Middle East and North Africa (MENA) financial sectors tend to be large relative to GDP, but to offer relatively restricted access to financial services. Only just over one in five (21.3 percent) of adults in MENA have a loan account with a bank, while access to bank deposits varies from as low as 10.4 percent for Yemen and 19.2 percent for Syria, to the other end of the spectrum with more than one bank deposit account for each adult in Oman, Lebanon, UAE and Iran. Improved financial inclusion is critical for the competitiveness of the MENA region, for employment creation, and for raising incomes and reducing poverty. Financial inclusion is through access to a range of financial services such as credit, bank accounts, deposits, payments services, insurance, and pensions.
While most MENA countries have taken steps to improve financial inclusion, there has not yet been a comprehensive high level commitment to financial inclusion across much of the region. The enabling environment for financial inclusion is still deficient and hinders the expansion of financial services at manageable costs and risk. National credit information systems are still developing, and in only one case do they include non-bank microfinance providers. Lenders rely on collateral that is expensive to register and may not be readily enforceable, and on outdated credit assessment and risk management techniques. Interest rate caps on micro loans act as a disincentive for banks and investors, and limit their growth. Investment in microfinance providers is constrained by the predominance of an NGO model, and by a lack or regulatory and supervisory clarity.
The paper provides an assessment of the state of financial inclusion in the MENA region, and identifies constraints, opportunities, and priorities for significantly improving access to finance. Practical recommendations for improving financial inclusion are outlined. Firstly, governments could agree a Financial Inclusion Strategy that is underpinned by improved data, that has both public and private sector commitment, and that scales up financial access on a large scale, principally through bank accounts. Secondly, the regulators should provide a legal and supervisory framework that enables access to finance to be expanded primarily through banks, but with regulatory space for the use of agents, mobile phone technology, and for a finance company model for microcredit and leasing. Interest rate caps on microloans should be removed, and instead consumer protection and supervisory capacity for microfinance should be strengthened, while prudent competition between financial service providers should be promoted. Thirdly, financial infrastructure needs to continue to be a focus area, and in particular credit information and secured transactions. Finally, barriers to the growth of Islamic financial services should be removed so that they can better meet market demand.