Microfinance Practice: [MFP] CGAP Newsflash: Lessons Learned from the Moroccan Microcredit Crisis

CGAP Newsflash: Lessons Learned from the Moroccan Microcredit Crisis

A new CGAP brief, Lessons Learned from the Moroccan Crisis, outlines lessons learned from the rise, fall, and on-going recovery of the Moroccan microcredit sector.

For a decade, the Moroccan microcredit sector was a rising star, boasting top-performing institutions enthusiastically supported by local and international funders. The Moroccan portfolio grew 10-fold between 2003 and 2007, becoming the largest in the Middle East and North Africa region and totaling $733 million.

By December 2009, credit risk soared to 14 percent, reaching as high as 38 percent for one leading MFI. Under Central Bank leadership, providers, national associations, and funders had to scramble to correct course, avert contagion and restore confidence. The response was swift, including measures for short-term recovery and long-term industry building.

In parallel to tightened requirements in terms of provisioning, governance, and credit information reporting, MFIs turned inwards to address delinquency, improve their systems, and make changes in senior management. As a result, growth slowed as portfolios were cleansed, credit methodologies upgraded, and internal controls strengthened. Credit risk fell and instances of multiple borrowing decreased, but the recovery is still fragile, and overall credit risk was back up to 9.6 percent in December 2012

The Moroccan crisis proved that market-wide risk exists. MFIs are de facto connected and defaults can spread easily. To prevent contagion, the Moroccan case offers valuable lessons in terms of governance, market infrastructure, and supervision. These lessons are explored in a new CGAP brief, Lessons Learned from the Moroccan Crisis, now available on CGAP.org.

CGAP

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