Chairman of Industrial Development and Workers Bank of Egypt (IDBE), El-Sayed Mohamed El-Kosayer, affirmed that small and medium enterprises (SMEs) development is a matter of national security. Therefore, intensive efforts shall be made to overcome all obstacles facing SMEs with banks and licensing authorities in Egypt. These enterprises are the backbone of development because of their ability to boost primary industries, reduce imports and create job vacancies.
El-Kosayer added in an interview with Amwal Al Ghad that the Bank’s strategy for this year aims at cutting 25% of non-performing debts portfolio that registered EGP 1.7 billion, increasing SMEs loans portfolio to EGP 500 million in 2012, boosting retail banking department through launching services and products to meet customers’ requirements.
SMEs in Egypt
El-Kosayer stated that all state’s institutions shall focus on financing and supporting these enterprises to make them able to achieve good growth rates. All banks shall allocate a part of their portfolios for SMEs. El-Kosayer also called on the cooperation between Industrial Development Authority and General Authority for Investment to grant long-term licenses for factories instead of the annual license that make banks uncertain if the enterprise will be licensed again. In addition, specialized authority for granting licenses and approvals and supporting SMEs is important to be formed through cooperating with Social Fund for Development (SFD), Industrial Development Authority and investment offices.
Basics for Developing SMEs
There are many important factors for developing these enterprises such as the electronic portal launched by Central Bank of Egypt which includes a data base for 36 thousand SMEs to survey the owners of these enterprises. CBE also studies exempting banks from the(RRR) reserve requirement ratio imposed on the indirect credit facilities including letters of credit and letters of guarantee. The Egyptian regulators also plan to allocate a fund to share with banks the investment risks of this sector. The Egyptian Credit Bureau “I-Score” also contributes in providing a database of credit information for SMEs and customers.
Risks
SMEs are usually personal entities. The financial statements of these enterprises are inaccurate and the managers lack competitive abilities and marketing skills, in addition to the difficulty of getting licenses, insurance coverage, services and facilities. These factors represent investment risks, but concerted efforts among concerned bodies can overcome these risks.
Expansion Plan
IDBE set a plan to expand in financing this sector, despite the shortage of deposits. The Bank decided to rely on other financing sources because the deposits portfolio growth moves slowly as it registered EGP 1.2 billion. The Bank signed at the beginning of this year finance contracts with value of EGP 180 million with Social Fund for Development (SFD) to finance physicians’ and pharmacists’ projects, debit current account, industrial machinery and requirements. In addition, the Bank studies getting finance from international institutions such as Deutsche Bank AG and Environmental Commitment Accord as world countries are paying attention to SMEs as being the backbone for development through creating job vacancies, supporting primary industries and reducing imports.
The Bank also set financing programs for physicians and pharmacists, programs for SMEs and training courses for workers in this sector in cooperation with a credit guarantee company.
The Bank’s SMEs loans portfolio registered 15% of the direct loans portfolio that registered EGP 2 billion and the Bank targets to increase SMEs portfolio to EGP 500 million by the end of this year.
The Bank’s Strategy
The Bank has set an ambitious strategy based on three axes. The first axe is focused on settling 25% of non-performing loans portfolio that reached EGP 1.7 billion. IDBE succeeded in negotiations with 90 customers out of 517 defaulters and settled EGP 350 million bad debts of 60 customers by getting EGP 60 million cash to boost the Bank’s liquidity volume, in addition to financing the gap of provisions.
The second axe is focused on expanding in financing SMEs and increasing SMEs loans portfolio by 150% to reach EGP 500 million during this year because these enterprises contribute in reducing unemployment rate and supporting primary industries.
The third axe is focused on increasing retail banking portfolio to EGP 150 million this year through launching new products as retail banking products attract a large segment of customers which will in turn contribute in enhancing the Bank’s image in the market.
This strategy will succeed if the security and political situations are improved in the upcoming period. The negative implications of last year’s revolution affected negatively cash flows for all projects, which made banks delay repayment of installments for tourism customers and reduce interest for spinning and weaving customers.
