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How Bank Al-Maghrib Will Refinance New and Existing Credits for Micro-Credit Associations

Following the almost generalized decline of the indicators of microfinance institutions, due to the health crisis: stop of the activity of loan release, very low recovery rate, cash flow problems…, Bank Al-Maghrib launches a program to support the financing of microcredit associations. In a recent circular letter from the Bank Al-Maghrib, the institution sets out the modalities according to which the support to financing will be done.

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Bank Al-Maghrib (BAM) sets up a line of refinancing of new credits and existing rescheduled credits granted to micro-credit associations, during the period from “the first quarter of 2022 to the last quarter of 2023.” According to the circular: “The refinancing of Bank Al-Maghrib is granted for a period of one year, in the form of guaranteed loans.”.

For their part, the banks will have to mobilize, in favor of Bank Al-Maghrib, as a guarantee of the refinancing granted, the eligible assets set by the Wali’s decision n°80/W/20 relating to the monetary policy instruments, its amendments, and the texts taken for its application.

At the level of their accounting, it will be necessary to take into account that the refinancing rate is equal to the weighted average of the key rate over the refinancing period. The banks participating in this program can benefit quarterly from refinancing with Bank Al-Maghrib for a maximum amount equal to the volume of eligible credits.

By eligible loans, BAM means new loans and rescheduled existing loans granted to micro-credit associations, disbursed during the quarter preceding each call for tenders, and having a duration of one year or more.

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How will things work technically?

In the circular note LC/BKAM/2022/4 signed by Mounir Razki, head of the Directorate of monetary and foreign exchange operations at Bank Al-Maghrib, and dated April 15th, 2022, and related to the support program, Bank Al-Maghrib indicates how things will happen technically.

On the settlement date, Bank Al-Maghrib will credit the central settlement accounts of the beneficiary counterparties with the refinancing amounts granted to them. At maturity, BAM will debit the central settlement accounts with the amounts granted, plus the related interest.

But in case of an early repayment, partial or total, of a credit refinanced under this program, the bank will have to inform Bank Al-Maghrib without delay and proceed, within the next two working days, to the repayment of the refinancing for an equivalent amount.

But in case of non-compliance by a bank with one of the provisions of the circular letter, BAM warns that it will debit the institution’s central settlement account for the total amount of refinancing granted, plus interest and penalties.

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Why such a program from Bank al-Maghrib?

It must be said that the microfinance sector has been damaged by Covid. The crisis has had a deleterious effect on the ability of microfinance institution (MFI) clients to preserve their livelihoods, as they are generally from the most vulnerable segments of society.

As a result, microfinance actors have seen their challenges multiply: a halt in loan disbursement activity, very low recovery rates, cash flow problems; in short, there has been an almost generalized decline in MFI indicators. These are all problems that weaken all MFIs.

In order not to add to the worries of the target population, to help clients in difficulty so that their income and jobs are not disproportionately affected and to avoid cessation of activity, clients in the sector have benefited from a massive deferment of repayment of their microcredits, following requests made for an average of three months without interest and without fees

In April 2021, Ahmed Ghazali, president of the National Federation of Microcredit Associations (FNAM), pointed out that at that date, more than 665,000 microcredit files, representing an outstanding amount of 6.2 MMDH, were concerned. That is to say, 86% of the total outstanding amount of the sector, inducing a negative impact on the net product of microcredit for about 350 MDH of loss of earnings.

The key role of the sector

It is important to underline the key role of the microcredit sector which allows nearly one million microenterprises, excluded from the traditional financial system, to access quality financial services. Not to mention the capillarity of the MFI network, which is made up of more than 1,700 fixed branches, 40% of which are in rural areas, and 150 mobile branches dedicated exclusively to rural and remote areas.

These million income-generating activities (IGAs) provide a living for some 4 million Moroccans and employ hundreds of thousands of people. The sector is considered one of the largest employers in Morocco with more than 8,500 employees, 50% of whom are women.

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How to participate in a refinancing operation?

To participate in a refinancing operation, banks must communicate to Bank Al-Maghrib, no later than the 15th of the month following the end of each quarter, the statement of credits eligible for this program, established in accordance with a model.

The legal representative of the bank must send to Bank Al-Maghrib, prior to the settlement of each guaranteed loan operation, a confirmation and guarantee letter, a promissory bill, a moral commitment as well as the list of assets presented as a guarantee.

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(Featured image by Towfiqu barbhuiya via Unsplash)

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First published in LES ECO.ma, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

Desmond O’Flynn believes in minimalism and the power of beer. As a young reporter for some of the largest national publications, he has lived in the world of finance and investing for nearly three decades. He has since included world politics and the global economy in his portfolio. He also writes about entrepreneurs and small businesses, as well as innovation in fintech, gambling, and cannabis industries.