CAIRO: Egypt's Ministry of Finance launched last week a new loan scheme for government employees, with five local banks signing on to participate in the program. Banque Du Caire, Banque Misr, Nasser Social Bank, Misr Iran Development Bank and Bank of Alexandria are on board, with the Ministry of Finance being the main guarantor of the loans. Under the title “Realize Your Dreams,” the government will allocate LE 15 billion for the fund over the next two years. The scheme involves loans at an interest rate of 5.7 percent as well as an accompanying life insurance scheme. In a statement, Finance Minister Youssef Boutros-Ghali said that negotiations which lasted more than six months resulted in a number of conditions: monthly loan installments cannot exceed 30 percent of the borrower's monthly salary, will be extended at an interest rate of 5.7 percent including the insurance premium, and the payment period can be from five to seven years depending on the borrower's choice. According to Beltone Financial, the Ministry of Finance has established a fund to assume the risk of non-payment of the loans in case of dismissal or resignation. According to Ghali, the most important condition for receiving the loans is for the employee to be under a permanent contract. Ghali expects the loans disbursed through this initiative to range from LE 10 billion of new loans though June and up to LE 15 billion in the next two years. He gave an example to breakdown the numbers: An employee with a salary of LE 358 per month — which is the lowest government salary — can take out a loan of up to LE 5,000 to be repaid in five years and up to LE 6,300 to be repaid in seven. Employees will not have to deal with banks to obtain these loans, he said, in order to facilitate the process. Procedures for obtaining loans only require filling out a form at one of the cashiers where employees pick up their salaries; the cashier then sends the form to the bank for approval and within a few days the employee can receive the money on loan from the same cashier. The Ministry of Finance is reportedly drafting legislation in order to introduce this initiative to private sector employees. Ghali said the program will not be an added burden to the public budget, and that it aims to help government employees with their finance as well as enabling them to invest in small projects. For his part, Ali Moselhi, Minister of Social Solidarity, acting as the head of the Nasser Social Bank, said that the bank is keen on providing funding for small projects, adding that the most striking aspect of the new initiative is the simplicity of the loan procedures. Commenting on the insurance part of the scheme, Nabil Rashdan, assistant minister of finance, said that one of the benefits of the program includes life insurance for the borrower in exchange for a premium, with the insurance guaranteeing payment of the loan value in case of death of the borrower or total disability. Beltone Financial commented on the program, saying, “…we view it as a positive move by the government that will help boost domestic economic activity without adding any further burdens to the fiscal deficit, especially as such programs will directly impact growth in private consumption which has been, and continues to be, the main driver of real GDP growth in Egypt.” Mohamed Rahmy, researcher at Beltone, said that the strata of public sector employees which amount to around 6 million, when given access to additional financing, can use these loans to purchase goods, thereby increasing the level of private consumption. “These 6 million consumers will now be able to afford things that they might not have been able to buy in the first place, enabling them to receive loans for cars and real estate for example, ultimately increasing the level of private consumption,” Rahmy said. Commenting on whether the risks were going to be successfully reduced by the measures proposed, Rahmy said that the implied guarantee from the Ministry of Finance is an added guarantee for banks saying that the move is positive for banks as well as the employees, as credit lending from banks in Egypt is very low compared to other countries. Rahmy expects the loans to increase the level of credit in banks which he views as a positive step.
