Microfinance in Crisis: From Stagnation to Resilience in the Arab World

The main message from the latest Arab Microfinance Network conference was loud and clear: financial inclusion in this region is stalling, and in some countries, even reversing. 

Latest World Bank Findex data reveals a sobering trend. In Egypt, Morocco, and Jordan, microfinance is faltering. Despite a rise in account ownership driven by mobile money, formal borrowing remains low—just 4–6% in Egypt and 13% in Jordan. Accounts are being used as digital wallets for transfers, not as engines for growth.

In conflict-affected zones like Lebanon, Yemen, and Palestine, the sector isn't just stalling; it’s being replaced by informal networks. Lebanon offers the most dramatic case: formal savings decreased from 60% in 2017 to just 28% in 2025. In Yemen, the conflict has physically dismantled the infrastructure needed for traditional branch-based lending.

How Is the Microfinance industry coping with these protracted crises? 

During the Sanabel Annual Conference in Egypt, several key players from the microfinance sector shared how they are revamping their business models and innovating to address the macroeconomic and geopolitical shocks in their areas of operation. It was encouraging to hear that many financial institutions are putting customers at the center, developing client protection policies and processes, and implementing early warning systems to detect over-indebtedness among their borrowers.

The double-edged sword of AI

Many participants noted that while AI and new digital tools could help bridge the financial inclusion gap, if misused, algorithmic bias could actually widen this gap—potentially labeling borrowers as too risky or not even eligible for credit.  

Case Study: Vitas Palestine’s agility

It was inspiring to hear Amer Hidmi from Vitas Palestine explain how his organization is weathering the crisis in Palestine and supporting MSMEs to survive and recover. The conflict had a tremendous deteriorating effect on Vitas’s portfolio, especially given their relatively high exposure in Gaza. However, they remained agile and used innovative methods to control non-performing loans, including behavioral-based collection methods that segmented clients by willingness and ability to pay. Their investments in digital transformation before the crisis paid off when the war started as they increased their digital lending, allowing clients to access loans quickly and remotely. Mr. Hidmi acknowledged that donor support and technical assistance (such as the one being provided by GOPA through a GIZ project), was also critical in overcoming the crisis. 

In Gaza, Vitas recently resumed financing, issuing the first few new loans in February 2026. They have reopened their offices and are focusing on financing light-asset businesses and community-based reconstruction efforts. Mr. Hidmi’s call to regulators and policymakers was clear: for a just recovery in Gaza, financial institutions need guarantees and performance-based incentives to expand financing to MSMEs. Without such instruments, recovery will be slow and the humanitarian crisis will worsen.  

Recommendations to Arab regulators and policy makers

A resounding theme throughout the conference was the urgent need for regulators to modernize the legal definitions that govern the sector. In much of the Arab world, microfinance remains strictly tied to "productive credit"—the idea that a loan is only valid if it directly generates immediate income. However, participants argued that this narrow view ignores the holistic reality of poverty. By expanding the legal scope to include essential "social" financing—such as loans for education, emergency healthcare, and home improvement—regulators can empower underprivileged communities to manage their lives with dignity and long-term security.

Beyond the use of credit, there was a profound call for a "right to save". For too long, microfinance institutions in the region have been restricted to being one-way channels for debt. Transitioning these institutions into deposit-taking entities would be a dual victory: it would provide the unbanked with a safe place to build their own capital, while simultaneously lowering the cost of financing for the institutions themselves. This shift toward financial intermediation is seen as the ultimate key to institutional sustainability and a move away from a reliance on volatile external funding.

Ultimately, the discussions highlighted a sector that has come of age. Arab microfinance institutions have matured into sophisticated actors that are increasingly targeted and diverse in their offerings. There is a newfound, sobering awareness of the harm that irresponsible lending can cause, which has catalyzed the development of robust risk mitigation policies. As Responsible Finance gains genuine traction across the region, it is evolving from a simple poverty-alleviation tool into a foundational pillar of national economic resilience. 

For more information, please contact celine.serhal [at] gopa.eu (celine[dot]serhal[at]gopa[dot]eu).