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Microfinance: What Is It and Why Now?

A new law to encourage microfinance banks aims to create jobs and achieve sustainable development, writes Alsouria Net.
Microfinance: What Is It and Why Now?

In light of the further deterioration of economic conditions and the absence of a clear plan by the regime’s government to confront the situation, with the exception of the ministers’ promises of future improvement, the Assad government is trying to curb further decay, through decisions whose effectiveness is not clear.

Among these moves, the People’s Assembly discussed, on Wednesday, the new investment bill, through which the regime is trying to encourage investors to enter the Syrian market, in addition to a law allowing the establishment of microfinance banks.

The bank establishment law aims, according to SANA, to “secure the necessary financing for small-scale projects, small business owners, and those with limited or no income by granting them operational loans in order to secure additional income for those people, create jobs, and achieve sustainable development.”

Three reasons behind establishing microfinance banks

The new decision raised questions about who might decide to open new banks in an environment that is incapacitated by US-European economic sanctions is unstable and suffers from inflation and a deterioration of the national currency, whose exchange rate against the US Dollar has reached 4,000 Syrian pounds.

There are several reasons behind the establishment of these banks, according to what researchers and economic analysts said to Alsouria Net, the first of which is evading economic sanctions, according to the economic researcher, Manaf Quman, who said that “there is no doubt that the concern of the regime today is not to develop the economy as much as it is focused on trying to evade sanctions and secure funds for the most basic needs of the citizen.”

He added that “small and micro-finance may divert the attention of the states that penalize the regime from paying attention to such micro-funds and small projects, which would allow the regime, through these microfinance banks, to penetrate the global financial system and secure the funds for the basic needs and materials.”

For his part, economic analyst, Younes al-Karim, considered that the microfinance banks are not circumventing the sanctions, but rather reducing their burden on the regime, which would give the latter more flexibility and time for negotiation and economic maneuvering, as banks can create an environment of self-sufficiency in goods and services if they are managed properly, which is also linked to the existence of good economic activity.

Karim attributed the establishment of microfinance banks to three reasons. The first is due to the currently collapsing economic environment, as “yellow finance banks” are usually established in societies where purchasing power is collapsing, and thus individuals are unable to obtain financing from traditional banks, so small banks come to take their place.

As for the second reason, it is due to the Assad regime’s re-engineering of the economic environment, especially since “Rami Makhlouf and many of his associations and companies were operating informally, just like microfinance banks, providing grants and assistance to a large number of citizens, which created loyalty for Makhlouf’s companies.”

Karim considered that the new law regulates the work of these societies and companies, which allows the regime to create a base loyal to it by monopolizing the provision of aid to the needy.

The third reason is that the Assad regime benefits from the grants and aid provided to these societies from donors and states, as the regime has been trying to obtain a large amount of United Nations funds, donor funds, and funding by non-governmental organizations, as these organizations are the only ones authorized to provide this type of aid.

The impact

Hours after the law was passed, the regime’s media was buzzing with talk about its importance and positive effects, by meeting with analysts, experts, and economic officials, in addition to issuing official statements extolling the importance of the law.

However, Manaf Quman, Assistant Researcher at the Omran Center for Strategic Studies, says there “are no positive effects on the economy, neither in the near or far future.” 

In his opinion, and “despite the great role that small and medium businesses play in supplying the economy with value in terms of output and employment, the situation in Syria is different due to the conditions of war and instability. There are many factors that prevent reaping the benefits of this law including war, political instability, and the extent of destruction at the level of the infrastructure, sanctions, restrictions, poverty, unemployment, and many other factors.”

“Funding from these banks often leads to enabling the local economy to produce goods and services. It also pumps local products into the markets and facilitates exporting them outside the country, which helps the country’s currency and markets. However, if funds are injected into markets without the emergence of businesses, projects, and production, they may contribute to an increase of the monetary base in the country and thus would lead to an increase in prices and a weakening of the purchasing power of the pound.”

Iran and the banks

Article 4 of the new law stated that “banks may be established by private Syrian associations or institutions or by non-Syrian institutions that have experience and competence in this type of activity.”

Younes al-Karim considered that this clause is “implementing the agreement of Former Prime Minister, Imad Khamis, with the government of Iran, regarding the establishment of an Iranian bank in Syria,” and that “this type of bank is considered a kind of curtailment of the role of the telecommunications sector and banks through controlling liquidity in their favor.”

Karim added, “Iran has requested the establishment of a bank in Syria, but there is a base within the regime that rejected this, in addition to a Russian and international refusal. However, now that the law was passed, Tehran can enter and establish banks in Syria, especially since these banks have an important role in money laundering and merchants and warlords can use them to transfer their money” describing the matter as “an impending financial disaster for Syria.”


This article was translated and edited by The Syrian Observer. The Syrian Observer has not verified the content of this story. Responsibility for the information and views set out in this article lies entirely with the author.

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