Interview: Hisham Ezz Al Arab
How can banks be further incentivised to lend to small and medium-sized enterprises (SMEs)?
HISHAM EZZ AL ARAB: SMEs represent a great opportunity in the market, and while composing a large percentage of Egypt’s productivity, most operate informally without institutional banking support. The registration of SMEs and the support of such firms through specialised investment and capacity-building programmes would be a future growth driver for the banking industry.
In an effort to enhance the operation of SMEs in Egypt, there is a specialised unit at the Egyptian Banking Institute that aims to provide knowledge and management services, enhancing the financing environment and applying international best practices. Other initiatives that have been implemented to promote an enabling environment include: I-Score, a credit bureau that gathers data on companies and individuals; Nilex, which is an Egyptian exchange market for growing SMEs; credit guarantee schemes to compensate for the lack of collateral hindering SMEs’ access to finance; and raising entrepreneurs’ awareness and providing financial education through training programmes and events.
To what extent is there a need to meet growing demand for trade finance in Egypt?
EZZ AL ARAB: The opportunity for trade finance is large and growing. In fact, Egypt is expected to register the fastest growth in the MENA region in terms of both imports and exports, expanding its trade by 167% by 2026. Taking these figures into consideration, it is important to note that growth in trade finance always goes hand in hand with growth in trade, as trade finance supports 90% of global trade, creating a strong need for banks to meet the growing demand for it in Egypt.
The SME segment holds immense potential for trade finance. To meet this need, banks must launch funds to cater to the cross-border trading requirements of SMEs. The nature of their business differs significantly from that of institutional clients, putting pressure on banks to customise offerings and develop services to cater to SMEs’ unique needs. Although traditional trade products will always be in demand, especially in less developed markets, structured trade finance, supply chain finance and bank payment obligations are nontraditional products that are likely to grow significantly in the near future. Therefore, the regulator should enact laws to support e-trade and new instruments that are becoming more attractive in an era of economic instability. Technology is also key in enabling complex trade finance products. Banks should continue to invest in replacing their legacy systems with fully integrated, front-end to back-end platforms that would facilitate straight-through processing, ensuring efficiency and improving the customer experience. Banks should also focus on the cost and speed of trade to meet international benchmarks if they are to support their clients.
How would you characterise the scope for syndicated financing in the short to mid-term?
EZZ AL ARAB: The development of the Suez Canal Corridor is a key strategic development for the current administration, which has renewed activity in tenders for several ports and container terminals, as well as reactivated previously launched tenders for wind, solar and conventional power projects that are planned to be awarded in the fourth quarter of 2014. The government has also issued a list of projects expected to be launched over the next three to five years under the public-private partnership programme to ensure the provision of transport, waste disposal, water and other services to a rapidly growing population. Considering that the projects tend to be highly capital intensive and require not only local financing but also support from export credit agencies and international financial institutions, syndicated loans will be in high demand as Egyptian banks are not large enough for any one bank to meet such funding requirements. This is already the case for existing projects where funding requirements exceeding $100m are often met via syndicated loans, particularly when they are required in a foreign currency.
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