The Central Bank of Egypt (CBE) decided to include the banks’ contributions to direct investment funds, which target small start-ups, under the micro, small and medium-sized enterprises initiative launched by CBE.
In a letter addressed to the banks, the Deputy Governor of the CBE, Gamal Negm, said that it was decided to add the banks’ contributions to these funds within the 20% ratio, the CBE had requested banks to direct toward SMEs of the total size of their loan portfolios.
According to Negm, this decision is aimed at encouraging banks to invest in direct investment funds targeting emerging small businesses, including angel investment, venture capital, and growth funding.
This is a continuation of the previous efforts made by the CBE to support micro, small and medium-sized enterprises and to seek to develop this vital sector.
According to the letter, there are several controls that banks will be committed to when contributing to the capital of those funds, including setting the maximum value of investment banks in the capital of those funds to not exceed 10% of the bank’s main capital.
He added that these controls also include that the bank’s share must not exceed 50% of the fund’s capital in order to avoid being included as a banking group, and to adhere to the capital adequacy standards and be above the minimum while committing to all internal capital adequacy controls (ICAAP).
The conditions stipulated that bank investments in these funds should be included in the leverage ratio, and that these funds should have the necessary license to carry out the activity from the Financial Regulatory Authority and are subject to its supervision as these funds are non-banking financial institutions. The main system of the fund must enable banks to exit when sought, especially if the fund does not achieve revenues for three consecutive years.
According to Negm, these instructions are effective from the date of issuance of this decision on 22 May 2019, and does not apply to any investments of banks in investment funds targeting emerging small businesses prior to that date.
