DOES TURKEY MICROFINANCE INVESTABLE?This is a question asked to me by so many investors over the years. Takinginto account that every elsewhere in the ECA Region (Eastern & Central Asia)that I worked; only Turkey has not achieved its potential of MicrofinanceInvestments. Turkey’s being one of the biggest economies in the region with ahigh volume of unbanked population the answer to this question evenbecomes more crucial for social and commercial investors. Currently approximately 45.000 women are benefitting from micro creditservices with limited access to micro savings in Turkey. Provision of microcredit is provided mostly through one implementation leading to an inefficientmarket structure. The lack of quality information on microfinance in Turkeyand deficient legal infrastructure are the top two reasons leading to just abouta monopoly in a country of more than 74 million with a very low 26 percentwomen participation rate to the labor force (globally this rate is 52 percent).Turkey is very Microfinance Investable indeed.
Despite the strength of the reel sector and advanced level of bankinginfrastructure, micro entrepreneurs most of which maybe women areexcluded from the formal financial system at the start-up level. Not only inTurkey but global banking sector is not that friendly to finance start ups. Atthat point micro credit kicks in to enable the survival of micro entrepreneursduring first years that otherwise would depend on their ability leverage theirmicro businesses through family/friends.As mentioned addressing the demand is not the only bottleneck in front ofmicrofinance Investments in Turkey. How could a foreign investor start animplementation in Turkey? While the technicalities are very deep the obvioustwo ways are choosing between an NGO and a Bank Model.Choosing the NGO model in Turkey is quite complicated / tricky and not theway with the least resistance. However with the correct NGO model, investorwould have full control over operations and implement the necessaryinternational best practices as the way it should be but it will take time to kickoff the operations. The challenge with this model tough is the legal frameworkpermitting provision of micro credit through NGOs leads to a set-up aparticular NGO structure which is not applicable in practice and resulted infailure in the past. Nevertheless still the only two implementations in Turkeyare through another type of NGO structure which is possible via specialregulatory permissions very complicated to obtain.On the other hand partnering with a Turkish bank most of which has advancedtechnologies/MIS systems and resources in place not to mention the widebranch networks is way quicker to start an implementation is the fastest watto start a programme. Nevertheless the challenge here is to work closely withbankers on a product line which they think they knew and feel apprehensiveabout implementing uniquely different micro credit methodologies. One otherchallenge here is of course the bankers would see this as a corporate socialresponsibility project rather than a commercially viable business the way itshould be shading sustainable micro credit operations. Still these mentionedchallenges of working with Turkish bankers are no different than workingwith bankers elsewhere in the world. What is different in Turkey is that
regulators are encouraging investors/initiatives to partner with banks whomthey already regulate unfortunately thinking that same regulatory practiceswould apply to micro credit operations.The bottom-line is regardless of the chosen model, one implementation couldpossibly not cover the unbanked in a country like Turkey. In fact there isstrong demand for both models depending on demographics based onempirical evidence.From a sectoral point of view the most important impact of new investments(preferably having both models ) for microfinance in Turkey will be to leadinto a competitive and mature enabling environment which eventually bringalong adequate regulations and contribute to alleviating poverty andunemployment.Burcu Guvenek Araslı M.A.Senior Development Finance ExpertMicrofinance InstructorMiddle East Technical University (METU)Faculty of Economic and Administrative Sciences
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