Egypt Places Financial Inclusion First

With less than 40% of all Egyptians using the banking system, compared to the global 69%, Egypt has been widely embracing Financial Inclusion to expand citizens’ access to financial services. Egypt views Financial Inclusion as a means to boost overall economic development, support underprivileged households, and empower Small & Medium Enterprises.

In this regard, the state has made significant strides, since 2014, towards Financial Inclusion. The government made it one of its 2030 Sustainable Development Goals and is building a solid legislative ground to pave the way to a wider implementation of Financial Inclusion.

Here’s an overview to some of the issued laws:

1. Microfinance Law in 2014 to regulate microfinance activity.
2. Financial Factoring and Leasing Law in 2018 to extend further support to SMEs by facilitating access to financial leasing and factoring services.
3. E-Payments Law in 2019 to reduce reliance on cash payments and increase cashless transactions.
4. Consumer Credit Law in 2020 to regulate non-bank consumer finance company activities in Egypt.
5. SME Law in 2020 to attract unregistered MSMEs into the formal economy.
6. Central Bank and Banking Law in 2020 replacing the old law in 2003.
7. The Fintech Law (still in the making)

The Central Bank of Egypt (CBE) has also been supporting the state’s plan towards Financial Inclusion, issuing numerous regulations and initiatives. The latest of such initiatives came in February of 2021, when the CBE’s board of directors instructed the banking sector to increase allocations for MSMEs from 20 to 25% of their credit facilitations. The decision will result in pumping about EGP 117 billion to the MSMEs sector by the end of 2022.

The CBE also instructed banks to allocate a minimum of 10 percent of their portfolios for small-sized enterprises, which is expected to inject around EGP 55 billion for the sector by the end of 2022. Furthermore, the CBE also allowed banks alternative & innovative means to assess the credit worthiness of micro and small-sized enterprises (SMEs), particularly those whose annual sales record less than EGP 20 million, based on a number of operational factors without the need to depend on their financial statements.

The CBE has issued a number of initiatives since 2015 to finance SMEs at low interest rates¹. The initiatives resulted in providing EGP 213 billion in credit facilities to MSMEs, 81 percent of which were directed to 126,000 SMEs that work in the service, agricultural, and industrial sectors, while EGP 14 billion were dedicated to 900,000 clients in micro-size enterprises.

Egypt’s SMEs sector comprises 2.5 million businesses, which account for almost 75% of total employment workforce in Egypt². With the numerous initiatives the CBE has launched to support the private sector, funding is made available. Yet many SMEs are still struggling to access the finances that the initiatives provide, especially amid the current pandemic crisis. Ultimately, while funding is available, Banking & Non-Banking Financial Institutions require the comfort that funding availed will be used efficiently, safeguarded & generates adequate returns. The real challenge for SMEs is being able to successfully demonstrate just that.