The “dangerously low supply” of financing for small and medium enterprises (SMEs) in some parts of the world is hampering the global economy's ability to rebound, said Colyn Gardner, chief executive of The Management Center at the Bangor Business School of Bangor University. Gardner was speaking on a panel at the fourth annual Egyptian Banking Institute (EBI) conference, titled “SMEs financing: An integrated vision for the next era,” held in Cairo on Oct. 23–24 under the auspices of Central Bank Governor Farouk El-Okdah. In Egypt, much like in other countries, the SME sector accounts for more than 50 percent of the GDP as well as around 80 percent of the workforce, with 50,000–70,000 SMEs entering the market each year, thereby making it the crux of the national economy, Gardner said. Global economic recovery, in both emerging and developed markets, according to the world's leading economists, Gardner concluded, will largely rest on creating a supportive micro, small and medium enterprise environment (MSME). Against this backdrop, the EBI conference brought together 650 participants — although only 300 were expected — in addition to many prominent local and international banking experts. They gathered to present their views on how to ensure that MSMEs receive the financing required to bolster businesses, transforming them into aspiring national and international players and ensuring that they fulfill their role in driving the Egyptian economy forward within the international economy. Such an environment is not being engendered across the globe, he said, as banks have been shifting their focus from traditional to corporate banking over the years, meaning MSMEs are falling off the radar. Simon Thompson, chief executive of the Chartered Institute of Bankers in Scotland, provided a similar take, noting that during the “golden age” banks were originally focused on local clients, and bank managers had a strong bond with their borrowers. In the 1970s, banking shifted to become more transaction-oriented instead of relationship-based, thus breaking the intimate bonds that had been kindled between lender and borrower. Gardner affirmed this view, adding that traditional banking — or relationship banking — centers decision-making power at the local level, which is the model of banking preferred by MSMEs. Corporate banking, on the other hand, relies heavily on computer-based models — located in distant financial capitals around the world — to make decisions. As MSMEs prefer local level support, a rebirth of traditional banking will be key in creating an encouraging business environment for such smaller sized firms, and thus getting the global economy back on track, Gardner pointed out. Nevertheless, the global economic crisis, he noted, has accelerated the shift in focus toward corporate banking. Banks have ramped up their retail banking services by hiring managers with sales rather than lending expertise, leaving MSMEs floundering, with little financial support mechanisms. Thompson believes that a rebirth of relationship banking is nevertheless taking place. Yet, much of the talk emanating from banks to this effect has proved empty thus far. He highlighted several banks that now offer specialized SME services, but said their demands are still not being met. Smaller businesses, he contends, are still seeking “personal service,” a “named contact” point at local banks as well as decision-making power to at the local level. To recreate traditional, local-level banking, Thompson concluded that a new generation of bankers much be trained to serve SMEs. Emphasizing this contention was Robert Poldermans, an international expert in SME banking, who stated that although not necessarily alarming, Egypt's banking culture is “entrenched in corporate banking,” as the Egyptian banking sector views SMEs as expensive to service, “demanding and risky” due to their either “opaque” or non-existent financial data. Samira Khalil, executive director of Global Talent Intelligence Strategies, stated that in her opinion the lack of a concrete SME definition — an ongoing conundrum in Egypt — is preventing banks from feeling comfortable providing necessary financing to SMEs, which explains why banks in emerging markets, such as Egypt, have continued to focus on the top 1 percent of the banking pyramid — large, multinational corporations. Until now, the World Bank definition for SMEs, which takes into account sales data, number of employees and a firm's assets as criterion, has been the definition that has been widely applied. Yet, Khalil argues that using such a definition is “too restrictive,” as it fails to take into account local particularities of SMEs and their surrounding local context. In response, Lobna Helal, sub governor from the central bank, explained that her organization has already began the process of conducting a survey, targeting SMEs in Egypt — which began in 2010 and is expected to be completed in 2012, whose purpose is to develop a database to help construct a definition for an Egyptian SME, as well as allow banks to access the database. A new, local definition will allow the banking community to differentiate between Egyptian SMEs by sector. And though creating this definition is a critical issue, Khalil argued, much like several other speakers, banks must “tone down” their focus on commercial banking and create a specialized SME unit within their organizations as well.
