Efforts to Support Micro and Small Enterprises
In the wake of the January 25th Revolution in Egypt, it has become increasingly important to support sustainable job creation for the millions of Egyptians who were demanding such opportunities in Egyptian squares nationwide. The process of responding to this demand entails creating equal opportunities and a level playing field in a way that moves from privilege to competition in general. The World Bank is keen in providing support to the Egyptians to fulfill the growing need for job opportunities and equal access for all, ultimately contributing to sustainable economic development.
Micro and small enterprises have enormous potential to create these much-needed employment opportunities for Egypt’s youth population. Encouraging entrepreneurship as well as providing sources of sustainable and inclusive access to finance is a crucial ingredient towards achieving this goal. A recent Bank publication, entitled, Finance and Economic Growth in Egypt revealed the following: credit growth to the private sector declined to less than 7%; almost 30% of the firms consider access to financial services a severe constraint; and only 17% of firms have access to finance from the formal financial sector, with the problem being more severe for small enterprises, where only 12% have access.
The Bank, in partnership with the government as well as a variety of stakeholders including NGO’s, banks, and micro and small enterprises, has been supporting the financing needs of micro and small businesses through the Enhancing Access to Micro and Small Enterprises Project. At this critical time for Egypt, our efforts in this sector are essential because this is an area where immediate results can be achieved on a number of fronts—access to finance can increase employment, contribute to gender equality, and reduce poverty in a very tangible way.
The $300 million Enhancing Access to Finance for Micro and Small Enterprises Project aims at contributing to sustainable improvement in inclusive access to finance micro and small enterprises. The three-tier lending operation provides a line of credit channeled through the Social Fund for Development (SFD), the apex institution for micro and small enterprise finance in Egypt, which then on-lends to eligible banks and microfinance NGOs. They in turn, on-lend it to micro and small enterprises. The project aims to increase these enterprises’ credit sustainably and broaden the outreach of finance through innovative delivery mechanisms and financial products.
Following the January 25th revolution, the need for jobs and alternatives to jobs in sectors hit hard by the revolution became even more pressing than it was when the operation was designed. Even prior to the Revolution, Egypt had one of highest unemployment rates in the regions and one of the lowest economic participation rates of women among developing countries. After careful consideration and consultations with Bank management, the decision was made to try to find prudent ways to accelerate disbursement that did not, in any way, affect the quality of the portfolios being financed. Accordingly, the team worked closely with the various stakeholders to respond to the nation’s demands and the efforts exerted led to the speedy development of the project, which began disbursement in April 2011. To date, approximately 30% of the funding has been withdrawn from the Bank to SFD. Of that amount, almost LE 186 million has been disbursed to end beneficiaries in the form of 1300 micro loans and 3000 small enterprise loans. Supporting female headed households was an important sub-component of the operation and, on average, 25% of the beneficiaries have been women.
Extensive consultations began between the Bank, SFD, and all key stakeholders in the MSME. These consultations helped identify and address bottlenecks faced by micro-small enterprises and microfinance NGOs. Furthermore, the World Bank led the donor effort to jointly develop an MSME Action Plan to address key institutional and regulatory reforms needed to create a more conducive environment for existing MSMEs, as well as start-ups. The four pillars of the plan focus on MSMEs’ development, access to finance, regulatory, institutional and business reform and entrepreneurship development, and the major objectives of the plan include: (i) identifying a micro, small, and medium enterprise (MSME) champion to ensure effective coordination and harmonization of efforts; (ii) supporting the establishment and growth of SMEs through training and business development services; (iii) providing incentives for MSMEs for growth and formalization; (iv) creating a conducive MSME regulatory and business environment; and (v) developing the entrepreneurial and banking culture among youth.
Post-revolutionary Egypt is moving towards a new vision of society; one that offers more equitable opportunities and active participation to all of its citizens. Attaining a level-playing field for micro and small enterprises is critical. It is essential to advocate removing constraints to competition and enable a new generation of entrepreneurs that are oriented towards competing in global and domestic markets, to emerge. Consensus must be built for a new, more just path to sustainable and inclusive economic growth and this is an area the Bank is eager to partner with the Egyptian authorities and stakeholders on developing and supporting.