For those who want to see economic development and prosperity grow in Egypt, empowering small and medium-sized enterprises (SMEs) should be a national priority, experts agree. Egypt's SMEs account for more than 98 per cent of total companies and 80 per cent of employment in non-agricultural private enterprises. Given their importance, supporting SMEs was a main pillar in the electoral programmes of all presidential candidates. A good part of President Mohamed Morsi's “Renaissance Project” is dedicated to SMEs. It promises technical support, training programmes, financial tools and an improved legislative climate. In recent months, many announcements of support to SMEs have been made by international institutions, government agencies as well as the banking sector. Yet, SMEs in Egypt are well below their potential due to a number of obstacles. Access to finance and government bureaucracy are the main two challenges to SME growth, according to Wafaa Al-Arabi, owner of a small commercial shop. Al-Arabi stated that it is very hard for SMEs to obtain loans from banks. “I did not even try to approach banks for a loan due to the difficulty of the process as well as the loan's soaring interest rate,” Al-Arabi told Al-Ahram Weekly. Instead, Al-Arabi sought a loan from the Social Fund for Development (SFD), which is an organisation that supports SMEs through offering easy-term loans. However, for Al-Arabi obtaining a SFD loan was not at all easy. She described the conditions associated with the loan as “incapacitating”, including many requirements that anyone who is still starting a business would not be able to meet. In addition, receiving the loan takes time. It took Al-Arabi eight months to obtain her loan. “In other cases it takes longer than that, and it could be even rejected after such a period,” she said. Government bureaucracy and complexity of procedures needed for business registration is one big obstacle to SMEs, and it is also costly, says Al-Arabi. “Over 360 shops in my neighbourhood are not formally registered,” Al-Arabi says. She believes that the government should offer low-interest loans to SMEs and eliminate bureaucracy. Beside financing and bureaucracy problems, SMEs find it hard to prove themselves in the market. “It takes a lot of time and effort to prove yourself as an SME,” said Iman Sabri, founder of H Consultants, a body that offers training and coaching for individuals and corporations. This highlights the importance of SMEs' need for advisory services and support that should guide them forward towards expansion and achieving profitability. To Sabri, it is important to have a government agency that embraces SMEs and entrepreneurs. She said that this entity should meet regularly with entrepreneurs and learn about their projects. This agency, said Sabri, should have the capacity to support small projects and take them to a macro level. “It not about finance; entrepreneurs need to be heard,” Sabri said. Sherif Makhlouf, founder of Boost, a business accelerator, shares a similar view. He said that obstacles faced by SMEs in Egypt are the same as those witnessed in the developing world where government bureaucracy and a lack of access to capital are key issues holding back the progress of small businesses. He explained that in Egypt, the complexity of the registration process prompts small and medium businesses to shun the formal registration process. Some 80 per cent of Egypt's SMEs are not formally registered and consequently it is hard to make them bankable and investable companies. Makhlouf said that it is hard for banks to grant SME loans because they do not have a unified mechanism by which they can assess the risk associated with small and medium businesses. He ascribes this to the lack of data available in Egypt on SMEs, whereas in developed countries there is a credit rating system that assesses the ability of SMEs and individuals to pay back loans. Makhlouf added that some small businesses in Egypt reject the idea of loans because they consider interest rated as usury, which is religiously forbidden. “Some businesses do not take bank loans; however, they go for equity,” he told the Weekly. Makhlouf further pointed out that the debt model (bank loans) is not suitable in all cases. He cited the Internet and information technology (IT) projects as an example of projects that do not often achieve profits in the first five years and thus would not be able to repay a bank loan. A recent study conducted by the German Development Institute (DIE) in collaboration with the Egyptian Centre for Economic Studies (ECES), also identifies access to finance as one major constraint to SMEs. It states that micro-to-small enterprises find it more difficult than medium-to-large ones to apply for bank loans. Banks tend to lend to SMEs at rates higher than large enterprises, and require collateral that cannot be readily met. SMEs also find it difficult to obtain supplier credit and venture capital. The report also notes that although a stock exchange has been recently established for SMEs, NILEX, it is yet to gain further momentum. Moreover, the problem of access to credit is aggravated by the informal status that many SMEs hold. In reference to business development services, the study notes that the three main business providers (the SFD, the General Authority for Investment [GAFI] and the Industrial Modernisation Centre [IMC]) do not provide the services that are tailored to foster SMEs growth. The SFD supports micro-to-small enterprises under a rather limited budget which is mostly channelled to finance, as opposed to technical and training for SMEs in general. While supporting larger enterprises, GAFI also works under a similar constraint. As for the IMC, it tends to be more focussed on export-oriented medium-to-large enterprises than on micro-to-small ones. Another obstacle to SMEs growth is skilled labour. The study highlights that many SMEs complain of the mismatch between their demand for and the supply of skilled labour available on the market. “The inadequate level of education among SME entrepreneurs is an added problem with many of the surveyed enterprises not completing the full 12-year course of schooling.” The study replicated Makhlouf's view regarding the formalisation process of SMEs. It states that official documentation required for formalisation is lengthy, expensive and may be subject to a high incidence of corruption. “Combined, these factors often prompt SMEs to remain informal so as to avoid paying taxes which they consider to be a major constraint to doing business,” the study said. As a result, Makhlouf stated that legislative amendments should be done in a way that would encourage SMEs to formally register their business. In this regard, Makhlouf suggests that the Finance Ministry should offer SME incentives for formal registration based on an “incentive-penalty system”. This means that the ministry could exempt an SME from taxes for five years against its formal registration. Meanwhile, businesses that fail to register would be exposed to penalties. Makhlouf attributes the failure of many private and governmental initiatives to have a significant impact on SME development to the absence of one government entity dedicated to supporting SMEs. “There is no coordination between these programmes and many SMEs do not really know about them.” Makhlouf suggests that the government create a website that lists all the programmes designed to support SMEs, so people can easily know about them. “This is a measure that could be done immediately.” Makhlouf stressed the importance of SMEs in creating jobs. Given the current hard economic conditions and the high rate of youth unemployment, Makhlouf said that existing SMEs are the only way to offer immediate jobs. The government, he noted, should support such projects, especially during this delicate juncture, so as to increase their ability to expand and generate jobs.