A holistic overview of the CBE’s initiatives to impact the SMEs sector

SMEs fall between corporate and retail in the banking sector, El-Tahri explains

The Central Bank of Egypt (CBE) has been implementing a strategy to enhance the operational environment for entrepreneurship and enable access to finance for small- and medium-sized enterprises (SMEs). At a recent event on the vitals of the economy by Acumen Consulting, assistant sub-governor of the Banking Reform Sector at the CBE Nermine El-Tahri gave a rundown of the main initiatives taken by the bank to support SMEs. These initiatives were launched in December 2015 and activated in 2016.

“SMEs fall between corporate and retail in the banking sector,” El-Tahri explains.

Banks must commit
The first pillar in the CBE’s approach to impact the SMEs sector is that banks need to reach 20 percent of their loan portfolio within a four-year span to support the sector. A year later, this would also include micro-businesses.

The CBE had availed a moving target of LE200 billion to the MSMEs sector over four years and required the banks’ SMEs portfolio to constitute 20 percent of its total credit portfolio over that time span. One year later, the CBE decided to provide financing for medium-sized projects in the industrial, agricultural, new and renewable energy fields at “a rate of 7 percent declining for the purchase of equipment and machinery, and 12 percent for working capital financing,” according to El-Tahri. It further decided to grant facilities for small enterprises with an incentive rate of up to 5 percent.

The reform of banks
The second pillar is financing programs and tools that are achieved through the banking reform sector. This sector coordinates with different international donors and organizations to derive a financing mechanism for various activities and sectors.

Unified definitions
In December 2015, a unified definition for the SMEs was issued. However, it was modified in March 2017 in order to accommodate the economic consequences of the floatation of the Egyptian pound against foreign currencies in November 2016.

The CBE availed a moving target of LE200 billion to the SMEs sector over four years

In 2017, the CBE modified the definition of small enterprises in the agriculture field to include projects with a business volume of LE250,000, instead of the formerly set cap of LE1 million. It also combined financing to non-governmental organizations (NGOs) and monetary financial institutions (MFIs) to the mandatory 20 percent of the total banks credit portfolio.

Credit rating system for SMEs
Moreover, the CBE is coordinating with I-Score the Egyptian credit bureau to develop a credit rating system for SMEs and using guarantees to fund SMEs in the agriculture and IT sectors. “The creation of an Egyptian rating agency helps build an essential database for Egypt to understand how the market is performing,” El-Tahri says.

Building capacity
“The ecosystem of SMEs is not just banking and financing. Things such as exports and digitization are very important,” El-Tahri highlights.

Hence, the CBE is focusing on capacity building through capitalizing on trainers to optimize SMEs’ awareness via 4,200 youth centers across the country and training rural leaders through the National Council for Women (NCW). Another key pillar in the CBE’s approach is facilitating the operating environment through aligning between banks, organizations and the private sector to smoothen the access to funding sources.

This also includes improving the performance of employees in the banking sector and entrepreneurs. The CBE further aims to reduce risk by enabling credit guarantees, endorse consumer protection and corporate governance.

Raising awareness
The central bank is also working on raising awareness about entrepreneurship through sponsoring the Nilepreneur initiative, tailored to directly support SMEs through providing a proactive diagnostic tool in creating modules to provide those projects with non-financial services.

Tapping into the informal sector
Additionally, the strategy stipulates the expansion of the market share by capturing the informal sector and enhancing outreach, particularly to rural areas and under-served segments, as well as increasing the usage of technology for products and services delivery and process improvement.

Process to eliminate obstacles
The last pillar of the CBE’s approach is a ministerial decree to form a committee headed by the central bank to make recommendations on how to remove the obstacles facing SMEs.

Did the initiatives work?
Loans granted to MSMEs saw an increase of LE 40.6 billion in 2017 and the number of companies increased by 45,165 new companies in the same year. This brings the total number of supported MSMEs by the CBE to 61,508 in 2016 and 2017, at a value of LE67.6 billion.

The growth of MSMEs loans, as per data by the Central Bank of Egypt.

Entrepreneurship in Egypt is positively viewed, with more than 73 percent of Egyptians believing that it is a good career choice, according to a Global Entrepreneurship Monitor (GEM) report released in January 2017.

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