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IN DEPTH: New CBE measures support SME development - Daily News Egypt

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IN DEPTH: New CBE measures support SME development

Until recently, small and medium enterprises (SMEs) were Egypt’s long forgotten offspring. The Egyptian government did little to encourage their growth. Bankers saw them as a not lucrative and overly time-consuming. SMEs’ long struggle for respect in this town has, over the past year or two, began to bear fruit. Banks are finally ready to …


Until recently, small and medium enterprises (SMEs) were Egypt’s long forgotten offspring. The Egyptian government did little to encourage their growth. Bankers saw them as a not lucrative and overly time-consuming.

SMEs’ long struggle for respect in this town has, over the past year or two, began to bear fruit. Banks are finally ready to do business and the Egyptian government has also made concessions.

In that vein, the Central Bank of Egypt (CBE) recently announced it would allow banks to forget the 14 percent of total deposits in reserve they’re required to keep on hand. The reserves are there as a safety net, both for banks and clients, insuring that the lending institutions don’t overextend themselves.

The move was instituted in order to directly impact the SME market by SMEs.

In a latest move, the Egyptian Banking Institute (EBI), which operates under the CBE, has set up a division aimed at training local banks on how to set up their own SME programs.

“The new unit is helping local banks set up specialized department for such lending and is training banking staff on small finance schemes, Hala Al-Saeid, executive director of the EBI told Noozz about the new project.

One of the problems in dealing with SMEs is that there has long been a failure to set a common definition for what an SME is or even by what metric to measure it.

The CBE is newly making efforts in this arena, defining SMEs by sales. They must be in between LE 1 million and LE 20 million per year to qualify.

“Banks are increasing their penetration: Based on government directives, the CBE is building incentives for SME lending in order to generate organic growth, such as exempting banks’ SME funding from the reserve requirements.

“Furthermore, banks are broadening their mortgage activities, retail and also enhancing corporate lending, CI capital said in a memo to investors.

This is all part of an effort to loosen credit at a time when some see the economy as having hit rock bottom. With the mortgage and derivative problems of the US credit worldwide tightened up, and investors small businesses would-be home owners alike found it difficult to get the kind of bank loans they’d need to follow through on projects.

With the collapse of the credit market, which serves as the engine of the international economy, came the collapse of the global economic system.

As countries work to rebuild what they’ve lost, governments are looking for ways to loosen up the credit market. The CBE’s latest move is a prime example.

Banks were really starting to get into the business of financing SMEs up until the global credit crunch.

“And the way we looked at the SME is, said Akram Tinawi, director of commercial banking at Barclays, last year “we’re going to be struggling with all our competitors for a smaller piece of the pie, which is the last corporate, when the future is SMEs – not only for the country but for the banks.

This sort of interest in SMEs collapsed when they became viewed as too risky an investment in bad economic times.

The latest move by the CBE and the EBI may well change that.

Many banks have begun to set up their own SME division. As Tinawi mentioned, the field of elite investment opportunities is too limited for all the banks to compete on it.

So the major move by the CBE to push banks back in the direction of lending to SMEs is not only a righting of the ship, but it’s also an effort to boost the economy as a whole which relies on the success of SMEs.

SMEs are thought to represent up to 90 percent of the countries total GDP.

But because many SMEs are so unaccustomed to the culture of banking, it takes greater manpower by the banks to work on each account.

The return on investment, in other words, is lower than it might be with a big corporation that, even though it’s executing major banking transactions, doesn’t require the same kind of care and attention.

That banks and SMEs can have a flourishing relationship, bankers hope, will end up being a self-fulfilling prophecy. The idea is that as SMEs do business with the banks and grow, more of them will more easily engage with the banks.

Topics: FJP

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https://www.dailynewsegypt.com/2009/05/27/in-depth-new-cbe-measures-support-sme-development/
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