Family Bank Microcredit Initiative in Bahrain

The Kingdom of Bahrain is a prosperous island nation in the Middle East. Its population is approximately 725,000 people, of which 448,500 were Bahraini nationals. In 2006 Bahrain's per capita GDP based on purchasing power parity was US$ 25,300, with annual GDP growth rate of 7.6%. Despite prosperity, the unemployment rate in Bahrain was 15%. Currently the Ministry of Social Development (MoSD) supports over 10,000 families with cash assistance. Bahrain is known as the "Banking hub of the Middle East." There are 390 financial institutions including 151 banks licensed by the Central Bank of Bahrain. However, there are no traditional banks offering microcredit of sums less than BD 7,000 to small entrepreneurs or needy families for income generating activities; hence the need for establishment of a microfinance Family Bank targeting this special niche.

In February 2007, Professor Muhammad Yunus visited the Kingdom of Bahrain at the invitation of His Highness Shaikh Salman bin Hamad bin Isa Al Khalifa, the Crown Prince and Commander in Chief of Bahrain Defense Forces. Professor Yunus was honored with the Medal of the First Order of Merit, the highest honor of the Kingdom of Bahrain. During this visit a Memorandum of Understanding was signed between the Ministry of Social Development and Grameen Trust, with the aim of setting up a sustainable microfinance institution in Bahrain.

A high level delegation from Grameen Trust subsequently visited Bahrain from May 5 to 11, 2007, at the invitation of the MoSD to evaluate the feasibility and plan necessary next steps to set up a microfinance Family Bank for the needy families in Bahrain. A technical mission to set up the proposed Family Bank in Bahrain was led by Professor H. I. Latifee, Managing Director of Grameen Trust.

The technical mission focused on the following:

• Explore opportunities for microfinance in Bahrain.
• Asses demand for microfinance based services among Bahraini citizens.
• Evaluate existing financial services available for the needy families.
• Explore legal requirements for microfinance banking initiatives in Bahrain.
• xplore opportunities for realizing the vision outlined in the MoU signed by the MoSD and Grameen Trust.

The Grameen Trust delegation conducted 22 meetings with 17 major organizations and met various people during the visit, including many from needy families. The new bank will be modeled after the Grameen Bank, which has pioneered the microcredit movement globally, adapted to the local needs of Bahrain.

The guiding principles of the Family Bank will be:

• Collateral free loans
• Targeting the financially disadvantaged
• Bank will go to the poor
• Institutional sustainability

As all currently accessible loan options available to the needy and productive families require collateral, the technical mission found enthusiastic support for the Grameen type collateral-free microcredit amongst the potencial client groups.

In order to ensure long-term institutional sustainability, the Family Bank will charge appropriate service fees from its clients to meet operational costs.

It is proposed that the key financial services offered by the Family Bank will be:

• Micro loans ranging from BDT 50 to BDT 7,000 for various income generating activities.
• Savings products, if authorized by the Central Bank.
• Other financial services as deemed beneficial for the social and economic upliftment of the needy and productive families.

The ceiling of micro loans offered by the proposed Family Bank will be lower than the loans offered by Bahrain Development Bank (BDB), filling a niche market not served by current banking institutions. The seven tiers of the proposed basic loan structure reflect the future growth of the clients and their additional demand for loan facilities from the Family Bank.

The Family Bank proposes to reach at least 4,250 borrowers during its first three (3) years of operations and hopes to disburse a sum of BDT 1,743,000 as loans during this time.

The proposed Family Bank will be owned by the MoSD, Government of Bahrain, similar to the Government ownership of the Eskan Bank and the Bahrain Development Bank. The Family Bank will now secure the necessary licenses and permission from the appropriate authorities enabling it to pursue its mandate within the legal framework of the Kingdom of Bahrain.

Upon successful negotiations within the Government, the proposed Family Bank offering microfinancial services to the needy and productive families may be launched in 2008.

Report by Tamim Islam, Grameen Trust