EBRD & Microfund for Women: Lending to refugees

The project in brief

Implemented by

European Bank for Reconstruction and Development (EBRD)

Country

Jordan

Duration

The loan was signed in May 2017.

The project is ongoing – Microfund for Women continues to extend loans to Syrian refugee women.

Description

EBRD extended a loan, portfolio guarantee, and capacity-building to the largest microfinance institution in Jordan to support Syrian refugees and host communities’ access to finance.

Project aims 

EBRD wanted to support the only financial institution in Jordan lending to refugees in the country in any systematic way.

Despite their large numbers, Syrian refugees have little access to finance in Jordan. Many refugees, however, have started their own businesses or are carrying out small-scale commercial activities for subsistence purposes. Refugees are perceived to have a high flight risk as they may return back to their country or go on to be resettled in a third country. In addition, refugees have limited access to formal work and generally do not have a credit history in Jordan. For these reasons, the formal financial sector was lending to refugees only on an extremely limited – and therefore negligible – basis.

Microfund for Women (MFW) decided to test the feasibility and demand of offering loans to Syrian refugee women at market rates. This is where EBRD’s loan and first-loss risk cover on the Syrian refugee portfolio came in, which served to mitigate perceived risk of this new population and market segment.

EBRD Video Refuge in Jordan: A New Start for Syrians.

Resources used 

EBRD financed a senior unsecured loan of USD 2 million, disbursed in Jordanian dinar. The loan was accompanied by a first-loss risk cover of up to 40% on MFW’s Syrian refugee portfolio, to cover any losses from unpaid loans. The package also included a technical assistance package to ensure quality and sustainability of lending to Syrian refugees, by helping MFW structure the appropriate risk management procedures and practices.

This included: a tailored risk scoring methodology appropriate for refugees; establishing cooperation with UNHCR; and training. Ultimately MFW was able to offer a comprehensive refugee lending product suite founded on strong risk management principles.

Partners

• Microfund for Women (MFW)
• EBRD
• EBRD’s Community Resilience Fund, which provided funds for first-loss risk cover
• EBRD’s SEMED Multi-Donor Account, (which is supported by Australia, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Taipei China and the UK), which provided funds for technical assistance.

Challenges and how they were overcome

Challenges

While Syrian refugee women have a superior repayment profile and the first-loss risk cover has not paid out any claims, there was an adjustment period for some of the refugees after first receiving the loans.

Some MFW clients at first did not realise that the loan had to be repaid, as they were accustomed to grants/charity payments.

How they were overcome

Through the technical assistance and capacity-building that EBRD provided to MFW, its staff was able to adequately assess the risk of refugee clients and rapidly implement work with Syrian refugee clients to help them understand the loans.

Results of the Good Practice 

• More than 6,000 loans have been made to Syrian women, supported by MFW. This has enabled them to create better lives for themselves and their families, while contributing to the local economy.
• For example, one Syrian woman in Jordan received a loan from MFW, which was able to carefully vet her despite not having a passport, and recognised her skills as an accountant in Syria. This woman used loans from MFW alongside skills learned at a refugee sewing course to buy a sewing machine and establish a shop to mend clothes. She is now expanding the shop and benefit from future loans to buy more machines so her children can work with her.
• Overall, these funds reach refugees without a passport, or without collateral to offer, who are otherwise unable to borrow money.

How the project meets the GCR Objectives

Objective 1: The project eases pressure on host countries by providing loans that help refugees set up businesses – without recourse to public funds.

Objective 2: The project enhances refugee self-reliance by providing these loans which enable them to put it to the best use for their circumstances.

Next steps 

The project continues to deliver outcomes for Syrian refugee women as well as Jordanian women, who are also eligible for on-lending. The approach is scalable in other scenarios, through microfinance institutions and with the support of donor funding that can provide the first-loss risk cover.