In an interview with Al Borsa newspaper, Mohamed Hawary, GroFin’s regional investment director for the Middle East and North Africa (MENA), said that his company is looking to more than double its funding in Egypt to EGP 500m by the end of 2018.
He added that the size of the fund is $500m in Africa and the MENA region and that GroFin is looking to increase it to $700m in the next three years. GroFin operates in the MENA region through 4 offices and is looking to establish two more, in addition to opening another office in Brazil.
How much is the fund that GroFin currently manages in Egypt? Do you plan to increase it in light of the recent reforms that the government has implemented?
The investment portfolio in Egypt is very promising at the moment and is expected to more than double to EGP 500m by the end of 2018.
The size of the SGB Fund for Africa and the MENA region is currently $500m and is expected to increase to $700m in the next three years.
Investors contributing to GroFin’s financing are some of the largest development organisations and include the USAID, KfW (the German Development Bank), Shell Foundation, the UKAID, and the World Bank.
Are there specific sectors that your company prefers to finance?
GroFin’s financing is extended to all sectors, but we prefer to work in sectors with higher social returns, such as education, healthcare, agribusiness, and manufacturing, as well as key services (energy/water/waste/sanitation).
Do you only provide financial support to SMEs, or do you also provide them with business support?
Financial and business support must be provided to any project, especially since smaller entrepreneurs may not have enough experience to build and operate a formalised business.
The business support we provide is carried out by a team of experienced investment managers who assist in areas such as business planning to help young entrepreneurs start and run their businesses.
How much is the interest rate on the loans that GroFin provides? How long is the repayment period, and what is the maximum loan amount offered?
Our interest rates for SMEs are competitive, with bank rates and the repayment period ranging from three to seven years.
Loans start from $100,000 and top off at $1.5m for SMEs.
Banks usually prefer short-term financing, but we at GroFin prefer medium-term financing, which helps SMEs with working capital and the financing of necessary items, such as equipment/machinery, over longer periods.
The company’s cash flows are also monitored, and a moratorium of up to one year may be provided until instalments are required to commence.
How many SMEs has GroFin funded since operations began in Egypt?
GroFin has funded 14 SMEs since 2015, mostly in the industrial and developmental sectors, and we are looking to double that number by the end of 2018.
Does the company promote investment opportunities in Egypt through its network abroad?
Indeed, the fund that provides financing to SMEs in Egypt is the SGB Fund, which invests in those of them in Africa as which is funded by several well-known international investors.
What are the obstacles that face GroFin in financing SMEs in Egypt? What do you think a solution would be?
There’s more than one obstacle we face, beginning with that the regulatory framework, which isn’t mature enough to adequately support efforts by international financial institutions.
There is an urgent need for reviewing the regulatory framework in order to allow for increased funding for this sector.
The governing structure has been formulated and written more than 10 years ago and needs to be reformulated and made more adaptive to the present scenario.
Recently, the Egyptian government implemented a package of economic reforms covering the Investment Law, value-added tax, and industrial licences.
How do you think these decisions will impact the economy and the SME sector in Egypt?
The value-added tax legislation has been brought in to bridge the budget deficit, and it was a necessary step to be taken at this time. While the Investment Law is a good step, it is not enough.
Investors spend half their time solving regulatory problems and getting permits issued from governmental agencies. More important than issuing new legislations is reviewing the entire system that deals with investor-facilitating procedures as to allow investors focus on developing and growing their investment in SMEs.
The Egyptian market is promising, offers diverse opportunities, and hosts many creative entrepreneurs. It is also a mature market that has been supported by a banking sector for more than 100 years.
Egypt has a very well diversified economy unlike other markets in neighbouring countries that focus on certain resource-based sectors, like oil.
The Egyptian economy gives investors an opportunity to increase and diversify their sources of income. Besides, investors now prefer to work in diversified economies, as such markets spread risk across different sectors. This gives a competitive edge to the Egyptian market.
Is the initiative launched by President Abdel Fattah Al-Sisi to allocate EGP 200bn to support SMEs sufficient to help them?
This kind of initiative is certainly sufficient as far as financing is concerned, but banks alone do not have enough power to implement the initiative, and you need to think outside the box to aid such businesses.
The problem is that banks are used to receiving application documents that are prepared in a certain way. If the document is received in a different format or is incomplete, the entire application is rejected.
On the other hand, financial institutions like GroFin will support the entrepreneur as long as they have the intention and competence to set up a successful company.
We work with the entrepreneur step by step until his or her application is complete and becomes eligible to start the company and obtain funding.
The method by which banks manage the financing of small and medium companies is inadequate, considering that these companies are outside the framework of banks’ normal operations.
It is relatively more expensive for a bank to finance small businesses—working on a financing scheme of EGP 5m for a small company, for example, is less rewarding compared with another scheme worth EGP 1bn for a bigger company. It is normal for a bank to choose the project with the higher value and the higher return.
Does the company promote the idea of entrepreneurship and support small business owners?
Of course. Our focus on small business owners is the reason we provide business support along with financial support so that we can help entrepreneurs manage and lead their businesses better.
What is the difference between bank financing and that of international financial institutions?
International financial institutions are similar to banks in terms of the finance cost, but the disbursement is faster. Besides, international financial institutions are specialised in working with SMEs.
On the other hand, banks have been focusing on high-volume retail products for individuals on one hand, along with high-value products for large companies on the other, whereas small enterprises consume the same effort in implementing a business plan, but for a lower return.
International financial institutions, like GroFin, have greater specialisation and offer faster turnaround times in financing small businesses.
Funding can be disbursed within a maximum of two months if the entrepreneur is ready with all plans and documents.
What are GroFin’s goals in Egypt and the MENA Region?
Our main objective is to support entrepreneurs and small and medium enterprises and to increase the volume of our investments into such businesses, thus contributing to the employment of a large number of workers.
The employment crisis is the largest in the region, where millions of young people join the workforce every year.
The public sector alone cannot support the employment of such a large number of workers and must be supplemented by the efforts of the private sector that we are currently supporting with our investments.
Could you tell us more about the company?
GroFin specialises in providing financial and business support to SMEs and has been operating in Sub-Saharan Africa and the MENA region for 13 years. We have four offices in the MENA region, namely in, Egypt, Jordan, Iraq, and Oman.
GroFin is a multiple award-winning development financier with more than 15 years of experience in providing finance to SMEs. GroFin’s mission is to support growing businesses with a combination of the right finance and business support. The company has built a strong presence in 14 offices (South Africa, Zambia, Uganda, Kenya, Tanzania, Rwanda, Nigeria—Port Harcourt and Lagos—Ghana, Ivory Coast, Egypt, Iraq, Oman, and Jordan) where it has served the needs of thousands of entrepreneurs.
About Mohamed Hawary
Mohamed has more than 22 years of SME experience as an entrepreneur, consultant, and financier. Since 2015, he has been leading regional investment teams in Oman, Jordan, Iraq and Egypt. He received his Bachelor of Business in 1994 from the American University in Cairo and followed it up with a Master of Business from the same institute.