CAIRO: In developing markets, often rich in growth but poor in formality, soothing investors’ worries can be a big business. At least, that’s what Coface is betting.
Following a decade and a half of limited presence in Egypt, the French credit insurer announced Sunday that it will move headlong into the local market with its purchase of Fiani & Partners, an Egyptian financial data firm. Coface, the world’s third-biggest credit insurer by market share, has worked with the Egyptian Credit Guarantee Company (ECGC) to insure Egyptian exporters since the early 90s. Until now, its ventures here have been relatively modest.
“Why is this the 65th country [to host Coface directly] and not the second or the third? asked General Manager Jérôme Cazes at a press conference. “It’s only recently that the Egyptian economy really accelerated. So that it’s now the type of economy you have to be in.
To secure its move here, Coface bought out 10-year-old Fiani & Partners, which owns the Kompass International business-to-business search engine. Fiani & Partners CEO Dorra Fiani will remain as manager of the new firm, Coface Egypt.
Cazes said Coface s plans in Egypt are threefold: Shore up its partnership with ECGC, bolster its data services – particularly in regard to credit ratings – and set up a system of factoring, also known as accounts receivable financing.
Factoring is a process whereby companies sell the outstanding debts of their customers at a discounted price to a third party or ‘factor’; the factor assumes the risk, and is often able to make a profit when the debtor pays them back.
Cazes said one of Coface’s goals is to expand domestic credit insurance in Egypt. “Domestic credit insurance is very strong in most countries, he said. “It’s not yet in Egypt.
He said one problem facing emerging markets is the difficulty of financing small and medium-sized enterprises (SMEs).
SMEs are generally classified by their number of employees: Though definitions vary by region. The European Union counts businesses of 50 or fewer as ‘small’ and 250 or fewer as ‘medium.’ The EU, the World Bank and other international groups have long recognized SMEs as vital but underserved catalysts for economic growth.
Cazes said one of the best ways to get money to SMEs is to inspire investor faith through facts and records. “The problem for SMEs obtaining credit is everyone thinks they are risky, he said, adding that an established system of credit ratings should assuage these fears.
Many SMEs run beneath the official radar, adding another hurdle. While it is difficult to get a definite gauge of the size of Egypt’s informal sector, it is undoubtedly ample. A government survey from the late 90s said over 80 percent of entrepreneurs operated informally.
One report from the Egyptian Center for Economic Studies said that while informal entrepreneurs are often deprived of the technology and finances that benefit formal owners, they still see government bureaucracy and taxation as sufficient motivation to stay put.
“One of the problems of Egypt is to push companies from the informal sector to the formal sector, Cazes said, “If you want to do this, you have to demonstrate that when you enter the formal sector you have advantages. More readily obtained credit is one such boon, he said.
Nancy Fahmy, a banking specialist at Beltone Financial, said there is a shortage of information on SMEs in Egypt because so many are unregistered. Banks often come in contact with SMEs through the supply chains of larger firms, she said. The Commercial International Bank, for instance, may finance a smaller parts supplier for General Motors.
“It’s something everyone considers an engine of growth, Fahmy said. “But they know nothing. They don’t have financial statements, they don’t have auditors.
Coface’s fortunes in Egypt are now staked in part on changing this. “We see the figures, and we see a new generation of managers which are very open to new credit management technique and new management technique. We think that what we have to offer would not have been understood five years or 10 years ago, Cazes said. “But now the time is right.