The Leader of Microfinance
Responsible Business talks to Dr. Youssef El Khalil about Lebanon’s unexploited microfinance market, the significance of local sustainable agriculture in terms of health and economics, and how he is giving back to his community through the development NGO, Association for the Development of Rural Capacities (ADR), which he spearheaded 15 years ago.
Currently the Director of the Financial Operations Department at the Banque du Liban, Dr. Youssef El Khalil established the Association for the Development of Rural Capacities (ADR) in 1997 with the mission to empower and integrate people in marginalized communities -mostly in Lebanon’s rural south - through three complementary economic and social development programs in microcredit, vocational training, and organic agricultural development. The NGO has significantly contributed to Lebanon’s economy by creating jobs and helping establish businesses, as well as teaching skills and best practices to the most needy communities in the country.
Why did you establish ADR? From when you began work in 1997 until now, how has the organization evolved?
I come from Tyre myself. My mother is a social worker and my father used to work with the Ministry of Public Health. I used to spend all of my vacations in Tyre, and most importantly within the fishermen’s community. I grew up trying to help as much as possible and then I realized I could help much more through an association. I helped initiate other organizations in Lebanon and they were doing very well so I convinced some friends of mine to start working through an NGO. The first donation we received was through the European Union, which was a good start.
Luckily we focused regionally and we focused as far as our specialization is concerned. We started in the old city of Tyre working with the fishermen through microfinance but later expanded to other populations. Little by little we started expanding to all of south Lebanon and we went out to start working in Jounieh, where we partnered with the Frem Foundation. We also expanded to include two other programs.
What programs does ADR offer?
ADR insists on being a development agency, not relief, nor advocacy - although advocacy is increasingly considered complimentary to development. We have three main branches of intervention: microfinance, vocational training and the agricultural center for sustainable agriculture.
Who benefits from the various programs offered by ADR? How many people have benefited so far?
Of all the programs, microfinance has helped the most people. To date, the program has disbursed 7,500 loans to male and female borrowers. The sectors are diversified and include fishermen, farmers, crafts people, street vendors and people in the services. It very much reflects the profile of where the poor live and what they do.
At the beginning we wanted to work with the most marginalized populations and in Lebanon the poorest, (when using various indicators of poverty) would be the fishermen, then Palestinian refugees and then the small scale farmers. Working with the Palestinians does not prove easy due to various administrative and political constraints. By contrast, addressing the fishermen community has proven somehow easier. To give an example, we were able to construct a housing compound for them, while convincing the Harvard School of Design to undertake the architectural studies for the project. We were able to build it and it has won three very prestigious awards internationally. We reached these populations directly or through municipalities.
Can you tell us more about ADR’s microcredit program?
I think what we did in the microfinance field, with all due modesty, is interesting because we introduced some behavior and practices to Lebanon that were not there before. One was the idea of partnering with a commercial bank, first Bank Audi and later BLC. We were the first to do it in Lebanon, I’m not sure if we were the first to do it in the region.
Partnering with a commercial bank or a bank in general, gets a lot of complementarities and synergies. First, it gives you more money. Second, it makes you more serious, so you learn a lot and gain in professionalism. Third, which is most important in my opinion, is that many of our beneficiaries who are not bankable, after dealing with the bank through us have with time become bankable. We have many success stories of very small marginal entrepreneurs, who graduated to become clients of banks.
Another thing we initiated in Lebanon, with all due modesty, is an agreement with LibanPost, through which we could extend loans and receive payments through LibanPost offices. We wanted to serve the poor and the marginalized in rural areas, and banks were not present all over rural Lebanon while LibanPost was. Now everybody’s doing it and that is very good.
How can such partnerships be beneficial for banks?
First, the bank we dealt with at the beginning wanted to use the expression they used at that time “a carte de visite” to south Lebanon. That is, they were implementing themselves in the region in Tyre, which is poor, so they wanted to have an image of standing by the poorest population.
It was corporate social responsibility behavior although in 1998 no one was acquainted with such terminology. With time, banks all over the world, not only in Lebanon realized that it can be good business. It’s in the second half of the 2000s that the idea became attractive to banks and to stock exchanges.
Right before the financial crisis in 2008 there were lots of success stories of mergers, banks establishing departments for microfinance. Banks all over the world started realizing how much profit could be made when undertaking microfinance and that’s how the biggest global banks started establishing their own microfinance departments. Many IPOs and stock exchange successes were from microfinance institutions listing themselves into a financial institution with several billions of dollars. At that time lots of criticism emerged about how far you want to go to make it a business, how much money is allowed there. You can make a lot of money through microfinance. In Lebanon, it still does not attract much as far as the profit potential is concerned. People are starting to be aware of it, but banks for the last 10 years have been getting more into personal, housing loans and it’s a very important niche, they are deepening their presence in these new activities and it’s a most positive development for Lebanon.
Banks are taking steps to go smaller and they do not yet realize the urgency of tapping the micro market because they are doing so well in the medium and small market. Historically, up and until only 10 years ago banks would only consider the big, old, family institutions a small number of clients. Now they have tapped the middle class and medium sized institutions.
I see this as something positive. It’s not only that they get more profit and it’s not only that they are serving society better; from a banking perspective, they are diversifying their portfolio. Therefore the risk is more diversified, in addition to the various charges for the products that they can sell to this wide array of clients.
Why did you start the vocational training program?
Our second branch of intervention is vocational and technical training and has a complimentarily with our other programs. At first we wanted to target school drop-outs, young men and women who have left school at an early age with no diplomas or certificates. Later it expanded to cover people of all ages and backgrounds.
Was there a need to set up the sustainable agriculture center?
Agriculture in Lebanon has been shrinking with time over the last 40 years very seriously. It has stabilized over the last few years but still, relatively, it has decreased. It’s 7-8 % of the labor force and a bit less of GDP, about 6%. Our agricultural center introduced at that time new practices to Lebanon, to south Lebanon specifically. We introduced organic agriculture and have a relatively big facility to produce compost.
In Lebanon, the cost of production is very high, and it’s due to a lot of distortions and inefficiencies. Historically the government has not entertained extension programs, which are programs that teach farmers best practices as far as pesticides use, input use, and sanitary requirements.
Pesticides and fertilizers are more or less monopolized in Lebanon; they are sold by one or two companies, and extension programs are undertaken by the same companies. So we are in this awkward situation whereby I will sell you the pesticides and at the same time tell you how much pesticide to use, so I will have a tendency to advise you to use more pesticides than necessary. It has been shown on many occasions that the Lebanese farmer uses more fertilizer and more pesticides than necessary, sometimes twice thrice more than necessary, which is sad as far as cost and health is concerned. Pesticides can also infiltrate and pollute the underground water resources and also create a serious hindrance to Lebanon’s export potential. The same institutions also lend to farmers, at very high interest rates, in order that they buy from them. So if despite this situation, the sector can survive, it shows what the potential can be if the farmers were to meet market conditions. We created a center to participate in ameliorating the situation, in order to allow farmers to borrow at market rates and make them aware of best and most efficient practices and technologies.
How do your programs complement each other?
There are a lot of synergies. A young person can follow our vocational training or extension program and then get an idea for a project. Then he or she would come and borrow from us. We have lots of success stories as such.
There was one lady who shifted from tobacco growing into growing zaatar (thyme). The former is not only subsidized, but also guaranteed by the government, so there is zero risk as far as selling the produce is concerned. To farmers, uncertainties are extremely important because they often risk survival. So having that lady foregoing the certainty of tobacco earnings in favor of the more risky zaatar is a strong reminder of the dynamism of Lebanese farmers when alternatives are presented.
What has been the response of the communities you have helped?
On purpose at the beginning we kept a very low profile, we never advocated what we did and never went into the media. A few people thought it was linked to potential political aspirations, but with time everybody is convinced that ADR is an agency focused on development.
In Lebanon you have so many NGOs but its’ still rare to find development NGOs. There are NGOs for relief and I highly value these for disability, for the environment, etc. These are all very important issues and are also related to development at the end of the day, but early on we got involved in economic development, enhancing technical know-how, skills, financial capital and access to financial capital. It was very well received and is still so. Today we are no longer the only players, but still as far as development, not as far as the size, I would say we are the biggest or one of the biggest. People appreciate us, especially since we have done so much generally. For instance we had a three-day street festival in Tyre, which attracted more than 30,000 visitors. At that time it was a novelty in Lebanon. We transformed the old part of the city into a pedestrian area and brought great performers from all over the world. The small coffee shops made more money in three days than they would do in 3-4 months. Some families allocated bedrooms for bed-and-breakfasts. Many managed to attract clients to come back to them.
After the 2006 war we initiated a $2.6 million program with the cooperation of ANERA that helped a lot the population of south Lebanon recover. We used our database to reach micro and small businesses and gave them cash donations in an effort to help revive economic activity into the then disaster region. We also worked with municipalities, as well as agricultural cooperatives that we had worked very closely with previously. Later organizations had similar programs too but we were first.
Other than the partnerships you mentioned, how is it possible to keep financing such initiatives?
Now we are more self-sufficient than before, thanks mainly to the microfinance program. The importance of microfinance is when you develop it into a revolving fund, through which loans are managed so that people pay you back and you cover your administrative and capital costs through the interest rate you charge to borrowers. The outreach can be great and it accumulates very quickly.
This helps an NGO cover cost so it doesn’t have to worry about where to find funding every year. It gives you independence and sustainability, which is very valuable. We were very lucky to be able to transform our microfinance into a revolving fund very early on.
Our first projects were financed by the EU and the Spanish Agency for Development and Cooperation. This later expanded to cover a wider array of NGOs as well as governments and international organizations.
Source: Responsible Business Magazine