities from the rest of the
population.
3.2.4. Major vulnerabilities and risks encountered by target group

The major vulnerability very poor beneficiaries and clients can face is illness or death of
the bread winner. They rely on solidarity whether community or charity.

31
1. 4. Poverty Targeting and Assessment
4.1. Poverty measurement practices
4.1.1. Poverty data collection

For TSEP some poverty-related indicators are collected but not reported on the MIS.
They are just used to evaluate the applicability of TSEP conditions to the situation of the
person.

4.1.1.1. Which poverty indicators are collected?

For TSEP, here is the list of questions asked for in the form:
- Family composition
- The income of all family members being part of the same household.
- Age of the household members
- are they student or worker
- Social situation
- Succinct description of the house (location and infrastructure)

The decision process relies on a subjective appreciation of the overall poverty level of the
household. An appreciation of the income level per household member is also used
without being systematic and formalized.

4.1.1.2. What poverty assessment tool is used?

No poverty assessment tool is used.

4.1.1.3. When and how often are poverty data collected?

For TSEP, the rudimentary evaluation of poverty level is performed before receiving the
first part of the grant and approximately 3 months later to check whether the first grant
was used for an income generating activity. For this second evaluation, description of the
house and questions about the income (originated by the activity or other) are asked.

For Blossoms, the data is collected before giving the first loan, and then before every
loan renewal. But still the amount of data collected remains limited.

4.1.1.4. Which clients are measured?

For TSEP all incoming clients or the ones asking for the second part of the grant are
evaluated.
For Blossom loan, the evaluation takes place each time that a new loan is asked for.

4.1.2. Use of poverty data

4.1.2.1. What, if any, are poverty categories distinguished by poverty data?

32
The categories are rather distinguished, a posteriori, by applicability of a certain credit
product: beneficiaries of TSEP (very poor), ‘Blossoms’ beneficiaries (poor) and SME
loans beneficiaries (middle poor). It seems that the categorization is done so ABA can
control that the selection criteria are met.

4.1.2.2. How are each of these categories defined?

There is no quantitative definition for poverty categories. The poverty is rather ringed by
target: microenterprises with a certain number of employees, female heading a household
ect.

For TSEP, the informal rule of less then 100 EGP per month and per household member
can be considered as quantitative poverty indication even though it is not formally
calculated (based on national or regional data), which is certainly a good approximation
of the situation.

4.1.2.3. How are poverty data used by organization?

4.1.2.3.1. For client monitoring?

Poverty data is not explicitly used for client monitoring. Coordinators might keep this
information in mind while dealing with the client, but this is not systematized.

For TSEP, the creation of an income generating activity is the monitoring base. The time
frame between the first and second installment is too short (3 months) to allow for a
proper monitoring.

4.1.2.3.2. For client screening?

The use for screening is limited since the eligibility criteria a TSEP grant depends on the
subjective assessement by an ABA employee of the household’s income level. this is
supplemented by other qualitative indicators, such as condition of the house, household
members are students or workers ect. However no formalized systems, such as ranking or
scores, are used.

A similar qualitative approach is used for Blossom product. The quantitative use of data
for screening is only applied for the non poverty oriented loan product.

4.1.2.3.3. For client targeting?

when targeting TSEP beneficiaries, ABA cooperates with charity associations which are
usually set up in poor neighborhoods. The targeting is then based on the evaluation of the
area and the partner associations and not of the individuals.

Only about 10% to 20% of the TSEP beneficiaries do not come to ABA through
associations.They either hear about TSEP from relatives or neighbors and present
themselves to the headquarters or are identified and sent by Blossoms coordinators. In

33
both situations the screening is more costly, takes more time and energy from the team.
They need to go on a field visit to only one beneficiary while for associations’ they see
on one day all the beneficiaries proposed by the association as they are usually in the
same neighborhood.

4.1.2.3.4. For impact monitoring/assessment?

Poverty data is not used for impact monitoring or for product development.

4.1.2.3.5. For other uses?

TSEP is presented to external partners, national and international stakeholders (not the
poverty data per se) as a poverty oriented product integrated in the “reach down, scale
up” philosophy and strategy of the institution. The stress is put on the number of
graduates to Blossoms product.

4.2. Available Poverty Data

4.2.1. Poverty distribution results by internal poverty data collection method

The clients’ proportion for each of the poverty categories is the clients’ proportion for
each of the credit products provided by ABA.

In July 2007, the SME active clients were 46% of the total clients (31 043) while group
lending active clients (including development path and Blossoms) were 36 072 (54% of
the total). the number of TSEP beneficiaries is not available monthly.
Since inception of the different products, the proportion of SME clients compared to
overall is 54 per cent, the proportion of group loans clients is 44 per cent and the
proportion of TSEP clients is 2 per cent.

4.2.2. Poverty data from a recent poverty and/or impact assessment study

No such study available.

4.2.3. Poverty Data obtained through use of USAID certified poverty tool
Not applicable.

4.2.4. Interpretation of Poverty data

Not applicable

4.3. Poverty Targeting

4.3.1. Does the organization use a poverty targeting tool?

No poverty assessment tool is used. The targeting for any of the products is done through
a geographical targeting. For Blossoms, for example, the coordinator as well as the
branch manager, live in the same area where they work and they know the areas where
eligible population is settled. There is no quantitative level of poverty assessment.

34
The group lending methodology as well as the low amount of credit granted and the
gender are supposed to help also targeting the poor population.
For TSEP, the targeting is done through the partner charity associations on a geographical
and activity basis. The targeted population is the poorest and most vulnerable sectors of
the population particularly women and unemployed young people. In practice, 95 per
cent of the recipients are women.
As already mentioned, the TSEP team applies a threshold of 100 EGP per family
household and per month. Combined with other indicators such as the amounts of bills
that the household is able to pay, the income estimate helps to roughly evaluate the
poverty situation of the household.

4.3.2. What is the client poverty target level?

The Blossom operation manual, which serves as a basis for training coordinators,that to
be eligible for a group loan “Women head of households with limited income sources.
Priority to be given to divorced, widows and the ones that are taking care of an invalid
husband”. The poverty level is not formally defined by a cut-off level of income for
example.

For TSEP, for which an operations manual does not exist, the cut-off is “an insufficient
income” which is evaluated according to the observations and experience of ABA’s
agents. They rely on the declaration and the papers provided by the beneficiary. For
exemple, phone and electricity bills give an idea about the level of consumption and the
payment capacity, which helps deduce a level of income. Finally coordinators assess the
area in which the beneficiary lives, as well as house conditions.
The experience of the audit team made them set up an indicative cut-off of 100 EGP
(17$US) per month per household member. This is not formalized and not followed by
everyone.

4.3.3. Staff use of poverty targeting

4.3.3.1. Training/sensitization (of staff, managers, board) related to poverty outreach
How is staff trained in poverty targeting?

Staffs receive training before starting in ABA, through one week sessions, followed by
one week in the field and then 2 months of work on the field monitored by senior officer.
There is no training per se on poverty targeting. For the coordinators in charge of the
poor population through group loan products, the training is much more oriented to the
operational aspects.
The training does not include board of Directors members, as they are not participating
by any means in day to day management. It is also expected that they don’t have time or
these activities. Sensitisation sessions should be organised for them mainly memers of
Zakat Committee, mother committee of the project. This may help board members
understand the difficulties of transforming ideas into actions on the ground. It may give
them a better sense of what is happening and they can be of a better advice for the
operational audit team.

35
Training for the NGOs is also missing and could help ABA-SME transmit on a
formalized way the right information to the beneficiaries through the NGO.

4.3.3.2. Staff incentive schemes

There is no incentive scheme for poverty outreach. The most important reward for some
of the staff is the good they are doing. In the meantime, most of them point out their
small pay. It may be another explanation to the small number of TSEP beneficiaries.
The easiest way to set up incentives is by number of grants awarded. It is found by ABA-
SME management to be dangerous as it might encourage the team to give away grants to
not needy people in order to reach the set up performance level.
To be efficient, incentives should be in a set, both quantitative (number of grants) and
qualitative (level of poverty).

The loan officers for group loans products are rewarded according to their portfolio at
risk and the number of active clients. On average, their pay is based on 50% incentives.

4.3.4. Issues with poverty targeting

No use of a poverty targeting tool.

36
2. 5. Products and Services

The credit products offered by ABA are designed and delivered to attract the targeted
population according to poverty level, thus segmenting clients by level of poverty. The
individual lending aims upmarket at SME owners; the group lending is for the poor
particularly women, and grant product is for the poorest who can be self employed and
want to expand their activity but most of the time for the ones who want to create a new
activity. All these products are delivered with the underlying objective of graduation.

The field staff is specialised by type of credit thus by level of poverty of the clients.
There are dedicated branches to SME loans and others to group loans (Blossoms and
development path).

TSEP migrated since its inception through 3 departments. It started with the MIS
department then giving grants was undertaken by SME branches and finally it is under
the Operational Audit department in the headquarters. Each time, a special attention was
given to separate this grant activity from the closest product that serves clients with a
comparable poverty level and assure not to send mixed messages.

One can think that it would be easier if Blossoms loan officers take in charge TSEP since
they serve the same type of clientele and can identify easily potential beneficiaries.
However, ABA-SME has not experimented with this option because it wanted to avoid
sending mixed messages to clients: the present ones who can be encouraged not to repay
thinking that they also deserve a grant but also to the graduated clients who can perceive
a non change in the methodology since they are served by the same loan officers.

Actually, once the TSEP beneficiaries graduate, they are integrated into a group (not
specifically a group of graduates) and can ask for a group loan. The ABA person to
whom they speak changes from the operational audit department staff to Blossoms
coordinators.

5.1. Financial Products

Table 5.1. Microfinance Product Details
Product Features and Policies
5.1.1. microcredit – Blossoms12 (group loan)
5.1.1.1. Individual or group product Group product
5.1.1.2. Loan terms (maturity, interest 4 to 18 months at 52% effective interest rate
rate, interest type, flexibility) without grace period
5.1.1.3. Loan source
Initiating/expanding income generating
5.1.1.4. Loan use
activities
5.1.1.5. Loan size (first loan, average 150 to 800 EGP (26 to 140$) average loan
loan, maximum loan size) size being 370 EGP (65$)

12
the other group loan product “Development path” is detailed in section 2.2.3.1

37
 Product Features and Policies
5.1.1.6. Meeting requirement and
frequency
5.1.1.7. Mandatory savings requirement
and amount
5.1.1.8. Collateral requirement
5.1.1.9. Other eligibility requirements
5.1.1.10. Loan default policy
5.1.2. microcredit – SME lending (individual loan)
5.1.1.1. Individual or group product
5.1.1.2. Loan terms (maturity, interest
rate, interest type, flexibility)
5.1.1.3. Loan source
5.1.1.4. Loan use
5.1.1.5. Loan size (first loan, average
loan, maximum loan size)
5.1.1.6. Meeting requirement and
frequency
5.1.1.7. Mandatory savings requirement
and amount
5.1.1.8. Collateral requirement
5.1.1.9. Other eligibility requirements
5.1.1.10. Loan default policy
5.2. Microenterprise Development Services
Table 5.2. MED Service Details
Weekly meeting of the group and the LO for
repayment and discussion.
Every month a “Friends Meeting” for 3 to 5
groups from the same neighborhood is held.
Before the meeting day, a topic is selected
and discussed by participants.
No
Group guarantee + guarantee check for the
full loan amount
There is a specific emphasis on female
headed households
The group (usually the president) has to pay
for the defaulter and gets paid back.
Individual product
6 to 24 months at 28% effective interest rate
without grace period
Working capital or fixed assets of existing
micro or small enterprises
1000 to 100 000 EGP ( 177 to 17 700 $)
average loan size being 4 165 EGP (735 $)
(2007)
New clients receive a 45 minutes briefing
from the branch manager and a 15 minutes
video film is played to explain to objective of
the project. No regular meeting required.
No
Guarantee checks for the full loan amount,
relative guarantors for the older clients, third
party guarantors for businesses registered in
other names
An existing micro (up to 5 employees) or
small enterprise (6 to 15 employees)
38
The microenterprise development services are provided for SME loan clients through the
Alexandria Small Business Center (ASBC) which was established as a technical support
facility designed to address the non-financial needs of the Microentrepreneurs. It
performs a complementary function to the credit delivery mechanism.
Clients must pay for all the services.
The ASBC is used mainly by SME clients, very rarely by group loan clients and never by
TSEP beneficiaries. It is not adverstised to them and the kind of services are more
adapted to bigger businesses and more educated entrepreneurs. It would be helpful for
Blossom and TSEP beneficiaries to find some assistance adapted to their eduction level
and to their needs.

Service Types and Features

5.2.1. Training
5.2.1.1. Financial literacy Yes
5.2.1.2. Business planning and management Yes
5.2.1.3. Marketing Yes
5.2.1.4. Recordkeeping and bookkeeping Yes
Technical training in activities like
5.2.1.5. Skill development
woodworking or garment making.
ABA cooperates with international
organizations such as USAID, through
the International Executive Service
Corps (IESC), and the German GTZ
5.2.1.6. Technical assistance
through CIM with sourcing of
volunteer experts from various sectors
to provide technical assistance to
clients.
5.2.1.7. Training method
5.2.1.8. Other? Licensing, taxation, social
security
Actual costs (could be subsidized by a
5.2.1.9. Costs to client
donor)
5.2.2. Business Consultancy and Advisory Services
5.2.2.1. Individual or group sessions No
5.2.2.2. Frequency
5.2.2.3. Topics
5.2.2.4. Confidence Building
5.2.2.5. Other
5.2.2.6. Costs to client
5.2.3. Market Linkages
Obtaining supply contracts on behalf of
5.2.3.1. Input supply
clients.
Sourcing retail outlets for client
5.2.3.2. Marketing Assistance products.

39
 Service Types and Features
By maintaining a library of catalogues
5.2.3.3. Market Information allowing clients to be aware of new
fashions and production techniques.
5.2.3.4. Producer organizations
By displaying products in the ASBC’s
5.2.3.5. Business linkage promotion
showroom, organizing exhibitions
5.2.3.6. Quality Control
5.2.3.7. Other
Products sold on behalf of clients,
either through the showroom or
5.2.3.8. Costs to client
through other retail outlets, are marked-
up by around 10 %.
5.2.4. Other
5.2.4.1. Employment generation
5.2.4.2. Technology development

5.3. Non-financial Services

Table 5.3. Non-financial Services Details

Service Types and Features
5.3.1. Nutrition
The subject can be raised in one of the
Training and information “friends’ meeting”. Though these meetings
are not applied in all branches and are not
enforced.
It is given as incentives for the group loans
clients to encourage them attend the literacy
In kind classes.
It is given (not just to clients) through the
Charity committee of ABA.
5.3.2. Health and Sanitation
The subject can be raised in one of the
“friends’ meeting”. Though these meetings
Training and information
are not applied in all branches and are not
enforced.

5.3.3. Education
The subject can be raised in one of the
Training and information “friends’ meeting”. Though these meetings
are not applied in all branches and are not
enforced.

40
 Service Types and Features
Group loans clients are offered literacy
Literacy classes for clients classes through existing official channels
though adapted and supported by ABA.

5.3.4. Social Capital Development

The subject can be raised in one of the
Training and information “friends’ meeting”. Though these meetings
are not applied in all branches and are not
enforced.

5.3.5. Other Assistance in order to get official papers

ID, social security certificate, tax card

Household financial management and budgeting can be a useful service if provided to

poor clients. From the experience of some of the top management, whether with clients or
their appreciation of the Egyptian society in general, the poor tend to be irrational when it
comes to budgeting and expenditure’s prioritisation. The Egyptian society is becoming
more and more based on consumption and the parents are less and less able to rationalize
the requirements of their children mainly, even though this might destabilize their budget.

5.3.6. Empowerment and confidence building

“Meeting of friends”, whenever applicable is a good channel to build knowledge, human

capital, network and confidence of poor women. The use of these groups of groups as a
platform to get new ideas and impressions from the clients can be also a way to empower
them. Unfortunately, clients are not directly involved in decision making related to
products and service design. But their requirements are taken into consideration
whenever they seem in line with the management possibilities. For example, the amounts
of the grants were reevaluated to adjust to the increase in cost of living and so was the
size of the first group loan.

5.3.7. Graduation of very poor clients into mainstream MF/MED services

ABA-SME does not measure any of the success indicators besides the number of grants
disbursed and of graduates: cost, timeline and percentage of graduates remaining in the
mainstream activity. As this activity is on a charity basis either for staff, top management
or ABA’s charity committee, they do not evaluate in monetary aspects, for example, the
time dedicated by the Operational Audit staff to the TSEP activity (1 weekd per month
for each of the 5 team members) or they do not translate into monetary terms the cost to
move someone out of the poorest categories.

41
The follow up timeline is also not stressed. Some of the TSEP beneficiaries receive a
grant (either just one part or two) and apply for a group loan months later without any
incentive or reminder from the ABA staff. As soon as a former TSEP beneficiary
receives a loan, even if it is after one year, the MIS recognizes it and he or she is added
to the number of graduates. This is the only measure of success used. The reasons of the
delay to apply for a loan are perhaps asked by the loan officer, but are not reported or
documented. There is no a deliberate effort to shorten the time between the end of access
to TSEP, the graduation and access to the first loan.

The exit rate of graduates from TSEP to Blossom is not measured per se. Once they are
in a group and get a loan, they are considered as a part of the mainstream activity and not
as graduates anymore. Most of the time, even the members of their group do not know or
do not care whether they benefitted from grants. They consider them as equals.

On the one hand it can be seen as a similar treatment for all clients whatever their
background, on the other hand, however, tracking the performances of the specific group
graduates group can help the institution understand more their needs and weaknesses and
address them on a better way.

The procedures for TSEP are not systematized and the program is considered to be
purely charity without a follow up concern. The graduates are considered as “a plus”.
Their graduation does not seem essential for ABA-SME staff. If they don’t graduate,
they would be considered just as charity recipients and not as a lost entrepreneur or as a
cause for fewer revenues for the MFI.

The the Charity Committee of ABA, which initiated the TSEP idea and remains its
principal backer, seems to stress the graduation process and the empowerment of the
poor aspect, (which contrasts with the charity idea). In practice, however, there is some
deconnexion between how the charity committee wants the programme to be and the
way it is done operationally.

- How does this graduation process occur? i.e., Does food aid stop overnight or is it
phased out? Are graduates put into existing mainstream groups or just graduate
groups?

The graduation occurs when the ex-TSEP beneficiary applies and gets a loan. Usually the
graduation from TSEP occurs to a group loan “Blossoms”. Since the first contact between
ABA-SME and the future TSEP beneficiary, the latest is supposed to know that he is
entitled to only 2 installments. Usually (and when the procedure is followed) the
beneficiary is informed about the possibility to apply for a loan from the beginning, but
more formally when the second installment is paid out. However, this is not the way
things happen on the ground mainly when partner NGOs are involved. Certainly they
help reduce the costs, but this additional layer makes the information flow between ABA-
SME and its beneficiaries less fluid. It requires more effort on training for both TSEP

42
staff and NGO partners on the importance of clarity and completeness of the information
given to future beneficiaries.

The TSEP beneficiaries that want to apply for a loan have to fit into an existing group or
to form a new one. They find groups by themselves and ABA-SME does not interfere in
the group constitution. Most of the time, and because of neighborhood, similarity in the
social and financial situation the new graduates easily find a group. They are not
considered as riskier by the other group members or less knowledgeable about how to run
their activity. Solidarity is always present. “She is exactly like me. Why would I fear her
because she got a grant? I would though, kick out any member of the group if she is not
serious in repaying, whether she has a grant or not” says a group president in Wassat
area.

Since inception in 2000, the number of grants disbursed (1st and 2nd part) was 7681.The
continuity percentage (beneficiaries that sustained their businesses and are eligible for the
second part of the grant) was 75% in 2004 and is now 58%. It is probably due to the
information problem (above) but also to the fact that TSEP staff seem sometimes to
attach more importance to the charity aspect then the graduation aspect. The transition of
the programme from MIS to SME to Operational Audit departments is also a cause to the
fluctuation. As it is newly under the supervision of the Audit department which is
supposed to increase its performance as soon as the procedure is run in.

Even though basic, data on TSEP was reported to the MIS since 2005. The number of
grants (1st and 2cd part) disbursed since then to June 2007 is 1621 for an amount of
172 400 EGP. 114 applicants were rejected because didn’t match the requirements.

Since inception, out of the recipients of 7681 grant’s part13, 245 TSEP beneficiaries
graduated to Blossoms. The other graduation steps were more successful. On April 2007,
3 153 Blossoms clients graduated to Development path and 349 to SME loans.

5.4. Design and Product Development:

5.4.1. Program rationale/ theory of change?
5.4.1.1. Main issues and challenges of very poor clients which the organization seeks
to address

On the one hand the MFI sensed that entrepreneurial ability exists also for the very poor
and through TSEP, they wanted to give them the possibility to put it into practice. On the
other hand, the MFI sought to increase outreach to fully utilize the loan fund in
production, to be able to generate profits covering installment. Surveys, questionnaires,
personal contact were implemented, as well as using the existing data to determine
client's needs and develop products that match between their needs and organization
plans.

13
The number of beneficiaries is not available in the MIS, only the number of grants disbursed is.

43
 5.4.1.2. Intended outcomes and impacts

If the client is efficient to generate profits covering her or his installment, her or his net
worth will increase at least by the loan amount at the end of the credit period. In the long
run he or she will be able to increase his production capacity, hire additional labor, and
expand facilities. The prosperity is expected to impact positively the household situation
(children’s education, health, infrastructure…). The community will benefit too through
additional employment and consumption.

5.4.1.3. How are products and inputs designed to achieve those intended impacts?

The design of the different loan products, as well as the complementary activities, are
intended to maximize the achievement of the impact on the microentrepreneurs, their
household and their businesses.
The loans are designed to be settled according to the expected cash and profits generated
by the customer to allow for net worth accumulation.
The different graduations levels are intended to provide the microentrepreneur with
products adapted to his or her needs. The BDS provided in the center (ASBC) help them
improve their management skills.
The “friends meeting” empowers the clients and give them an opportunity to exchange
ideas and to strengthen their network.

5.4.2. Concept development

5.4.2.1. Client Survey Demand/Needs assessment

ABA-SME frequently conducts surveys and other researches but not on very poor target
group. For example, when introducing the new product (Development Path) to meet the
customer's needs, a client survey was used. Different tools are used starting from the
analysis of data provided by the MIS, to field visits, surveys or focus groups.

5.4.2.2. Competition analysis

ABA is always analysing the competitors and improve its products and prices mainly for
the benefit of the customers (not to meet competition). The main competitors are the
downscaling banks; this is mainly in the SME lending. ABA claims though that their
prices and services are better. Some small NGO's are operating in the field of extremely
poor through group lending but their outreach is very limited and their prices and the
quality of their services are much lower.

5.4.2.3. Self-assessment

Self-assessments are mainly done in management meeting; they include mainly

management and branch managers, to make sure that our products are viable and meeting
customers’ needs.

44
5.4.3. Product/Service design
5.4.3.1. Product/service design process

Based on the client’s needs and the organization mission, ABA started evaluating the
information available, testing the market, then they design the product, check its
variability, pilot test it, evaluate the results and then launch the product.

5.4.3.2. New versus modified products/services for very poor clients

New products were delivered to meet market demand, for existing clients as well as the
targeted segment. In the start of its activity, ABA provided only individual loans, after
few years it introduced a brand new product and methodology, the group loan followed
by the conditional grant programme (another new product). Adjustments to existing
products were also done to meet clients’ needs and to attract additional segment of
clients. Development path is an adaptation of Blossom,

5.4.3.2. Risk assessment and product design

In Egypt, some of the major risks are the absence of knowledge about maintaining a clean
credit record, and the continuous migration of poor clients from one area to another; this
will be solved in the beginning of 2008 after applying the Credit Information system. A
better investigation on the client is helpful.

5.4.3.1. Prototype development and testing

Prototypes and new products are developed through surveys done by externals backed by
internal expertise through the conduction of focus groups and the analysis of the available
internal information.

5.4.4. Pilot testing

The pilot testing for the last new product (development path) was done in two branches:
inside Alexandria and outside Alexandria, in order to give a feed back about the
acceptance of this product in two different societies. The lessons learnt from this pilot
testing were that this product should be presented through more experienced staff, and
that it is requested by men as well, not only women. This lead to a restructuring of the
initial idea.

5.4.5. Rollout

45
The product was delivered in all Blossom branches at the same time, under the
supervision of the branch manager. Separate records were opened for this product.

5.4.5. Product/Service review and assessment

Head of operations, the operation manager of Blossoms, branch managers were involved
in collecting information about the appreciation of the clients to the new product. The
data analysis fed the discussion of the top management meetings.

5.4.6. The Product Development Cost

5.4.6.1. Total cost

The total cost of developing a new product or service was not accurately calculated, but it
was in the range of 25000 EGP. This is a minimal amount as ABA used students, internal
staff and got an in kind subsidy from USAID (the consultant was paid by USAID).

5.4.6.2. How were they funded?

Operating costs paid for the students and internal staff and the in-kind subsidy moped the
cost of external consultancy.

5.4.6.3. Outsourcing during the development process

To reduce costs, ABA involved students in their study. They needed an external expertise
that was fulfilled by USAID consultant.

5.4.7. Feedback loop

The information collected through forms on poverty clients is not diversified enough and
does not allow for a thorough analysis. It is complement by surveys and focus groups.
Complaints or suggestions received by ABA are also a source of information.

5.5. Implementation Process

5.5.1. Process
Here a short step-by-step description of the process (and timeline) from targeting a new
area or group and selecting/recruiting clients to providing products/services :

- Scan the area and check the client acceptance and availability: 2weeks to one month
- Hire loan officers from the same area: 2weeks
- Train loan officers: one month
- Start delivery under supervision: 2 months
- Analyze outcome: weekly
- Reduce supervision: 3 months

46
5.5.2. Logistics
For the case of ABA, distance and availability of a reasonable demand are the main
issues.

5.5.3. Information System

See preceding sections.

6. Results

6.1. Method of measuring results

6.1.1. Type of data
See 5.4.7.

6.1.2. Data analysis and use

The data is centralized and consolidated on a daily basis at the headquarters. A team is
dedicated to the data analysis and the production of standardised reports. Specific reports
are prepared upon request. The MIS provides ABA management with regular rich and
reliable portfolio and client information. Though it is more adapted to the operational
follow up of SME clients.
For new products, daily reporting is required for day-to-day operations. Weekly and then
monthly reports are used for monitoring and strategic planning.

6.2. Impact

6.2.1. Poverty Impact

NO impact study has been conducted.

6.2.2. Client satisfaction and feedback

Clients seem to be satisfied with the services either TSEP or group loan product. TSEP
clients who are aware of the graduation opportunity appreciate it. The ones, who are not
aware, know that they have to create a small activity with the money and appreciate this
conditionality. “I know that what ABA-SME gave me is to create an activity and I did it.
I used the subsidy (in-kind or financial) given by the charity NGO to face the present
expenditure of my family” said a TSEP beneficiary in Khourchid area.

47
Chadia – Khourchid – Alexandria governorate

Chadia makes wicker baskets. She learned this activity from her mum when she was a
child and remembers her self always doing this for fun.
Her husband left seven years ago and left her and their five children. She started then
working with her elder son, she makes the baskets and her son sells them. The four other
children followed their education.
Chadia is registered with Ettamayouz charity NGO, taking care of orphans and women
heading a household. She gets books and clothes for her sons (four of them are attending
schools), sometimes food during feasts. She was told by the NGO about TSEP, applied
and got the first instalment.
She used the first 150 EGP to pay back the wicker supplier. She was used to buy her raw
material on credit at disadvantaged conditions. The second instalment allowed her to
buy bigger quantity of raw material in cash and to bargain for the price.
She started a partnership with a couturier who decorates the baskets. She sells them 12.5
EGP, 9 are paid to the partner and 3.5 EGP are for Chadia. This partnership allows her
to earn 2 EGP more.
Chadia does not really calculate her cash flows periodically. She just knows the selling
prices of her products and approximately the production cost per basket. She felt that her
financial situation improved. She feels to face less pressure and to have more options.
Chadia didn’t know about the possibility of asking for a loan. She is willing to do so if it
is not against religion. It will give her more independence.

48
Khazina Mohamed – East Alexandria area – Alexandria governorate

Khazina receives aid from Abna Sahaouddine charity NGO. She has heard about TSEP
there and received her first TSEP instalment some time after. It allowed her to open a
small street shop in front of her house. She waited for the second instalment visit for one
year without success and didn’t get the second instalment that she absolutely needed to
sustain her business. She has heard from friends that in the neighbouring district there is
an association that gives loans (at that time, Blossom branch didn’t cover yet the district
where Khazina lives). She asked to join an existing group and borrowed for two cycles,
150 then 200 EGP. As her house is in a liven up street, demand is high. She buy
wholesales groceries every other week. The loans helped expand her stall, add new
products to take advantage of her location and of the fact that the grocery shop in the
same street is not open late. Flexible opening hours is one of her competitive advantages,
the other one is that customers can knock at her door any time if they need something.
When Blossoms expanded to her area, Khazina changed group for geographic reasons. It
is easier for the payment and the meetings to go around the corner to the group president
house. Two neighbours from her building and two sisters from the next road asked her to
round up their group. She took with them two others loans, 300 and 400 EGP.
Khazina lives with her son who is intermittently working. Her husband remarried and
left.
She does not calculate her revenue though as soon as some cash comes in, she keeps it
for the repayment. Once she has a full instalment, she allows her self to some
expenditure “the most important is the reimbursement”.

49
 6.3. Cost Effectiveness and Sustainability
6.3.1. Scale and replicability

6.3.1.1. Strategy for scale?

ABA wants to reach 100 thousand clients by 2010, 75% of which are poor clients.
The financial resources needed to achieve this are available. New branches and offices
should be implemented in new areas of the five governorates to increase the outreach.
No plans are made for TSEP to increase the number of beneficiaries or to expand its
activities to other governorates.
Managemenr argues that they don’t want to push TSEP team to achieve “numbers” and
need first to serve the needy of Alexndria before expending somewhere else. They also
give a religious justification to their concentration on Alexandria. Since TSEP funding
comes from Zakat of Alexandria population, it has to be spent first in their area (or
governorate of reference).
Expansion can also create operational challenges. Operational Audit team, based in
Alexandria, could not follow up with TSEP. Whom could ABA-SME entrust? This
supposed decentralization might not create temptation?

6.3.1.2. Replicability of program or service

TSEP seems replicable to ABA management mainly in Egypt. It can be also adapted to
other cultural/geographic/socioeconomic conditions. Essential factors for replication are
the availability of funding from the community and for the community. The belonging
feeling improves monitoring and reduces risk of collusion. The value of the “good”
notion, whether religious or cultural is also helpful for the replicability.

6.3.2. Financial and operational self-sufficiency (if applicable)

The following ratios relate to entire client population for 2006 (excluding TSEP
beneficiaries):
6.3.2.1. Financial expense ratio:
6.3.2.1. Operational expense ratio: 12,5%
6.3.2.1. Cost per client: 35 USD
6.3.2.1. Clients per staff member: 76
6.3.2.1. Average loan balance per borrower: 304 USD (32% of GDP per capita)
6.3.2.1. Average savings balance per saver: not applicable
6.3.2.1. Portfolio at risk: 1,8%

6.3.2.1. Tailoring of product/service

TSEP staff are shown as being volunteers to work on this specific product on top of their
own work in the Operational Audit Department. We can then think of cost reduction and
more efficiency. It appears that the voluntary aspect is not monetary (work over hours
without pay) but that they are willing to dedicate 1 week per month, from their work

50
time, to this specific product. Top management think that even though the Audit staff
volunteering on TSEP are not really working on a voluntary basis, they work more than
their peers due to the fact that intensity of work is not the same all the time and that they
have some free time during their working hours.

The cost reduction was introduced lately through the partnership with charity NGOs.
They should be more trained, informed and sensitised to the goals and the operational
aspects of TSEP in order to maximise the benefits of the cooperation.

6.3.3. Cost-effectiveness of non-financial services?

ABA provides many non financial services to its clients: training, show room, illiteracy
classes, library, technical assistance …etc. On an individual basis, it does not cover its
cost, but considering the total payment received from clients to benefit from these
services, ABA is generating 30% profit margin (cross-subsidisation of services).

6.3.4. Strategies to cover/reduce costs?

There are a handful of measures taken to reduce costs and to make products and services
financially sustainable: cross-subsidization, increase in scale, increased efficiency, cost
control, credit scoring, NGO partnerships, group loans methodology are currently used.
Several technological innovations are still under study.

51
Bibliography

Brandsma & Burjorjee, 2004. Building Inclusive Financial Systems: Microfinance

in the Arab States, UNCDF.
Egyptian Center for Economic Studies, "Employment and Unemployment in
Egypt," Policy Viewpoint, no. 11, June 2002, p. 1.
El Adawy Maha, Background Paper, EHDR 2005.
Iqbal F. & Riad N., 2004, Commercial microfinance in Egypt: Tha case of the
National Bank for Development, Scaling up poverty reduction: a global learning process
and conference. Shangai, May 2004.
Khedr, Hanan, "Manpower," A Socio-economic Profile of Egypt (1980-2002),
(Cairo: PEMA, 2004).
Magdy Moussa, 2006, Regulation and supervision of microfinance in Egypt, Planet
Finance
PlaNet Finance, 2005, Microfinance in the Arab world, the state of the sector,
World Economic Forum, Jordan, May.
UNDP, 2003, UNDP Egypt Microstart project document.
UNDP, 2004, Egypt Human Development Report:
UNDP, 2005, Egypt Human Development Report:

Web sites:

Alexandria web site: http://alexandriaegypt.com/

Alexandria Chamber of Commerce: http://www.alexchamber.com/

Matrouh governorate’s web site:

http://www.matrouh.gov.eg/matrouhsite/statsticmatrouh_ar2.htm

52
Schedule and meeting list: Alexandria 4th to 11th of July 2007

Name Position
Wednesday 4 Mootaz Etaaba Executive Director
July Hamdi Director of Audit departement
Mahmoud Ridha TSEP Team leader
Maroua TSEP team member
Thursday 5 Ahmad Mokhtar Deputy Director for Operations
July Mahmoud Ridha TSEP Team leader
Adel 2cd part TSEP beneficiary
Ihab 2cd part TSEP beneficiary
Flora Makram Gad Deputy Director for MIS and consultancy services
Tarek Omar Dirctor of consultancy services

Charity Muslim association for Field visit to a new NGO that asked to partner with ABA for TSEP – first meeting -
Egyptian mothers (meeting with 3 representatives)
Saturday 7 Rafida El Balashi MIS team member
Mootaz Etaaba Executive Director
Ahmad Mokhtar Deputy Director for Operations
Sunday 8 Rachid Blossoms branch Visit - Behira
Governorate
Imad Ellabene Branch manager
Focus Group with the coordinators
Visit to clients Peri – urban : imbroderies – wicker
Rural area: morrocan imbroderies – sewing
Monday 9 Tamayouz NGO visit – Alexandria
suburbs (Khourchid)
Souriya Heghazi Director of the charity NGO : Tamayouz
Focus Group TSEP beneficiaries 1 or 1 and 2 parts
Visits to clients Wicker baskets, tree nursery, bread

1
 Ettakwa NGO visit – Alexandria
suburbs
Hicham Jaafar Member in the board of association of Ettakwa Mosque and SME branch manager of
Hay el Montazah
Focus Group - Beneficiaries of just TSEP 1 either because they are waiting to know or got refused
- Beneficiaries of 1 and 2
Interview of one beneficiary of TSEP 1 and 2 (nurse)
Tuesday 10 Hanem Echenaoui Executive Director of ABA
Hatem El Khadi Head of Zakat and Charity Committee
Khamis Blossom branch manager – Wasat area in Alexandria
Abna Salaheddine NGO visit –
Alexandria suburbs
Hassan Hessine Chairman of Abna Salaheddine charity NGO
Nessrine LO of Blossom working with the NGO on Blossom and TSEP
Focus Group clients - TSEP beneficiaries, 1 and 2 or just 1
- TSEP graduates to bashayer
Visits To TSEP graduates
Wednesday Khamis Blossom branch manager – Wasat area in Alexandria
11 Hanène Coordinator
Focus Group clients Graduates from TSEP to Blossom

2
1