Summary of UAE Microfinance Research

Summary of UAE Microfinance Research Noor Al Jallaf Khalifa Fund for Enterprise Development October 8, 2013 Demand for Microfinance in the UAE Estimated Demand for Microfinance: United Arab Emirates
October-­‐12
947,997
A
Population (UAE Nationals Only)*
B
Average Number of National Persons per Household**
C
Number of Households
D
National Population with Income < 10,000 AED/month (%)***
E
Number of Low-­‐Income Households
C multiplied by D
23,700
F
Number of Vulnerable Households
20% of C
23,700
G
Estimated Total Number of Households
E plus F
47,400
H
Market Potential
40% of G
18,960
8
A divided by B
118,500
20.0%
*NBS Population Estimates 2006 to 2010, National Bureau of Statistics, 2010 mid-­‐year estimate, UAE.
**2009 Analytical Report on Economic and Social Dimensions i n the United Arab Emirates, National Bureau of Statistics, April 2010, UAE, p. 37.
***2007-­‐2008 Household Income and Expenditure Report i n the United Arab Emirates, National Bureau of Statistics, UAE, p. 79.
Supply of Microfinance in the UAE •  Microfinance hasn’t been deployed on a scalable, widespread basis in the United Arab Emirates. –  Emirates Post considered offering a microcredit loan targeted at laborers living and working in the UAE –  Commercial banks such as Noor Islamic Bank and NaPonal Bank of Abu Dhabi (NBAD) considered downscaling to the micro segment –  Fujairah Welfare Associa9on (FWA) is a charity organizaPon that provides micro loans in Fujairah –  Khalifa Fund for Enterprise Development, a governmental organizaPon that provides support and interest-­‐free business loans to EmiraPs to encourage entrepreneurship and self-­‐
employment, works across the country through its naPonal branches UAE Field Survey DescripPon •  Microenterprise definiPon: businesses with less than 10 paid employees (Ministry of Economy) •  Low-­‐income definiPon: households living on less than AED 10,000 (US$2,700) per month –  Lowest 20% income group earns AED 10,986 (US$3,000) average monthly household income in the UAE* •  About 100 EmiraPs interviewed (primarily women) •  NaPonal scope: Ras al Khaimah, Fujeirah, Umm al Quwain, Al Dhaid, Al Ghayathi, Ajman •  Key survey findings are summarized in following slides. *NaPonal Bureau of StaPsPcs, “2007-­‐2008 Household Income and Expenditure Report in the United Arab Emirates.” Interviewee Profile Marital Status of Interviewees 2% Average Age of Interviewees Married 11% 11% 1% 5% Single 12% Widowed 56% 19% 23% 35-­‐44 years Divorced Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Average Educa9onal Level of Interviewees 8% 45-­‐55 years 34% Government Subsidies Received by Interviewees 5% 3% None Primary 22% Secondary School Ministry of Social Affairs 23% Marriage Fund High School 21% Technical EducaPon 31% >55 years Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Illiterate 5% 20-­‐24 years 25-­‐34 years 26% Separated 13% <20 years 69% Other University Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Types of Businesses Business Sector 15% ProducPon Trade 20% Services 65% Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Bank Loans: Business vs Personal Ease of GeTng Business Loan from Bank 0% 7% Personal Bank Loans Outstanding: Interviewees with a Business 12% Impossible 34% Yes Very difficult No Difficult 40% Easy 41% Very easy Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 66% Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Need for Financial Literacy Training Funding Needed to Start a Business 10,000 Dhs or less 21% 10,001-­‐30,000 Dhs 30,001-­‐50,000 Dhs 5% 53% 5% 0% 50,001-­‐99,999 Dhs 100,000 Dhs or more Does Not Know 16% Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Shariah Compliant Loans Importance of Shariah Compliant Loans 28% Important Not Important 72% Source: Balthazar Capital UAE Microfinance Field Interviews, 2012 Key Challenges for Microfinance in UAE •  Risk of overindebtedness. Clients have mulPple personal bank loans; flexible credit bureau; low financial literacy rate. •  Small market size with low populaPon density. •  Homogenous businesses (bukhoor, food, seamstresses). •  RegulaIon in UAE not inclusive of micro businesses (costly annual business registraPon requirement). RecommendaPons to Adapt Microfinance in the UAE •  Target certain regions. Focus on microfinance in opportunity scarce regions to generate self-­‐employment and income-­‐generaPng businesses. •  Focus on low-­‐income clients. Target exisPng home-­‐based businesses and start-­‐ups owned by EmiraPs with average monthly household income of less than AED 10,000 (US
$2,700). •  Provide both financial and non-­‐financial products with emphasis on training and capacity-­‐building (parPcularly financial literacy and business development services) in order to prevent client overindebtedness and increase financial access. •  Offer Islamic loan structure to increase demand. Thank you! Leila Ben-­‐Gacem Senior Manager Khalifa Fund for Enterprise Development leila.ben-­‐[email protected] Noor Al Jallaf Senior Business Counselor Khalifa Fund for Enterprise Development [email protected] Appendix Khalifa Fund’s Micro funding program Ø 
Khalifa Fund’s micro funding program was launched in 2012, targeting UAE national microbusiness owners
Ø 
Micro loans provided are interest-free and offer the following terms:
¢  Loan
range (min - max): AED 5,000 - 50,000 (USD c.1,361 -13,613)
¢  Grace
period (min - max): 3 - 6 months
¢  Repayment
period (min - max): 12 - 24 months
Ø 
Micro business training provided in-house
Ø 
Khalifa Fund collaborated with the Ministry of Social Affairs, Businesswomen Counsels,
Development Foundations & Welfare Associations to raise awareness of the program
across the UAE
Sta9s9cs of funded micro businesses – Khalifa Fund Loan terms Loan size (avg) AED 32,966
Loan installment (avg)
AED 1,450
Grace period (avg)
5 months
Repayment period (avg) 22 months Gender breakdown
F: 83% M: 17%
Micro Case Studies – Khalifa Fund Business & locaPon:
Pickled vegetables (Achar) / Ras Al Khaimah Entrepreneur: 25 years; Secondary educaPon; 2 children Household income: AED16,000 (husband salary 26k, loan installment 10k) Business descripPon:
Selling homemade pickled vegetables (sales AED3-­‐6k per month) Years in business: 3 years Loan request: AED 23,600 for new products, license, storage, fridge MarkePng: Has 1,200 bbm customers, parPcipaPng at fairs & exhibiPon Business & locaPon: EmiraP Kitchen / Ajman Entrepreneur: 53 years; Primary educaPon; 5 children; widow Household income: AED12,000 (Ministry of Social Affairs) Business descripPon: Cooking tradiPonal EmaraP food (sales: AED 5-­‐15k per month) Years in business: 10 years Loan request: AED 35,000 to build a workspace and purchase equipment MarkePng: Catering at funcPons, exhibiPons, business cards Business & locaPon: Incense business / Al Ain Entrepreneur: 42 years; illiterate; 7 children Household income: AED4,000 (from husband) Business descripPon: Selling homemade bukhour & perfumes (sales AED 3-­‐5k per month) Years in business: 18 years Loan request: AED 17,000 to parPcipate in exhibiPon and purchase raw material MarkePng: ParPcipates at exhibiPons in Al Ain, RAK