This report provides a comprehensive view of the performance of the microfinance sector in the Arab region, beginning with a 2006-2008 study of scale and outreach trends with a sample of 35 microfinance institutions (MFIs) and a special focus on the microfinance sector crisis in Morocco, the only country to register a decrease in outreach in 2008. The report then highlights key regional policy improvements, followed by a study of the funding structure of the microfinance sector, the deep changes that have occurred, and key funding characteristics in terms of volume, lender type, and pricing. The last sections of the report analyze both portfolio quality by country and the profitability of the microfinance sector in the region, which now has the highest return on assets (ROA) in the world.