Sherine Nasr reports on an ambitious plan to support Egypt's strategic, but cash-strapped, micro-enterprises The Central Bank of Egypt (CBE) in concert with donors has launched a five-year national strategy aimed at providing financial services for Egypt's sizeable yet still fragile micro- enterprise sector. The plan announced at the beginning of the year is entitled "A National Strategy for Micro- Finance". It aims at diversifying sources of micro- credit lending and expanding the base of recipients benefiting from such credit. The "strategy" which was released in the form of a report is funded by the UNDP (United Nations Development Programme), USAID (the United States Agency for International Development) and Germany's government-owned German Development Bank (KFW). The CBE will be involved through its affiliate, the Egyptian Banking Institute (EBI). Funding Egypt's small and micro-enterprises has remained chronically precarious despite the fact that the national economy has the highest number of active micro-finance borrowers potentially constituting the Arab region's largest loan portfolio. Several banks and NGOs have recently become involved in micro-finance but access to financial services by poor and low-income households is still short of what is needed. According to Gada Waly, assistant resident representative at the UNDP, the majority of banks refrain from extending financial services to the poor. "They believed they were a high-risk group, and owners of small enterprises in turn do not resort to the banks to fund their projects. They don't have the collateral needed to repay their loans." Egypt's micro-enterprise sector generates approximately 75,000 jobs every year. The largest concentration of employment in the informal sector is in enterprises which hire one to four workers. These account for almost two million workers which represent an approximate 60 per cent of the private, non- agricultural informal sector's workforce. Although credit coverage doesn't reach more than 10 per cent of virtually all Egyptian governorates, banks and NGOs say that they face considerable difficulty in accessing new clients. According to the newly-devised strategy the main reason is that the funding for micro-finance products and services has remained limited to conventional sources of lending such as individual and solidarity group -- lending. All this can change if financial institutions opt to utilise the untapped potential of Egypt's micro- finance sector. Extending loans to small enterprises is also a good way to diversify any bank's portfolio. According to Waly, the new strategy will target the "economically active poor, meaning those who are not destitute". "These individuals include [those engaged in] the micro- enterprise sector as well as the vulnerable poor who are employed in low-salary jobs." said Waly. "Both are excluded by the formal financial system." The objective of the recently- announced strategy will also be to develop a micro-finance industry which provides sustainable financial services to small businesses. Whether such a strategy will be successful will depend on the extent to which "non- conventional" financial institutions will be willing to become involved in funding such enterprises. According to Waly such institutions can include "multi-purpose banks, credit-only financial institutions, non-governmental organisations, cooperatives and others". The larger part of Egypt's small enterprise sector is comprised of projects providing stable and unstable means of livelihood. More than 93 per cent of such establishments are micro-enterprises employing less than five workers. Of these 58 per cent are engaged in trade-related activities, mostly of household commodities. Surveys indicate that over three quarters of micro-enterprises, equal to 80 per cent, apply for loans to buy working capital goods and services. This is followed by loans used to purchase machinery and equipment. The Social Fund for Development (SDF) currently provides low-cost financing for micro-enterprises through its own funds in addition to government appropriations and donor grants. The National Bank for Development (NBD) and the Principal Bank for Development and Agricultural Credit (PBDAC) also offer micro-lending services. Banque Du Caire (BDC) and Banque Misr (BM) also recently entered the field of micro-lending. These are public-sector banks, however. Most private commercial banks are reluctant to provide funds to the micro-sector regarding it as either too risky or a "developmental" function restricted to NGOs and public sector banks. Financial institutions may also be hesitant to fund the micro-finance sector because it lacks the needed legislative and regulatory infrastructure. Lacing as well is access to reliable and up-to-date market information on the financial service needs of the poor as well as clear industry standards. The strategy stresses that micro-enterprises will best be served when they have access to a wide range of alternative services at competitive prices, and the relevant data on which to base their choices. "These objectives will be achieved if there is a free market for micro-finance, with multiple, competing providers who are able to deliver services which respond to the clients' needs," Waly said.
