Turkey has strong potential for microfinance investments due to its large unbanked population and economy. However, currently microcredit services in Turkey reach only 45,000 women and the market lacks diversity. The top barriers preventing greater investment are a lack of information about microfinance and deficiencies in the legal framework. While partnering with a Turkish bank could quickly start a program, it is difficult to implement unique microcredit methodologies within a bank. An NGO model provides more control but the legal structure makes it complicated. Overall, for microfinance to be sustainable and alleviate poverty in Turkey, investments are needed that incorporate both NGO and bank models to create a competitive market with adequate regulations.

1. DOES TURKEY MICROFINANCE INVESTABLE?
This is a question asked to me by so many investors over the years. Taking
into account that every elsewhere in the ECA Region (Eastern & Central Asia)
that I worked; only Turkey has not achieved its potential of Microfinance
Investments. Turkey’s being one of the biggest economies in the region with a
high volume of unbanked population the answer to this question even
becomes more crucial for social and commercial investors.
Currently approximately 45.000 women are benefitting from micro credit
services with limited access to micro savings in Turkey. Provision of micro
credit is provided mostly through one implementation leading to an inefficient
market structure. The lack of quality information on microfinance in Turkey
and deficient legal infrastructure are the top two reasons leading to just about
a monopoly in a country of more than 74 million with a very low 26 percent
women participation rate to the labor force (globally this rate is 52 percent).
Turkey is very Microfinance Investable indeed.

2. Despite the strength of the reel sector and advanced level of banking
infrastructure, micro entrepreneurs most of which maybe women are
excluded from the formal financial system at the start-up level. Not only in
Turkey but global banking sector is not that friendly to finance start ups. At
that point micro credit kicks in to enable the survival of micro entrepreneurs
during first years that otherwise would depend on their ability leverage their
micro businesses through family/friends.
As mentioned addressing the demand is not the only bottleneck in front of
microfinance Investments in Turkey. How could a foreign investor start an
implementation in Turkey? While the technicalities are very deep the obvious
two ways are choosing between an NGO and a Bank Model.
Choosing the NGO model in Turkey is quite complicated / tricky and not the
way with the least resistance. However with the correct NGO model, investor
would have full control over operations and implement the necessary
international best practices as the way it should be but it will take time to kick
off the operations. The challenge with this model tough is the legal framework
permitting provision of micro credit through NGOs leads to a set-up a
particular NGO structure which is not applicable in practice and resulted in
failure in the past. Nevertheless still the only two implementations in Turkey
are through another type of NGO structure which is possible via special
regulatory permissions very complicated to obtain.
On the other hand partnering with a Turkish bank most of which has advanced
technologies/MIS systems and resources in place not to mention the wide
branch networks is way quicker to start an implementation is the fastest wat
to start a programme. Nevertheless the challenge here is to work closely with
bankers on a product line which they think they knew and feel apprehensive
about implementing uniquely different micro credit methodologies. One other
challenge here is of course the bankers would see this as a corporate social
responsibility project rather than a commercially viable business the way it
should be shading sustainable micro credit operations. Still these mentioned
challenges of working with Turkish bankers are no different than working
with bankers elsewhere in the world. What is different in Turkey is that

3. regulators are encouraging investors/initiatives to partner with banks whom
they already regulate unfortunately thinking that same regulatory practices
would apply to micro credit operations.
The bottom-line is regardless of the chosen model, one implementation could
possibly not cover the unbanked in a country like Turkey. In fact there is
strong demand for both models depending on demographics based on
empirical evidence.
From a sectoral point of view the most important impact of new investments
(preferably having both models ) for microfinance in Turkey will be to lead
into a competitive and mature enabling environment which eventually bring
along adequate regulations and contribute to alleviating poverty and
unemployment.
Burcu Guvenek Araslı M.A.
Senior Development Finance Expert
Microfinance Instructor
Middle East Technical University (METU)
Faculty of Economic and Administrative Sciences

4. Department of Business Administration
e-mail: burcu.arasli@ttmail.com
e-mail: arasli@metu.edu.tr