Successive governments and central bank governors have highlighted the importance of extending credit to Egypt’s small and medium-sized enterprises (SMEs), and in early 2015 Prime Minister Ibrahim Mahlab declared a renewed determination to support SME growth in a speech which called attention to the funding difficulties faced by small businesses. Although lending to SMEs by Egypt’s banks remains at the incipient stage, an examination of the largest public and private players shows some encouraging signs of increased interest in this important segment of the economy. Fathy El Sebai, chairman of Housing and Development Bank, told OBG, “Central bank policies have helped banks to extend more affordable loans to SMEs, allowing them to price them 1.5-2% below the rates charged to larger entities.”
Services for SMES
All three of the public sector commercial banks offer dedicated SME services. The largest, National Bank of Egypt (NBE), has established an SME division with around 1000 personnel specially trained in financing and non-financing banking services for smaller businesses, and it offers short-term financing of up to a year and medium-term financing (five to seven years) at soft terms with respect to interest rates and guarantees. The bank is driving SME lending growth, most notably by its decision in 2012 to offer small-ticket loans to the informal SME segment as part of a strategy to deepen its SME portfolio and encourage such businesses to formalise in order to gain access to larger credit facilities.
The other public commercial banks are also playing a part in this process. Banque Misr offers financing of up to LE30m ($4.1m) for medium-sized businesses, with similar maturities to NBE, while small businesses can obtain packages of up to LE2m ($272,600). The largest private institution, Commercial International Bank (CIB), serves the SME industry through its business banking unit, and as of 2014 managed a portfolio of over 4500 retail companies. A relatively new component within the bank’s structure, the unit contains considerable potential, according to the bank’s most recent annual report, and, as a result, has had “significant resources” directed towards it.
Profitability
CIB’s move into the SME sphere has shown that an aggressive SME strategy can be profitable and more than a means to pay lip-service to the government’s call for increased credit extension to SMEs. The business banking activities of CIB contributed LE346.3m ($47.2m) in net profit after taxes in 2014, a 44% increase from the LE240.6m ($32.8m) in financial year 2013. Such gains are not easily won, however. In order to make the segment work for it, CIB has spent time and resources hiring relationship managers to serve the demands of SMEs and has even established a Business Banking Academy to train its employees in the necessary advisory services.
Increased Focus
Nevertheless, the other large private sector banks are increasingly focusing their efforts on the SME segment: QNB Alahi offers specialised advisory services in finance, trade finance and investment as well as medium-term credit facilities (up to five years); Faisal Islamic Bank, while not advertising specialised SME services, stated in 2013 that increasing its SME portfolio is a key objective due to the growing demand for SME services; Crédit Agricole has operated a dedicated SME division since 2006, and between 2011 and 2014 it increased its SME portfolio by a factor of six, to reach LE3bn ($408.9m); while National Bank of Kuwait caters to the needs of SME clients through its corporate division, offering facilities to fund areas such as working capital needs and trade finance.
A dedicated approach to SMEs is not yet ubiquitous in the market, with institutions approaching the segment with varying degrees of enthusiasm. But larger institutions, both public and private, are leading this important drive to finance the smaller businesses that are crucial to the nation’s economic wellbeing.
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