Although the lending activity in Egypt has been growing, Egyptian banks continue to enjoy ‘large financial flexibility as the credit facilities to deposits ratio remains low at a mere 42%’. This figure is partially due to the fact that a minor portion of retail and corporate bases ‘actually have a creditor/debtor bank account’.
Recently, according to the ongoing reforms undertaken by President Abdelfattah Al-Sisi, aiming to boost economic activity and raise financial inclusion, the Central Bank of Egypt is working closely with banks, in particular state-owned (such as Bank of Cairo, El Ahli Bank, Bank of Suez Canal, Bank Misr) to increase SMEs credit keeping in mind that this segment represents ‘the backbone of the domestic economy’. In alignment with the program, the CBE obliged Egyptian banks to ‘give out 20% of their total loans portfolio to SMEs’. This is expected to provide 350,000 SMEs with EGP 200 billion within the upcoming four years at an interest rate of 5%. Moreover, the CBE in collaboration with EBRD and EIB, has availed funds to the banks to be ‘channeled unto SMEs and lowered requirements for SME loans’. The qualifying companies under the program are small and medium enterprises with annual revenues ranging from EGP 1 million and not exceeding EGP 20 million. The interest rate for the loans is fixed at 5% annual decreasing rate payable in 5 years.
In order to obtain the loan in Egypt, SME is requested to submit all statutory documents of the company, last two years’ financial statements, sign the loan agreement with the bank, and not provide any collaterals. The only exclusion is that the loan is not granted to those working in import, it is primarily targeted to support local producers and suppliers, purchase of equipment and machinery needed for production, and stimulate job creation.
Interesting to note that limited access to finance and high collateral requirements are the major obstacles to Egyptian enterprises’ growth, were noted by experts at the 20th annual Euromoney Conference in Cairo. The collateral required is approximately USD 2.7-3 for every borrowed dollar whereas elsewhere in the world it stands at the mark of USD 1.97. According to the World Bank Enterprise Survey, the value of collateral for SMEs in Egypt stands at 296-317% of the value of the loan compared to 203% MENA’s regional indicator. According to experts, ‘it is not an access to finance issue, it is a deficiency in institutional and policy components’ as the movable asset registry in Egypt is non-existent and cost of litigation is high.
The first step has been taken, the remaining, however, is yet to be seen. Regulation part of the story is still in embryonic stage with the first law regulating micro-finance services by non-banking institutions being introduced in November 2014.