Maleeka Mohammed, winner of Bank Al Etihad’s award for businesswoman of the year
In my previous two blogs, I have focused on the importance of measuring unexpected outcomes and evidence-based design of development programs. In this blog, I will focus on the power of investment and leveraging local capital.
Global Communities has worked with local communities in the Middle East since 1995. Over half of our staff worldwide is from that region. It is important that those of us outside the region understand that the frustration that erupted in 2011 during the “Arab Spring” has only partly been because of disenfranchisement from their political systems. Many of those in the region are also economically marginalized, particularly those who are younger and under-employed. Their aspirations are to provide a better life for their families, have the security of their own home, and a job or a business that will help them provide a better future for their children; in other words, they share the same aspirations as we do. Investing in the working class in this region is a key ingredient to bringing stability and ending the cycle of disappointment and disillusionment that so often leads to ideological extremism and violence. Even during times of turmoil – perhaps especially during such times – socially-minded investment in access to capital can also play an important role in spurring equitable economic growth and stability.
Development is not dependency. Rather, it is about creating the conditions for self-sufficiency – providing people with what they need to take charge of their lives and livelihoods. A small amount of capital from an outside investor can unleash an enormous amount of private capital in local developing markets and have a corresponding impact.
Today, Global Communities operates the largest microfinance network in the Middle East, and is the majority owner of the Vitas Group, the only investment vehicle for impact investors in the region working with a mission of improving the lives and livelihoods of the vulnerable. Vitas employs more than 1,500 people in the region and, over the last decade, Vitas companies have disbursed more than $1.6 billion to 614,000 customers with an annual default rate below one percent and supported more than 214,000 jobs. As of 2016, more than 38 percent of Vitas’ clients are women, 35 percent are youth, and 42 percent live in rural areas.
Through loan guarantee facilities that Global Communities manages with support of the Overseas Private Investment Corporation (OPIC) in Jordan and Egypt, we are also leveraging local capital to diversify economies and build the capacity of local commercial banks, demonstrating that small and medium enterprises are bankable. This work further develops local economies, stimulates the private sector, creates jobs, and both directly and indirectly assists vulnerable communities, particularly in rural areas and small towns where SMEs have very limited access to financing. In Jordan, clients include schools looking to improve their facilities to accommodate more students; a company providing solar lighting in a Syrian refugee camp; and engineer Maleeka Mohammed. Maleeka, winner of Bank Al Etihad’s award for businesswoman of the year, struggled to get capital to support her business. In fact, when introducing herself to potential investors, she would describe herself as an “employee” of the company, as no one would take her seriously as a woman engineer and business owner. But through the loan guarantee facility in Jordan, she was able to obtain the financing she needed for her business expansion.
These modest investments of public money which also include training for local entrepreneurs and bank loan officers have, in Jordan, so far unlocked more than $87 million in private commercial bank capital for lending to small businesses. And importantly, OPIC’s investments cost the U.S. taxpayer nothing; in fact, over the last six years OPIC has generated $2.3 billion in reductions to the U.S. deficit, making it an extraordinarily cost-effective development institution.
Vitas Lebanon client
In many countries in the Middle East, private foreign investment has largely benefited the elite, privileged classes. The middle and lower income classes have been largely left out, and the markets have been distorted by donor and government subsidies. Moreover, the lack of solid legal frameworks to enable more commercially-oriented microfinance has stymied the ability of banks and other finance institutions to provide necessary credit to assist working- class entrepreneurs. By contrast, for 22 years, Global Communities’ clients have proven to be loyal, resilient and bankable, continuing to build their lives and livelihoods through war, economic stagnation, regime change and more. Despite challenges, they always repay their loans and value the consistent access to financing that has enabled them to continue expanding their small businesses. These people, who represent the vast majority of the region’s population, are the future of their countries.
There are many such opportunities in this troubled region to increase stability and decrease the likelihood of young people being recruited into violent extremism. It will take governments from around the world highlighting opportunities for private investment and working with regional policy-makers to encourage a climate more conducive to investment. If we do, we will see the power of the private sector in transforming the Middle East region into a place more prosperous for everyone who lives there.