Promotion of Access to Financial Services for Small and Medium Enterprises

Project description

Project title: Promotion of Access to Financial Services for Small and Medium Enterprises
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Co-funded by: European Union
Country: Egypt
Lead executing agency: Financial Regulatory Authority (FRA), Central Bank of Egypt (CBE).
Overall term: 2016 to 2022

Context

Small and medium-sized enterprises (SMEs) are the backbone of a strong economy and create jobs for millions of people. Their capacity for innovation and their ability to adapt to an ever-changing business environment makes them a vital building block for economic growth and prosperity. SMEs are of particular importance in Egypt, which has long been the largest SME hub in the MENA region (Middle East and Northern Africa).

Despite their substantial economic value, Egypt’s SMEs face many challenges, including legal and regulatory issues, slow technology adoption, an insufficiently skilled workforce and poor financing options. The lack of access to suitable financial products is hindering the growth and expansion of SMEs. Only about half of all SMEs have a banking relationship and only one in five has access to credit. Securing formal financing often requires SMEs to undergo long and tedious procedures, causing many to resort to informal funding channels – i.e., borrowing from relatives or friends.

Even with their considerable potential, SMEs have virtually no interaction with non-banking financial institutions (NBFIs), which offer services such as leasing, factoring, equity finance or insurance. The reasons for this include regulatory issues as well as obstacles on both the supply and the demand side.

Following the global financial crisis and the sharp decline in conventional lending that went with it, the volume of NBFIs entering the market has expanded greatly. Many governments around the world now recognise the opportunities for innovation and growth afforded by financial services outside the traditional spectrum. Building on this momentum, PAFSME focuses on promoting non-banking financial institutions and the services they provide for SMEs in Egypt.

In collaboration with the Central Bank of Egypt, a strategy to improve banking supervision and regulation as well as financial stability and inclusion is being developed.

Objective

Improving financial services offered to SMEs by non-banking financial institutions (NBFIs) to promote financial inclusion and improve stability.

Approach

The project consists of five main areas of intervention, bringing together relevant actors from the public and private sector:

  1. Improving the institutional framework for financial-sector stability and financial inclusion. The project provides technical assistance to the Egyptian Financial Regulatory Authority (FRA) and the Central Bank of Egypt (CBE) to support their effort to enable a suitable legal and regulatory framework for an inclusive and stable financial sector particularly with regards to SMEs.
  2. In order to expand credit guarantee schemes and thus make providing financial services to SMEs more attractive, the project supports the Credit Guarantee Company (CGC) by enhancing its institutional and human capacities. Furthermore, it supports the Financial Services Institute (FSI), FRA’s research and training institute, in developing demand-oriented training programmes for NBFIs. This support extends to the Egyptian Banking institute (EBI), the training arm of the CBE, in developing and implementing a plan for the SME department.
  3. Developing the capacities of selected NBFIs. The project provides technical support at the individual and institutional level to selected NBFIs to help improve services to SMEs.
  4. Improving access to finance for young enterprises (startups). The project supports the development of risk capital investors such as angel investors and venture capital firms, which offer young entrepreneurs an alternative pathway consisting of mixed financial and mentoring support.
  5. Promoting insurance for SMEs and their employees. The project supports insurance providers in developing new insurance products and distribution channels to increase the uptake among SMEs and their employees.

Last update: March 2021