CAIRO: “Access to finance is very important,” said Hanaa El Hilaly, general manager for the Planning and International Cooperation Group in the Social Fund for Development, at the Euromoney conference session on small and medium enterprise (SME) financing last week.
“SMEs are still seeking banks’ financing. There are 750,000 students graduating each year who are jobless.”
El-Hilaly explained that even though the money is available, it is not finding its way into SME accounts. She cited the banks’ funding of large corporate clients and the liquidity available for social funds as examples of this phenomenon.
Adham Nadim, executive director of the Industrial Modernization Center, said that there are many ways for SMEs to access finance.
“In addition to banks, there are NGOs and, of course, the social fund,” said Nadim. “The segments of the market which have a real problem are those SMEs with a turnover between LE 15-100 million. At this size, banks want too much documentation.”
Khaled Al-Gazawi, chief executive officer of the Agha Khan Agency for Microfinance, said that Egypt should follow the Jordanian model when it comes to SME finance development.
“Look at Jordan,” he said. “They started out with banks completely refusing to finance SMEs, but now we see they are fighting to [provide] micro-financing.”
Al-Gazawi explained that the investment climate is not changing. For this change to happen, the Egyptian markets need to have trust and the markets need a means to create this trust, he added.
According to Al-Gazawi, this trust could be established by service companies that are outsourced by banks for this specific task, as well as by funding agencies that provide collateral for short- to medium-term loans.
El Hilaly said that Egypt should be addressing access to finance via non-finance services — like licenses. It used to take months to finalize a business license and now, with one-stop shops, after one month a license becomes formal, she explained.
“We need feasibility studies, we need non-commercial services packages, and we need collateral guaranteeing the SME access to markets and better access to tools,” she added.
“We have to look at the other side of the coin, the ugly side,” said Al-Gazawi. “We have a department helping people register licenses. Out of every 25 we try to register, around 20 fail.”
SMEs learn how to run their businesses in a safe manner given that they operate in a country where it is common to find family businesses devoid of book keeping, said Al-Gazawi.
He added that the government is not helping entrepreneurs register, so people prefer to work outside the system in the informal sector.
“We need to know how to make enough profit and get clients and make deals,” said Al-Gazawi. “We need capacity building. SMEs need to know how to create their own business plans, instead of relying on others to do it for them.”
Nadim agreed with Al-Gazawi, saying that the government needs to create incentives and to provide assistance with legal procedures.
“The government is not helping small companies legalize,” said Nadim. “With all the mechanisms we claim to have — if they had been working — we would have abolished unemployment.”