On January 9 2016, President Abdel Fattah Al-Sisi launched an initiative to finance small and medium enterprises (SMEs) worth EGP 200bn.
The Central Bank of Egypt (CBE) embraced the initiative and accelerated its implementation. Banks operating in the Egyptian market were required to direct 20% of their total loan portfolios to such projects within four years from the date of launching the initiative.
Banks finance these projects with interest rates of 5%, 7%, and 12%, depending on the type and size of the funded activity.
In a further step to support this initiative, the CBE issued unified definitions for small, medium, and micro enterprises, which are applied at all banks operating in Egypt, as well as between banks and other parties concerned with these projects.
At a later date, the CBE incorporated microenterprises into the initiative, which has become part of the 20% ratio committed by banks as part of their total loan portfolios.
Head of SME committee at the Federation of Egyptian Banks (FEB) and Industrial Development and Workers Bank of Egypt (IDWBE) Vice Chairperson Hamdy Azzam said that banks have succeeded in financing 62,000 SMEs, at a value of EGP 68bn, from when the initiative launched until the end of December 2017.
Azzam pointed out that the CBE paved the way for the success of the initiative to develop a unified definition of small, medium, and microenterprises for the first time in the history of Egypt and provided its guarantee to the Credit Guarantee Company to encourage banks to finance these projects without concern.
He added that the initiative also included facilitating all procedures and controls for granting loans to the owners of these projects, whether with regard to the required documents, financial statements, or facilities related to auditor requirements.
Azzam explained that this initiative has helped attract new projects that are financed through banks for the first time. It also alleviated the financial burdens borne by small and medium enterprises, which improves the creditworthiness of these projects, helps them obtain financing, and protects them from default.
He added that one of the main advantages of encouraging these projects is also to increase exports, establish new industries with products to replace imports, create more jobs, and reduce unemployment.
According to Azzam, there is always coordination between the FEB’s SME committee and the CBE officials in charge of SMEs to determine any problems that banks face in financing these projects and working to solve them.
Azzam described small and medium enterprises as the magic solution to eliminate the crises of unemployment and poverty, stressing that they are the economic sector most capable of providing employment opportunities for youth and eradicating poverty and unemployment.
“SMEs represent about 50% of Egypt’s total exports, about 75% of the GDP, absorb about 75% of the labour force, are able to provide affordable employment opportunities, reduce the need for capital or infrastructure, and have low establishment periods and speedy revenues,” he explained.
He stressed that the parties involved in the small- and medium-sized enterprise sector are working to support it, in view of its capability to advance economic development, pointing out that the CBE is at the forefront of these bodies.
He added that the rate of defaulting for small enterprises is limited, stressing that the proportion of commitment to repaying loans is up to 98%.
ABE’s SME funding reached EGP 17bn at end-2017
Elsayed Elkosayer, chairperson of the Agricultural Bank of Egypt (ABE), said the SMEs initiative adopted by President Abdel Fattah Al-Sisi with the CBE to funnel EGP 200bn to support the sector contributes to the achievement of sustainable, balanced, and continuous development.
He explained that launching this initiative encouraged bank lending to these projects, with an overall target of enhancing local industrialisation, improving productivity, and reducing the volume of imports. Elkosayer further pointed out that the initiative comes within the framework of state policy to support the local industry and put it on the map of global competition.
Moreover, he said the SMEs initiative is also an affirmation of the state’s interest in such projects, as they attract employment, provide one solution to unemployment, represent 75% of the GDP, and increase the participation of the informal sector in development.
The ABE chairperson explained that the CBE encouraged banks to expand in financing these projects by providing a guarantee to the Credit Guarantee Company, which will in turn guarantee the projects financed by the banks.
He added that the ABE’s SME financing reached EGP 17bn by the end of 2017, which accounts for 75% of the bank’s total loans, hence, stressing the bank’s interest in these projects.
He pointed out that the bank has many programmes designed to meet the needs of different societal segments, including women, youth, and farmers, in order to provide job opportunities and increase production rates, as the bank is a key partner in the country’s agricultural and rural development plan.
Suez Canal Bank aims to increase SME loans to EGP 1bn by end-2018
Hussein Refaie, chairperson of Suez Canal Bank, said that SMEs are the engine of economy, adding that major industries should be based on smaller feeding industries.
He pointed out that the initiative launched by the president and the Central Bank of Egypt to stimulate banks to finance small projects has contributed to revitalising the market and keeping the owners of industries and small enterprises away from the fluctuations in interest rates.
He explained that while interest rates in the Egyptian market after the liberalisation of the exchange rate soared to almost 20%, projects within the SMEs initiative remained at low interest rates ranging from 5%, 7%, or 12%.
He added that the initiative has also contributed to integrating many projects that operated in the informal economy into the formal economy, with a good opportunity for the owners of these projects to obtain loans from banks at low interest rates and receive eased procedures.
“Suez Canal Bank has recently begun to expand the financing of small and medium enterprises through the establishment of a specialised department to finance these projects,” he said.
Refaie added that the value of the portfolio for these projects at the bank reached EGP 480m, with plans for it to reach EGP 1bn by the end of 2018.
He stressed that the bank aims to expand significantly in financing this sector to reach the percentage decided by the CBE, 20% of total loans, by 2020.
Finally, Refaie pointed out that the bank recently signed a cooperation protocol with the Small and Medium Enterprises Development Agency to provide the necessary funding and support to the owners of these projects, adding that Suez Canal Bank also intends to sign an agreement with the Industrial Development Authority to serve project owners in different industries in cooperation with the authority.