Located 20 miles off the eastern industrial province of Saudi Arabia, Bahrain’s 36-island archipelago lies in the center of the Arabian Gulf. The three main islands — Bahrain (on which the capital Manama is located), Sitra, and Muharraq — are joined by causeways, and make up about 95% of the land area, which covers 707 square kilometres. It is one of the most densely populated among the Middle East countries (656,397 inhabitants), with 89% of the population living in urban areas.

Possessing minimal oil reserves, Bahrain has turned to petroleum processing and refining, and has transformed itself into an international banking center. Conscious of its limited oil resources and overall limitations as a small island nation, Bahrain was the first country in the Gulf to recognize the need for economic diversification. The new emir, installed in 1999, has steadily encouraged development of a diversified private sector industrial and services base, supported by the most modern infrastructure and a healthy, well-educated workforce. Bahrain has a GDP of about US$8.4 billion, and a current per capita income of about US$ 13,000.

Despite an apparently healthy economy, there are persistent pockets of needy families that deserve attention in order to encourage economic growth and to increase opportunities for disadvantaged Bahraini citizens. Combinations of informal sector activities, government assistance, and the traditional alms, form a substantial source of funds to support these families. Women also work informally in the production of food, pickles, and sweets.

Microfinance

UNCDF does not have any local governance programmes in Bahrain, It has, however, through its Special Unit for Microfinance (SUM), supported the development of an emerging microfinance industry.

In consultation with practitioners and donors, the SUM programme, MicroStart, was devised as a pilot programme to build the capacity of local organizations to initiate or expand existing microfinance activities. An innovation of the MicroStart Programme is that United Nations Country Offices are able access technical support through contracting one of approximately 30 pre-selected global microfinance best practitioners to provide technical assistance to local organizations.

In Bahrain, the MicroStart initiative has been able to help more than 2,000 low-income entrepreneurs since 1998. The programme, which was funded with $1 million from the Government of Bahrain and $500,000 from UNDP, is working with the Alexandria Business Association, an International Microfinance Service Provider. Three Microfinance Institutes are being trained and supported to provide small loans on a sustainable basis, the AWAL Women’s Society, Al-Eslah Society Human Welfare Committee, and the Children and Mothers Welfare.

Before the programme started, the only way for small-scale entrepreneurs in Bahrain to get access to credit was to approach relatives or bargain with shopkeepers to get supplies on credit. Now, these people feel more in control of their business and proud that they can support themselves and their family. Clients have said their whole attitude towards life has changed. They now have the ability to work for a living rather than just receive aid.

Because 73% of loan recipients in the Bahrain MicroStart initiative are female, the project is also helping to empower women, allowing them to earn their own money rather than just depend on their husbands. The programme is also promoting self-employment, entrepreneurship, and innovation, which is helping the entire Bahraini economy. Finally, the programme has played a catalytic role in getting the Government to transfer resources from direct grants to investing in sustainable institutions.

Policy Impact

Every year the Bahrain government spends 10 million dinars (US$26.5 million) on assistance to productive families. This money is disbursed as grants on which the government receives no return. However, increasingly faced with fiscal constraints, the government has had to reexamine the sustainability of these practices and search for new strategies. The Government’s recent $1 million into the MicroStart project reflects this significant policy shift. If MicroStart is judged to be successful, the Ministry of Labor and Social Affairs is prepared to expand its support of microfinance as a sustainable human development tool. While the growth of these programs in overall numbers of clients will always be limited by virtue of the population of Bahrain, it does not negate the importance of these kinds of services to poorer populations.

Other significant achievements in terms of this programme’s policy impact in Bahrain include the following:

• Introducing a new concept to Bahrain: As Bahrain’s very first microfinance intervention, MicroStart has captured the imagination of the government, NGOs and individuals alike. Word of the programme is spreading and many are excited about the potential for microfinance in the country. The product itself is proving to be highly valued by a segment of the population who previously had no access to formal financial services.
• Institutionalizing best practice: Given that there are no other microfinance programs in the country, MicroStart has the unique opportunity to establish best practice programs from the outset.
• Developing the capacity of local organizations: With the help of ABA, MicroStart is providing ongoing technical and financial support to NGOs wishing to provide microfinance on a sustainable basis.
• Focusing on female clients: With roughly 80% of the clients being female, MicroStart is contributing to the promotion of gender equity in the region by helping to offset disproportionally high rates of male lending and providing a new service to poor women.
• Breaking new ground on the issue of interest rate acceptability: Given the Islamic context, it was necessary for ABA to engage in extensive discussions with the Board and staff of the NGOs, with government representatives as well as community and religious leaders on the concept of sustainability. This was a lengthy process involving much discussion on the rationale, wording and workings of the lending operations until a contract was worked that was acceptable to all parties involved. The process has since been successfully replicated by ABA in Yemen, where similar difficulties around the interest rate issue were being faced.
• Developing a model for other Gulf States: If MicroStart can prove to be successful, it will act as a model for other Gulf States who for now are watching with interest from the sidelines.

For more detailed information, please refer to the Fact Sheet and the documents in the menu on the right.