Arab Republic of Egypt
EGYPT: Access to Finance for SME
Workshop on Support for EuroMed
Industrial Cooperation
Milan – Italy
13 December 2011
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Contents
 Identify main Hurdles facing SME
 Importance of SMEs
 Definition and Regulatory Framework
 Institutional and Operational Framework
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Bank-based finance and SMEs
Venture and Equity Capital
Market-based finance (NILEX)
Micro finance
Leasing and Factoring
 Ahead: Strengthening SME and Access to Finance
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Identify main Hurdles facing SMEs
 No standardize Definition. Lack of formalization. Vulnerability to internal/external
shocks.
 Multiple stakeholders, no core champion. No sole national synergized database .
 On the demand side (companies): lack information about suitable financial products;
might find difficulty in assembling appropriate application to financing. 75% of SMEs
might lack the existence of solid business plans or strong accounting systems. Other
might have bad credit history or insufficient collateral, non reliable financial statements,
inefficient management leading to rejection by banks.
 On the supply side (banks): high administrative costs; high interest rates; inadequate
banking skills to deal with SMEs; credit concentration to well-established clients.
 Although the lending to SMEs grew by 19% in 2010; yet it still constituted 7.5% of total
credit to the private sector. This compares unfavorably with the MENA average of 24.4%
and global average of 31% . (World Bank: ICA).
 IFC 2010: Egypt Assessment of the Need of Micro and Small Enterprises: a conservative
figure of 2.1 million of Micro and Small do not have access to either working nor
investment capital
 Insufficient tapping of information.
 There might be gender related constraints in terms of access to finance.
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Importance of SMEs
With Special highlights on Industrial Sector
 95% of companies registered in industrial registrar
 30% of industrial land allocated.
 85% of industrial training programs.
 90% of clients of technology centers.
 70% of labor force.
 45% of total exports.
(the above is data of the formal sector only)
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Definition and Regulatory Framework
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SME Law issued in 2004, the definition with regard to paid-up capital/labor:
Medium:1-5 million L.E.-Small: 50,000 – 1 million L.E. (no more than 50 employees)
Micro: less than 50,000 L.E.
 Central Bank of Egypt Directives regarding promoting access to finance to SME,
effective early 2009.:
 Banks that provide loans or credits to SMEs, are exempted from the required provisions, in
accordance to the percentage offered , to encourage SMEs lending.
 (on Supply Side): A specialized Unit is established at the Egyptian Banking Institute (EBI)
mandated to provide studies and technical assistance to banks and staff providing finance to
SMEs.
 (on Demand Side): Importance of coordination with relevant stakeholders to enhance SMEs
capacity regarding accounting standards, financial statements, banks applications...etc
 Strengthen the institutional infrastructure to financial banking services to SMEs, e.g. credit
bureau, credit rating, credit guarantee and insurance companies.
 Review related rules and regulations to streamline better access to finance to SMEs.
 Other later stipulations were introduced to impose a rule that banks should provide a
percentage for SME loans into communities where deposits are originally acquired, for better
geographic access.
Institutional and Operation Framework
1 – Bank-based Finance and SMEs
 The number of SMEs applying for loans over the past five years has been increasing;
and the rejection rate reported by banks has been declining recording average 25%
 Although the majority of banks offer standardized products; yet one third of banks
offer tailored financial products to SMEs
 The average loan for SME is 1.5 million L.E., average payback is 3yrs.
 An important initiative has been launched to provide more efficient Banking Access
to Finance to SMEs in Egypt. The task has been carried out by the Central Bank of
Egypt, in collaboration with the Egyptian Banking Institute to bringing the two sides
together.. the SME (demand side), with the banking sector (supply side). Under
which, a Census has been completed nationwide, to construct a reliable geographic
and Sectoral data base with the aim of sound coverage and access to finance with
outreach perspective… The findings will be disseminated early 2012.
 The interest rates might be higher than other peer countries; yet current discussions
are ongoing to lower cost of credit to SMEs
 Credit Guarantee Company (CGC), is established 1991, to encourage banks to deal
with MSME by guaranteeing part of their risk against reasonable fees.
 I-Score is an established private credit bureau in 2005, to allow for providing credit
information, for credit scoring, which would foster access of credit for both SMEs
and micro finance.
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Institutional and Operational Framework - 2
 Cadastre for non-movable assets is highly facilitated by the issuance of the new Real
Estate Law (easy and low cost registration). A regulatory system for moveable assets is
being prepared including the establishment of collateral registry.
However, It is noted that the value of SMEs liabilities compared to fixed assets is 9% which
is low indicating their preference to sources of finance: either equity or internal finance
reinvest of profits, rather than bank based finance. Hence…
 A Venture Capital Committee has been established in 2008, to spur venture capital
funds to potentially growing SMEs. Two equity financing Funds established: one at
Ministry of Finance and the other at the General Authority for Investment (GAFI).
 “Bedaya” Center at GAFI acts as the catalyst and facilitator for both financial and nonfinancial needs for SME. An Equity Fund has been established with 1 billion L.E. to
support SME, with graduation and exit strategy, e.g. what is related to listing in
NILEX. More that 60% of portfolio is directed to rural areas and under developed
governorates.
 The NILEX established 2007, capital market venue for SME, is attracting opportunities
for venture capitalists and private equity firms. With no restrictions on foreign
participation, nor repatriation of dividends or capital gains.
 In November 2011, decree 81 was issued to facilitate listing and trading for SMEs,
and to activate NILEX transactions.
Institutional and Operational Framework - 3
 Micro Finance mainly through the Social Fund for Development – SFD and
NGOs. A US$300 new line of credit is collaborated between a number of
international institutions and SFD to bridge the gap on the demand side, which
might reach 90% unmet demand.
 New micro finance products have been designed to meet the needs of MSMEs,
especially female owners in rural areas.
 A new law is being drafted to regulate micro financing companies, which will
be put under the Egyptian Financial Supervisory Authority.
 A Certified SME-Banking Training Course is being developed by the Egyptian
Banking Institute (EBI), in collaboration with SFD, and working with initiatives
and Micro Finance Institutions (MFIs)… outreached to provide access to finance
to MSMEs in six governorates through SFD.
 Leasing is regulated by the Egyptian Financial Supervisory Authority (EFSA), with
portfolio LE 30 billion, 267 registered leasing companies. Currently EFSA is
reviewing Leasing Executive Regulations to promote leasing targeting more SME.
Factoring is also regulated by EFSA, the law became in application in 2009 mainly
targeting SME.
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Ahead: Strengthening MSMEs and more Access to Finance
Better access to finance is necessary to foster MSME growth, but not sufficient to
increase economic sustainability and socio-political stability
 Currently working on establishing Steering Committee at the Council of Ministers
(national strategy/census – develop MSME incubators – enhance clusters - promote
inward/backward linkages with bigger enterprises – enhance entrepreneurial ship,
strengthen female owned enterprises..etc.)
 Encourage and incentivize informal into formal (new project for formalization:
streamlining procedures for entry - access to finance - access to land with utilities- TAtraining – taxation- access to markets)
 The Council of Ministers and the Central Bank of Egypt identifying and mandating
potential candidate for specialized SME bank(s) in Egypt.
 Enhance Technical Assistance for bankers in MSME financing, with special emphasis
on a number of potential governorates, and priority sectors
 Attract low cost funding for MSME, and reduce lending risks.
 The establishment of Specialized Economic Courts is a positive development to
improve access to finance, yet more legal reforms are underway, e.g. bankruptcy law.
 Develop SME Rating system and registry of movable assets (issue the law of secured
lending; and finalize establishment of the first collateral registry for movable
assets..)
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Ahead: Strengthening MSMEs and more Access to Finance-2
 Issue Microfinance Companies’ law, to allow for licensing, establishment of commercial
MFIs, providing consultation, in collaboration with EFSA and SFD.
 Effectuate Micro lending through SFD and EBI, support Microfinance Network, with
potential branches, and help microfinance to integrate into credit bureaus.
 Promote venture capital and equity funds operations, based on public-private
partnerships to ensure sustainability.
 Activate innovative financial products: Islamic finance, financial leasing, factoring,
venture capital, and equity funds…etc.
 Enhance Business Development Services (BDS) : SFD – GAFI – EBI – IMC.
 Develop entrepreneurial and banking culture among SME and youth (courses and
simulations in universities – support start-ups through business plan competitions –
mentoring and incubator programs – introduce entrepreneurship curricula in secondary
and university levels – support university internship programs – develop banking
products for youth – involve the private sector in elevating standard of vocational and
post secondary education)…etc.
Indeed, a lot has been achieved; yet the road ahead is still full of potentials.
Thank you
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