Microfinance has been operating in Egypt since the 90’s; however this has not created a market of savvy borrowers.
Through our market research we found that the façade of interest-free Islamic loans has created a lack of clarity around interest rates and compounded the issue of low financial literacy among men and women.
Many women were unable to state how much interest they were paying on their current loans or what a reasonable interest rate would be.
While Egypt is a predominantly Muslim country, the demand for Islamic banking is low; people are only drawn to Islamic loans because these loans are perceived to be interest-free. Speaking about her current loan in comparison to an Islamic loan a woman respondent stated: “…I wish I could just pay back the same amount with no interest. I wish it was like Kard Hassan. That way it is not against our religion.” This confusion has been created because institutions offering Islamic loans mask interest rates as administrative fees and present themselves as interest-free. This is both misleading and confusing for clients. In reality the “administrative fees” being charged by these institutions are higher or equal to interest rates being charged in the market. Low financial literacy around interest rates goes beyond Islamic banking. When asked, many women were unable to state how much interest they were paying on their current loans or what a reasonable interest rate would be. In general, interest rates were not top of mind for women who were more concerned with loan and installment amounts. Men participants had a greater understanding of interest rates but were also more concerned with receiving larger loans.
Financial literacy is an important component of financial inclusion and allows clients to make informed decisions about their money. This is particularly important where income must be stretched to meet competing needs, as is the case in many low-income Egyptian households.
Women’s World Banking conducted demand market research on individual lending for women in Cairo in September 2012.