The Moroccan banking system is highly modeled from the banking system of France. The Moroccan banking includes 3 principal banks (Attijariwafa Bank, Banque Populaire, BMCE Bank) which account for almost 50% of the market share and is highly concentrated on them with other institutions working in specialized areas such as agriculture.
At the end of 2011, the Moroccan banking sector include eighty five institutions, with the Bank Al Maghrib (BAM) as its central bank. This system reached nineteen banks, thirty five finance companies, six offshore banks, thirteen Micro Finance Institutions with twelve other institutions.
The concept of Microfinance and Microcredit was first introduced in 1970 by Muhammad Yunus, a Bangladeshi Professor in Economics, It has since became the most visible innovation in anti-poverty policy in the last half-century with a dramatical growth in the three decades. With actually more than 200 million borrowers, Microcredit is without any doubt a powerful tool for bringing financial services to the poor population lacking of access to the formal financial services.
127 our experts are availableright now
According to the literature, in one hand, many studies support the idea that Microfinance bring a huge support to the economic growth especially in the developing countries, by putting money and access to financial services into the hands of poor families, it has the potential to
Increase investments in health and education. In the other hands, skeptics see the microcredit institutions as relatively similar to the typical money-lending institutions, with making profit based on that the poor have no other options and can’t resist the temptation of new loans, pointing out the fact that among the small businesses created, only few grown to large businesses, creating a very high competition.
The balance trade of Morocco is continuously negative, except the Phosphate there is no natural resource to export and which 80% of the word reserve is. Despite being a developing country, Morocco suffers from a high rate of poverty, illiteracy rate and unemployment.
The Microfinance sector in Morocco includes four principal institutions with the biggest market share, Al-Amana(44.91%), FBPMC/Attawfiq(21.43%), FONDEP(15.32%) and Foundation ARDI(12.81%), providing in one hand financial services like individual and solidarity credits, housing credits, money transfers and micro insurances. In the other hand offering nonfinancial services like customer support and assistance, training in financial education, job training and assistance in developing the social capital of the clients.
The microfinance sector started in Morocco in the end of 90s achieving high and rapid growth rates with a portfolio extraordinary increasing from 2003 to 2007 considered the leading in Middle East and North Africa, accounting for 733 million to 1.35 million USD in assets in December 2007. However, after this successful period the Microfinance sector growth starting to become unsustainable showing signs of stress as the credit risk raised by 0.4% from a reasonable level of 2.3%, but shortly after it reached a level of 13.7% in December 2009. As a consequence, that the country start to plunge gradually in a crisis leaving 40% of customers accumulating loans in several Microfinance institutions. As a response of the crisis, all the investments were stopped, a lot of measures and implementation were done for both short-term and long-term recovery by the Central Bank of Morocco BANK AL MAGHRIB (BAM), Ministry of Finance and national associations and funders. Thanks to those actions, in 2011 the credit risk has been split with a slight increase in 2012. This raises the question regarding the relevance of the Microfinance sector in the quest for economic growth, which is a primary motivation for this study:
- How is Microfinance relevant to the economic growth of Morocco and to extent it has an ipact on it?
- Is there any impact of impact of microfinance on domestic growth (GDP)?
- Is there any bi-directional relationship between economic growth and Microfinance?
- If there is a significant impact of Microfinance on the economic growth, what are the implications of the government financial institutions?
This paper will therefore empirically study the relationship between microfinance and economic growth in Morocco.
The methodology that will be used to answer the previous questions is the Auto-Regressive Distributive Lag (ARDL) with data from years 2003-2017. We made the choice of ARDL model because it is relatively more efficient in the case of small and finite sample data sizes, in addition to that unbiased long-run estimates are obtained.
The Model used is as follow:
GDP= ∫ (MFLA + EX + INF + XR + INT)
- GDP: The Real GDP per capita, which is used as the proxy of growth
- MFLA: Microfinance Loans, which is used as our proxy of microfinance outreach
- EX: Exports of Goods & Services (% of GDP)
- INF: Inflation collected from the IMF database, which is a control variable
- XR: BDT Exchange Rate Per USD, which is a control variable
- INT: Real interest rate, which is a control variable
Step 1: we need to test the long-run relationship among the variables, with constructing a VECM (vector error correlation model) using each variable of the model as a dependent variable. This will be done by computing an F-statistic to test the joint significance of the Lagged level of the variables.
Note: before proceeding to step 1 which is testing the cointegration:
- Our variables should ideally be I (1), which will lead us to test the stationarity of the variables using Unit Root Test.
- We need to select the optimum of the variables using the VAR order selection through AIC or SBC criteria)
In case our Unit root test result is not consistent, we then use the bound test for cointegration.
Step 2: after demonstrating the long-run relationship, we move estimate the long-run coefficients.
Step 3: we estimate the model associated error correction model, in order to:
- Estimate the short-run causal effect, by estimating the short-run coefficient and interpret them base on the usual OLS standard errors and test statistics.
- Estimate the adjustment coefficients of the error-correction term, and indicate that there is or not Granger-causality in at least one direction which is determined by the t-statistic of the coefficient of the lagged error correction term.
Step 4: interpretation of the results and propositions.
We expect to find significant impact of Microfinance on the Domestic growth during the period studied, we can efficiently interpret this using the crisis period as “control period” and the non-crisis period as “treatment period”, which affirm the depth of the Microfinance sector in Morocco and its strong link with the economy and the Financial sector as the Microfinance crisis had a big contagion on those sectors.
We also expect that the economic growth has also an impact on Microfinance, this is because a strong economic and financial development in the country will improve the poverty reduction, thus decreasing the credit risk.
In a developing country like Morocco, the authorities must support the Microfinance sector with strong regulations and policies, thus improving the sector as well as avoiding another financial crisis.
There exist several literature studying the Impact of Microfinance on Economic growth in different countries. Shabbir, J (2016) provided an overview of the characteristics of the Microfinance sector in Morocco concluding that the crisis had several damages on the reputation of Microfinance sector in Morocco with a big impact on the trust of its clients and funders, suggesting that the focus should be more on client satisfaction and sustainable growth rather increasing the market shares. Yousuf Sultan and Mansur Masih (2016) studied the impact of the Microfinance on the Economic growth in Bangladesh, they found that Microfinance and GDP growth have a strong bi-directional relationship, suggestion that the Microfinance should be supported by strong regulations and policies.
MURAD, A. Bein and IDEWELE, Israel Ebosetale O (2017) suggest with studying the impact of Microfinance institutions on economic growth in Nigeria that in the short-run Microfinance loans increased the consumption per capita, however in the long run those loans doesn’t have a significant impact on the economic growth using Schumpeter growth model and multiple regression analysis. V. Allaire, A. Ashta, L. Attuel-Mendes and K.Krishnaswamy (2009) used a case study approach with correlation analysis to explain the success of Microfinance institution in the period before the crisis. Bruno Crépon, Florencia Devoto, Esther Duflo and William Parienté (2011) made a randomized experiment to measure the impact of Microcredit on the Moroccans rural areas, they found that there is no effect on average consumption, health and education and other similar outcomes, as well as an increase in food and durable expenditures on households that had no pre-existing activity.
References
- Shabbir MS (2016). The Impact of Micro Finance Institutions on Economic Growth of Morocco. J Tourism Hospit 5: 210. doi:10.4172/2167-0269.1000210
- Yousuf Sultan and Mansur Masih (2016). Does microfinannance have an impact on economic growth? Evidence from Bangladesh based on ARDL approach. MPRA Paper No. 72123
- Idewele, I. E. O. & Murad, A. B. The Impact of Mıcrofınance Instıtutıon in Economıc Growth of a Country: Nigeria in focus. International Journal of Development and Management Review (INJODEMAR) Vol.12 No. 1 June, 2017
- V. Allaire, A. Ashta, L. Attuel-Mendes and K.Krishnaswamy (2009). Institutional Analysis to explain the Success of Moroccan Microfinance Institutions. Université Libre de Bruxelles – Solvay Brussels School of Economics and Management Centre Emile Bernheim. CEB Working Paper N° 09/057
- Peter Walkenhorst and Mariem Malouche (2006). Trade Policy and Export Performance in Morocco. MPRA Paper No. 23119
- Bruno Crépon, Florencia Devoto, Esther Duflo and William Parienté (2011). Impact of microcredit in rural areas of Morocco: Evidence from a Randomized Evaluation. Ref: F-3020-MAR-1
- IFC International Finance Corporation (2014). Ending the Microfinance Crisis in Morocco: Acting early, acting right.
- CGAP. “Financial Inclusion” http://www.cgap.org/topics/financial-inclusion. Accessed: 2015. 01.20
- Stata.com. VEC intro — Introduction to vector error-correction models
