Ramsco's Women Empowerment Initiative Recognized Among Top BRICS Businesswomen Practices for 2025    Egypt, Elsewedy review progress on Ain Sokhna phosphate complex    Gold prices end July with modest gains    Pakistan says successfully concluded 'landmark trade deal' with US    Egypt's FM, US envoy discuss Gaza ceasefire, Iran nuclear talks    Modon Holding posts AED 2.1bn net profit in H1 2025    Egypt's Electricity Ministry says new power cable for Giza area operational    Egypt's Al-Sisi, Italian defence minister discuss Gaza, security cooperation    Egypt's FM discusses Gaza, Nile dam with US senators    Aid airdrops intensify as famine deepens in Gaza amid mounting international criticism    Health minister showcases AI's impact on healthcare at Huawei Cloud Summit    On anti-trafficking day, Egypt's PM calls fight a 'moral and humanitarian duty'    Federal Reserve maintains interest rates    Egypt strengthens healthcare partnerships to enhance maternity, multiple sclerosis, and stroke care    Egypt keeps Gaza aid flowing, total tops 533,000 tons: minister    Indian Embassy to launch cultural festival in Assiut, film fest in Cairo    Egyptian aid convoy heads toward Gaza as humanitarian crisis deepens    Culture minister launches national plan to revive film industry, modernise cinematic assets    Rafah Crossing 'never been closed for one day' from Egypt: PM    I won't trade my identity to please market: Douzi    Two militants killed in foiled plot to revive 'Hasm' operations: Interior ministry    Egypt's EHA, Huawei discuss enhanced digital health    Egypt, Oman discuss environmental cooperation    Egypt's EDA explores pharma cooperation with Belarus    Foreign, housing ministers discuss Egypt's role in African development push    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Sisi launches new support initiative for families of war, terrorism victims    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



High default rates, regulations challenge Egypt's SMEs
Published in Daily News Egypt on 02 - 06 - 2010

CAIRO: Default rates on loans handed out to small and medium enterprises (SMEs) reach 12 to 13 percent, said Khaled El-Defrawy, director of SMEs' Corporate Banking at the National Bank of Egypt (NBE).
“It is very, very important to be very clear and transparent about our lending. We don't want people to get the wrong message,” he said earlier this week at the SME Conference organized by Global Trade Matters.
The conference gathered bankers, finance experts and government representatives to discuss the SME sector in Egypt. One of the main issues raised was the mismatch of SMEs expectations and banking institutions' requirements for lending which can result in risky loans.
El-Defrawy gave an example with a recent client of NBE, a furniture shop owner, who took out a loan from the bank but failed to pay the installments for a year and a half. When approached by the bank, he explained, “It's the people's money and it's back to the people.”
“This is basically a message that was transmitted wrongly to the guy,” said El-Defrawy.
Ahmed Abu El-Saad, managing director of investment bank Delta Rasmala, also expressed concerns over risky lending or investment in SMEs.
“The culture of the entrepreneurs is the problem,” said El-Saad, explaining that Rasmala faced challenges when it tried to establish a fund for development of Upper Egypt. According to him, companies seeking funds were convinced those were ‘for free' and did not expect the commitments that go with seeking investment.
While developed economies usually report loan default rates of up to 2 percent, double-digit numbers are common for SME finance in emerging markets. European economies, however, are already seeing rates above 2 percent and the US SME agency, the Small Business Administration (SBA), reported this year a default rate of 11.9 percent on SBA loans for small businesses.
Risk factors
In Egypt risk is not the only factor averting financial institutions from funding SMEs.
El-Saad pointed out that the funds that SMEs seek “is a very thin number” that would not interest a larger institution.
“SMEs in Egypt are not bankable and I, as a bank, would not throw away my money,” said Mahmoud Abdel Latif, chairman of Bank of Alexandria. Although the bank does not have a clear rule on buying into SMEs, it does not pursue such deals.
Ashraf Naguib, CEO of Global Trade Matters argued that a small amount of funds (compared to asset management transactions) can make a very significant difference in the SME sector and banks should not ignore them.
“This is where the problem is. The person in the bank cannot understand the difference between a corporate and an SME. When he walks into a bank and says, ‘I need one million,' you look at him and say, ‘It's not something we are interested in,'” said Naguib.
The central role that SMEs play in the Egyptian economy and their number can be a very lucrative sector for banks, some experts at the conference pointed out.
According to statistics announced at the conference, 90 percent of the companies operating in Egypt are SMEs. They contribute to 80 percent of the country's GDP, employ two-thirds of the labor force, pay 32 percent of all salaries, and output 56 percent of industrial production in the country.
“This is not an amicable environment for SMEs. […] This size [of companies] does not flourish in this country in any respect: lending, capital financing, capital raising,” observed Basel El-Hini, managing director of Banque Du Caire.
“SMEs will not progress unless there's funding,” he said.
He explained that lending regulations are the most challenging to SMEs in Egypt. The Central Bank of Egypt (CBE) has set up regulations that require companies to submit three years of audited financial statements controlled by CBE-certified auditors in order to be eligible for a loan.
Most SMEs in Egypt do not follow financials and auditing and thus cannot qualify for a loan. The result is that only 20 percent of credit available in Egypt goes to such enterprises, despite their significant contribution to the GDP.
Regulations also have largely stifled the growth of Nilex, the Egyptian Exchange's market for SMEs.
“What needs to be done is promoting [Nilex] in a better way and relaxing some of the regulations.”
Trading on Egypt's Nilex begins June 3.
Leaders in the SME funding industry have approached CBE to de-regulate lending for the sector, but the bank has resisted relaxation of the restrictions on lending.
In El-Hini's opinion, efforts have to be streamlined and all stakeholders in SME funding have to come together for any change to take place. Many delegates agreed with this point urging for SME development to move beyond discussion into an action plan.


Clic here to read the story from its source.