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Cablegate: Difficulties in Morocco's Microcredit Sector

VZCZCXYZ0007
RR RUEHWEB

DE RUEHCL #0235/01 3501713
ZNR UUUUU ZZH
R 151713Z DEC 08
FM AMCONSUL CASABLANCA
TO RUEHC/SECSTATE WASHDC 8223
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEHMD/AMEMBASSY MADRID 3835
RUEHFR/AMEMBASSY PARIS 0674

UNCLAS CASABLANCA 000235

SIPDIS

STATE FOR NEA/MAG

E.O. 12958: N/A
TAGS: ECON EFIN EINT MO PGOV
SUBJECT: DIFFICULTIES IN MOROCCO'S MICROCREDIT SECTOR
PRESENT SILVER LINING

1. (SBU) Summary: The Central Bank of Morocco and the
National Federation of Microcredit Associations (FNAM) moved
decisively the week of 8 December to address difficulties in
Morocco's microcredit industry, recommending that a national
credit bureau be established. The Central Bank reported that
in 2008 the number of loan beneficiaries decreased by four
percent and that the default rate on microcredit loans
increased by three percent. Financial experts in the field
told Econoff that these difficulties stem from a lack of
structural coordination and harmonization amongst the 13
local microcredit institutions (MCIs). Once established in
early 2009, the Central Bank's credit bureau will be able to
track the credit history of each applicant seeking a loan
within the group of 13 and consequently eliminate the
multiple simultaneous loans given to individuals. This will
likely reduce the number of microcredit beneficiaries by half
a million. In the long run, this change is a positive
development, forcing MCIs to rethink and restructure their
lending operations and thereby developing a fundamentally
sound basis essential for a constructive relationship with
the Millennium Challenge Corporation (MCC). (Note: The MCC
plans to launch its USD 46 million project to increase
financial services for Moroccan micro-enterprises in the
upcoming months. End Note.) End Summary.

-----------------------
A Flourishing Industry
-----------------------

2. (SBU) The microcredit sector, a central part of Morocco's
poverty reduction strategy, has grown exponentially in the
last decade. In 2008, there were an estimated 1.3 million
clients, with a loan portfolio of USD 695 million. (Note:
Currently 64 percent of the loan recipients are women. End
Note.) According to Executive Director of Planet Finance
Maghreb, Mohamed Maarouf, in the last two years the number of
microcredit beneficiaries grew by 144 percent, the total
value of loans distributed increased by 260 percent, and the
number of employees in the sector increased by 160 percent.
At a micro-enterprise award ceremony attended by the Consul
General in Casablanca, FNAM announced its plan to increase
the number of microcredit loan recipients to three million in
2009.

------------
Perhaps Not
------------

3. (SBU) Despite efforts to expand the sector, the Central
Bank of Morocco and financial experts in the field note a
current decline in microcredit lending and predict that this
trend will continue. According to the Central Bank, in 2008
the number of loan beneficiaries decreased by four percent
and the default rate on microcredit loans increased by three
percent. Both Mustapha Bidouj, President of Banque Populaire
Foundation for Microcredit (BPFMC), and Maarouf of Planet
Finance Maghreb, told Econoff that these difficulties stem
from a lack of structural coordination and harmonization
amongst the 13 local MCIs. Currently, the lending system
permits an individual to simultaneously borrow money from six
different MCIs, without the microcredit lenders' knowledge of
the other loans, said Maarouf. "Before the clients realize
it they are way in over their heads, leading to an increased
default rate," Bidouj told Econoff.

4. (SBU) The lack of structural organization also leads to
intense competition amongst the different microcredit lenders
for potential clients. The President of BPFMC told Econoff
that it is not unheard of to have five microcredit lenders in
the same one-mile radius offering identical products and
vying for the same clients. Recognizing that micro-lending
is a non-profit activity, FNAM President Sijilmassi asserted
that "associations must develop within a professional
framework governed by internal regulations."

5. (SBU) Another challenge is the confusion amongst loan
recipients about whether these microcredit loans are social
subsidies. Maarouf of Planet Finance told Econoff of a
misguided local political figure who urged his constituents
not to pay back their loans, alleging that they were in fact
gifts from the King. &This confusion must be addressed and
this means we need to communicate with borrowers,8
Sijilmassi said.

-----------------
The Silver Lining
-----------------

6. (SBU) Although the microcredit sector in Morocco
currently faces challenges, efforts to strengthen and improve
the sector offer a sliver lining. In early December at the
invitation of the Central Bank of Morocco, the executive
board of FNAM and the Central Bank moved decisively to create
a national credit bureau. Once established in early 2009,
this new entity will be able to electronically track the
credit history of each applicant seeking a loan within the
group of 13 microcredit lenders. Maarouf predicts that the
credit bureau will likely reduce the number of microcredit
recipients from 1.3 million to 800,000 because the number of
repeat beneficiaries will be eliminated. As a result, MCI,s
will be forced to rethink and restructure their lending
operations and thereby develop a solid industry that can work
effectively with the MCC. (Note: The MCC plans to launch its
USD 46 million project to increase financial services for
Moroccan micro-enterprises in the upcoming months. End Note.)
Another positive development is that rural Morocco will
likely become a new target for MCI,s in attempt to augment
their client base. Currently, 85% of microcredit loans are
issued in urban areas.

7. (SBU) Comment: For now, the reforms in the sector reflect
the support the Central Bank has extended to the microcredit
industry. In the long run this is positive development for
the sector,s credibility, which suffered a minor setback in
2008. The new developments in the sector have already forced
MCI,s to rethink and restructure their operations and
thereby develop a fundamentally sound basis essential for a
constructive and effective cooperation with MCC. End Comment.
MILLARD

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