Opening Markets Through Strategic Partnerships: The Alliance Between SAL and Three Lebanese Commercial Banks
The Access to Microfinance and Enhanced Enterprise Niches (AMEEN) linkage described in this case study presents an interesting demonstration of how local commercial banks are able to outsource client mobilization, loan analysis, and follow-up to another organization, while funding the credits themselves. Through this linkage, AMEEN, a for-profit commercial services company in Lebanon, has secured a stable source for on-lending to microenterprises, while the commercial banks are able to enter a new market without the heavy upfront investment requirements in staffing and technologies.
AMEEN essentially provides the upfront service for the loan through its loan officers who market the products, conduct analyses of businesses to be financed, participate in the banks’credit decision making, and ensure prompt repayment of the loan. In exchange, the banks that AMEEN partners with, Jammal Trust Bank, Credit Libanais, and the Lebanese Canadian Bank, generate the loan agreements and disperse the funds, and give AMEEN a fraction of the fees and interest earned on the loans. It is important to note that AMEEN’s survival is solely dependent on it forming partnerships with other institutions (it does not have any independent operations).
Designing a solid yet renegotiable agreement was essential to the success of the partnerships. The agreement between AMEEN and each of the banks specified the loan terms, how risk and funds would be shared, the responsibilities for joint marketing of the products, loan origination and management criteria, targets for lending, portfolio quality and default, compensation for both partners (in terms of interest and fees split), and a non-exclusivity clause which allows AMEEN to engage in microfinance lending with other financial institutions.
However the program continues to face challenges including: misunderstanding by bank staff, adjustments in the compatibility between AMEEN’s and the banks’ management information systems, changes in branch locations in which AMEEN products are offered, and a low client retention rate (about 60%).
The main findings of this study were:
- Bank selection and detailed agreements with each bank partner are essential
- There is a need for clear understanding of bank expectations of the product and sector
- A risk-sharing agreement at the start-up phase is important for gaining bank support
- There should be a goal of increasing value added for the partners and clients
- It is important to differentiate microfinance products from other bank products
- Management information systems adjustments between the two partners need to be planned for
This case study offers insight into structural options available to donors/financial institutions entering the microfinance market and considers the importance of establishing clear guidelines for and expectations of the various parties, benefits, cost implications, and efficiencies gained through the structure. The primary conclusion of the study is that the structure can be replicated under the right conditions and that it is an interesting way for commercial banks to become involved in a sector that, although perceived as risky and lacking profitability potential, can be both profitable and socially rewarding.