Financing SMEs in Egypt: The Know-how and Procedures

As Egypt strives to boost its economic activity and raise financial inclusion, the government is working closely to allocate more funds to Small & Medium Enterprises (SMEs). The Central Bank of Egypt (CBE) is also pressing forward with the state’s policy, issuing regulations — the last of which came in February 2021 where the CBE directed banks to increase allocations to SMEs from 20% to 25% of their total loans portfolio to SMEs1.

Business owners are now widely encouraged to seek loans from banks and state bodies so that their business can grow and expand. In a reassuring move on financial stability, the CBE said in a recently issued report that Non-Performing Loans (NPLs) fell to 3.6% of total loans at the end of last December, compared to 4.2% a year earlier. Provisions for NPLs also decreased to 96% at the end of 2020 from 97.2% at the end of 2019. In addition, the loan-to-deposit ratio rose to 48.2% at the end of last December from 44.8% a year earlier. Moreover, the capital-to-risk weighted assets ratio increased to 19.5% in 2020 from 18.4% in 20192.

Despite these facilitations to make funds available and ready for SMEs, business owners need to strategically plan their business decisions and understand the paperwork required as well as documents needed to secure a bank loan.

To apply for a loan SMEs are requested to submit:

• All statutory documents of their company (including a recent commercial register – 3 months maximum).
• Tax card.
• Updated ID/s of the company’s owner/s.
• A certificate sealed by a certified bookkeeper that your company has been regularly paying due taxes and social insurance payments.
• Last three years of financial statements.
• A feasibility study and your business’s future growth plan.
• Filling in an application for a loan stating accurate and correct details and information about your business.
• A written letter of consent that allows the Egyptian Credit Bureau (iScore) and the CBE to gather needed information about your business.
• Sign the loan agreement with the bank, without the need for collaterals.

Banks provide two types of loans; short-term and long-term. Short-term loans come in the form of an unsecured overdraft to finance unexpected expenses, under the condition of repaying the loan over a short period of time. Long-term loans are paid off over a longer period of time, ranging from one to five years maximum. However, it is noteworthy that the interest rate of these loans is fixed at 5% annual decreasing rate payable in 5 years.

The only exclusion factor is that these loans are not granted to those working in the import industry. The reason being that they are designed to support local producers and suppliers, the purchase of equipment and machinery needed for production, and stimulate job creation.

Although banks continue to offer a wide range of financial flexibility in Egypt, there are other sources of financing for SMEs. Investors can apply for loans at state-run or private finance institutions that demand less restrictive guarantees. Funds may be sought directly from retailers, inviting other partners and investors to join your small project in exchange for capital, or through fundraising initiatives3.

There are a wide range of sectors that financing entities are interested in channeling their money through. In their process of assigning funds, they will assess how well such a sector is performing and the likelihood of it flourishing in the future.

For Small & Medium Enterprises to continue their profitable, and sustainable growth path, business owners have to carefully choose the right type of loan that meets their needs at the moment. Choosing the perfect timing for applying for a loan is also crucial in order to secure at the minimum costs that don’t undermine the future of your investment.

LEVERAGE will always be your insightful partner through the whole process of planning, managing, and securing funds so that your business can achieve growth, sustainability and profitability.