Once again, the Abdul Latif Jameel Group (ALJ) has shown its pioneering corporate social credentials in the Kingdom, with the news that ALJ has established a joint venture with Grameen to extend micro-finance loans to alleviate poverty in the Arab world. This comes on the heel of the already established ALJ entrepreneurship and technical training programs for Saudi youth. The new joint venture, to be known as the Grameen-Jameel Pan-Arab Microfinance Limited, is targeting the whole Arab world, and not just the Kingdom, which makes ALJ’s participation even more significant.
The Gulf has always been renowned for its individual philanthropic and charitable donations, but the time has now come to institutionalize this effort to ensure that the benefits are widespread, and reach as many of intended recipients as possible. The staggering donation of the Dubai Ruler and UAE Vice-President Mohammed ibn Rashid Al-Maktoum to establish a $10 billion endowment foundation to promote education in the Arab World shows what can be done at governmental or quasi-governmental level to foster education. Quality education — not quantity — is essential to ensure that the Arab world is not left behind. The foundation will focus on human development, supporting and empowering young minds and focusing on research, education and investment in that noble infrastructure of knowledge.
Others in the Kingdom and the region have also made significant contributions to the education field in their own way. Among these are the successful undergraduate and post-graduate scholarships offered to Saudis under the “Pioneer Program” established by Maan Al-Sanei, which he hopes to extend into a fully-fledged endowment.
Corporate social responsibility comes in many ways and forms. Empowering young people with educational tools is a beginning, but empowering them financially, as well as empowering a wider section of society not privileged enough to have had education, is another. “The poor you will always have with you”, a great wise man once told us long ago. The greatest challenge to the Arab World today, is to alleviate the growing poverty and sense of alienation, exclusion, and deprivation that is felt by many. This is where the micro-credit movement comes in, and for which ALJ is to be lauded for their planned joint venture with Grameen, the brainchild of the Bangladeshi Nobel Peace Laureate Dr. Mohammed Yunus. In the words of the awarding Nobel Committee, “every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen bank have shown the poorest of the poor can work to bring about their own development.” What is unique about the ALJ joint venture is that the company will maximize the social impact and reinvest its profits in the business, rather than distribute dividends as a for-profit-company.
Grameen has had many detractors ever since Yunus was awarded the Nobel Prize. The aim of this article is not to get into a debate on whether Grameen used or did not use sophisticated accounting reporting techniques, or that the number of loans repaid had been over exaggerated.
Suffice it to say that many countries and institutions are now adopting micro-finance strategy as a viable alternative to traditional security backed loans. In the final analysis one also has to have some belief and faith in any new “non-traditional” approach that upsets the existing order. One wonders what investors now think of the “sophisticated” audited accounts of Enron and Arther Andersen.
Microfinance can only works if people who had been given these “micro loans” can be relied on to repay their loans, and it also demonstrates that it is possible to provide financial services to poor people through market-based enterprises without government subsidy. A key success for the microfinance scheme in the Arab world will be if it targets an appropriate group for microfinance services, especially talented young entrepreneurs. If these people gain access to credit that has been denied to them by traditional loan agencies, they will, in theory, expand their businesses, stimulate their local economies and hire more people. The majority of Arab population is now city dwellers (except for countries such as Egypt and Yemen), and this approach can work better, unlike the majority of developing countries where most people live in rural areas.
Grameen micro-financing has taken root not only in Bangladesh, but through the American-based Grameen Foundation USA which was established in 2005. Some $50 million was made available in credit guarantees, to poverty focused micro-finance institutions that provide small loans to help the poor start, sustain or grow self-sustaining businesses. No less than an international “traditional” financial institution like Citigroup developed the guarantee program, showing that there is both money and corporate social ethics in micro-finance.
The US program is aiming to guarantee up to $300 million in low-interest loans to poor people around the world. Such new funding could come from individual donors, who, instead of giving money, would use their assets to establish a pool of guarantees in the form of standby letters of credit. This an elegant solution to those in Saudi Arabia and the Gulf who wish to participate in the scheme, whereby donor guarantors continue to hold their assets and realize returns on their portfolios, while micro-finance institutions gain access to more financial resources. So where does the ALJ initiative leave our businessmen and leading corporations who, more than ever, are being asked to contribute in a meaningful way to wider society?
Maybe one can start with the Saudi banks — among the most profitable in the world — despite a dip in their profits due to lower brokerage fees following the stock market crash. With around SR220 billion in current accounts in February 2007, (after deduction for government entities and reserve requirements), the Saudi banks can comfortably set aside a portion of the earnings they make from such free accounts. Assuming a minimum 1 percent overnight investment rate on these deposits, this would amount to around SR2.2 billion or $586 million.
Setting aside 10 percent or SR220 million for a micro-financing scheme, along the line of the US guarantor venture would be a good start. Who knows, maybe other businesses would chip into the guarantor fund, making everyone happy — corporate social responsibility, returns on pooled assets and empowering the poor at the same time. For once, truly having one’s cake and eating it...
(Dr. Mohamed A. Ramady is visiting associate professor, finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.)