New micro-finance initiative worth $2.8m launched in Egypt

Egypt’s micro-finance segment is gaining new momentum thanks to central bank and government initiatives

In August state-owned investment bank NI Capital launched a LE50m ($2.8m) micro-finance arm called Tamweely (Arabic for “Funding”) in conjunction with government-backed private investment entity Ayady for Investment and Development, and Cairo-based private equity firm Post for Investments.

NI Capital, a privately managed and incorporated subsidiary of the National Investment Bank (NIB), saidTamweely was part of its commitment to provide finance and capital mechanisms to bolster the local economy, with a focus on Upper Egypt and the Nile Delta.

The Tamweely announcement followed the May launch of a new micro-finance programme by the Central Bank of Egypt (CBE), which aims to extend LE30bn ($1.7bn) in funding to as many as 10m customers over the next four years.

The initiative is the result of collaboration between the Egyptian Microfinance Federation (EMF) and the Egyptian Financial Supervisory Authority (EFSA).

Eight banks are participating, including the country’s two biggest lenders, National Bank of Egypt (NBE) and Banque Misr; Commercial International Bank (CIB), the biggest private sector bank; and the Shariah compliant Faisal Islamic Bank.

Under the programme, the lenders will extend subsidised funding to three micro-finance companies and a further 752 institutions accredited by the EFSA, which in turn will offer loans and other financing packages to individuals and small enterprises.

Speaking to press at the plan’s launch, Hisham Ezz Al Arab, chairman of CIB and head of the Federation of Egyptian Banks, said the country’s banks need to make micro-finance a central part of their strategy and highlighted how technology would play an integral role in the plan.

Tarek Amer, governor of the CBE, reiterated the latter point at the same event, saying the central bank would look at rolling out a mobile payment policy for the initiative.

There are an estimated 7m mobile money users in Egypt, according to Amer, representing about 7% of the population.

Announced at the start of last year, the plan aims to increase SMEs’ share of commercial banks’ loan portfolios to 20% by 2020 – up from 5-10% currently – and mandates that interest rates for SME lending should not exceed 5%.

This is significantly lower than market rates, with the central bank’s overnight lending rate currently at 19.75%.

The new programmes should provide a further boost to what is already a rapidly expanding segment: micro-finance funding grew by 23% to reach LE5.5bn ($310.9m) across the first half of this year, according to the EFSA. Meanwhile, the number microfinance beneficiaries increased by 10%, reaching 2m by June.

Financing over the period was focused mainly on commercial enterprises, which accounted for 61.5% of funds extended, followed by the services sector (18%), agriculture (13%) and productive and crafts activities (7.4%).

EFSA figures show that the number of micro-finance institutions has grown significantly over the past few years, rising from around 400 in late 2015 to 787 today, with a total of 1500 branches (including head offices) countrywide.

The segment still faces challenges, however. Many micro-enterprises and SMEs do not carry out formal financial auditing and reporting, while high inflation and interest rates make offering credit cheaply unattractive to some institutions.

“SMEs undoubtedly represent the main engine of growth for Egypt’s GDP in general and the micro-finance segment in particular,” Amro Abouesh, CEO of Tanmeyah Micro Enterprise Services, told OBG.