The Union of Arab Banks (UAB) is expected to soon complete a study conducted in collaboration with the World Bank seeking to monitor the results of initiatives launched by governments and Arab cental banks to encourage and finance small and medium enterprises (SMEs), according to Wissam Fattouh, secretary-general of the union.
Fattouh told Daily News Egypt that there are serious steps being taken towards supporting SMEs in several Arab countries, most prominently, Egypt, Sudan, Tunisia, Oman, Morocco, Iraq, and Libya.
The solution for many of the problems that Arab countries have been facing throughout the past three years will be financing SMEs starting this year. These enterprises will have positive impacts on fighting unemployment and achieving financial inclusion, said Fattouh.
The Studies and Research Department in UAB previously prepared a study about the status of SMEs in Egypt. The results of the study concluded that these enterprises face many legislative and regulatory constraints and limitations, in addition to financing constraints and an absence of mechanisms governing it, as well as limitations related to the sector’s abilities.
UAB’s study was issued before the latest initiative launched by the Central Bank of Egypt (CBE) in January 2016. The initiative aims to eliminate the financing problem SMEs are facing in Egypt; however, UAB believes that there are other larger problems than financing, related to the investment environment, Fattouh said.
He explained that these problems include licences and the length of time until approvals are obtained, as well as the multiplicity of the authorities dealt with. Other problems include marketing and the inability to compete with imported products and products of major national projects, as well as the weakness of the administrative, technical, and regulatory abilities.
“Developing SMEs has become a necessity and an essential cornerstone for restructuring Arab economies that are suffering from several distortions,” Fattouh said.
He added that SMEs have become some of the most important mechanisms to support economic, social and human development, and fighting unemployment in the Arab world.
Fattouh requested that the UAB enhance the banks’ abilities to evaluate the risks of financing SMEs. He also requested Arab governments to support financial administrations of SMEs through offering them trainings that involve the techniques for taking advantage of working capital and liquidity, as well as methods to improve the transparency and credibility of financial accounts.
Fattouh also stressed that establishing a database for SMEs is essential for facilitating their owners’ dealing with different authorities, as well as facilitating the process of dealing with these enterprises for banks.
SMEs are considered the backbone of economic development in developed and developing countries due to the importance of the role they play in fighting unemployment, and increasing the industrial added value, as well as supporting large national industries and improving the competiveness of the production sector.
He noted that these projects contribute to 80% of Egypt’s GDP, and they represent more than 90% of the private sector’s projects, making up 65%-75% of employment.
The volume of annual funding requirements of these projects working in the official sector in Egypt is $1bn, and only 5% of these projects deal with banks, according to Fattouh.
He noted that banks are racing to finance SMEs by injecting more credit into the sector and establishing specialised administrations to provide them with loans and stimulating credit facilities.
The National Bank of Egypt (NBE) plays a continuous role in financing these projects. The bank offered services that were provided for the first time in Egypt through the banking system, including financial and non-financial advisory services for SMEs, Fattouh said.
Banque Misr established a sector specialised in financing SMEs. It has also become one of the most prominent banks interested in microcredit in Egypt, he added.
“The strategy of the Industrial Development & Workers Bank of Egypt (IDBE) that supports SMEs is based on providing financing for them with facilitated conditions in terms of revenues and repayment, as well as facilitating required guarantees, in addition to providing a group of products and credit programmes that meet the needs of customers in the sector,” said Fattouh.
The Bank of Alexandria is considering steps to prioritise financing SMEs. It also provides special focus to micro-projects, he said.
Further, the Housing and Development Bank (HDB) have been involved in the field of SMEs financing since 2004, through the conclusion of a series of financing contracts with the Social Fund for Development (SFD).
Some banks have established administrations that are specialised in financing SMEs. Abu Dhabi Islamic Bank-Egypt (ADIB) launched a department specialised in this kind of work in November 2012. Bank Audi-Egypt launched a similar department in February 2011, Fattouh said.