CAIRO: Egypt’s unbankable poor, low-income families as well as small and medium-sized enterprises (SMEs) are now able to utilize their ingenuity to climb out of poverty and generate more income via microfinance facilities provided under the umbrella of the European Union and the Social Fund for Development.
With poverty rates plaguing a significant proportion of society – recent statistics showing that over 17 percent of Egyptians live below the poverty line – microfinance has become a rather imperative and pragmatic tool that helps those individuals raise their living standards mainly through embarking on sustainable micro-projects.
“This project, which is fully funded by the European Commission and implemented by the Social Fund for Development (SFD), aims to contribute to job creation and income generation through provision of financial and non-financial services offered to those who have little or no access to the country’s formal financial system, said Alberto Cortezòn, project manager with the EU.
The EU has earmarked a total budget of 16 million euros handed over to the SFD to fully implement the project, which provides micro-loans to underprivileged individuals and NGOs to help them acquire assets and reduce their vulnerability to crises.
This budget is used to finance two credit facility funds. Of this total, 11 million euros are being used to offer loans to small entrepreneurs. Another 3.3 million euros are used to provide loans to NGOs that act as intermediaries financing micro-entrepreneurs. The project also includes a 379,000 euro grant facility given to selected NGOs to help them improve their delivery capacity of financial and non-financial services to end-beneficiaries.
“The project does not only deliver financial services [credit facilities and risk assessment tools], but it also offers non-financial services such as technical assistance, training, business development, and capacity building, explained Cortezòn. “End-beneficiaries are SMEs and NGOs that seek to enhance efficiency and sustainability of their businesses.
As its name suggests, microfinance provides financial services, such as micro-credit, micro-savings or micro-insurance to poor individuals who show potential to become talented entrepreneurs. In its essence, microfinance can alleviate poverty when people gaining access to credit successfully expand their businesses, stimulate local economic growth and hire less entrepreneurial individuals, generating more income for deprived communities.
Most transactions involve small amounts of money frequently ranging between LE 500 and LE 50,000 depending on the size of businesses. “Loan assessment is based on the ability of SMEs to generate enough income to pay back the loan, Cortezòn added.
Under the project, interest rates on loans accumulate up to around ten percent. However, intermediary NGOs that lend micro-entrepreneurs set their own interest rates. “Still, we have to ensure that these rates are [reasonable] and will enable these SMEs to sustain their businesses in the future, he said.
Cortezòn added that reimbursement rates of loans offered through this project were lower than ones made through commercial banks. “The problem that these SMEs face is not that [repayment methods] are expensive, but it is lack of access to these loans, he pointed out. “Default rate of these loans is very low. Around 99 percent of these SMEs pay back their loans plus interest rates.
For its part, the SFD fully implements the project and oversees that loans are given to individuals who need to improve their chances and meet the criteria as well as ensuring recipients pay back in due time.
“Our end goal is to combat poverty, said Hanan Abul Azm, head of the microfinance sector at the SFD. “Besides targeting SMEs, we also provide financial assistance to female-headed households, low-income families, and rural farmers.
The SFD’s overall microfinance portfolio amounts to LE 580 million, and so far LE 450 million has been given out in terms of loans. The SFD is currently partnering with different organizations besides the EU to develop microfinance activities in the country. These include the USAID, the KFW, and the Egyptian Post Office.
