CBE: Arab Economic Deterioration Stresses The Importance of Supporting SMEs

Lubna Hilal, deputy Central Bank of Egypt Lubna Hilal, said the economic deterioration was a key reason of Arab uprisings. However, these uprisings have posed other economic challenges, as growth rates retreated, revenues from vital sectors such as tourism declined, unemployment rates rose to 10% at the end of 2011, compared with 6% at the end of 2010 and Egypt’s unemployment rate rose to 12% at the end of 2011, compared with 9% at the end of 2010.

The deteriorated economy in many Arab countries drives these countries to support SMEs as they create job vacancies and do not impose high costs.

The difficulties facing these SMEs are lack of experiences and modern technology applications. In addition, feasibility studies are not applied by financial institutions and the legislative system does not encourage these projects to grow, Lubna noted.

Lubna added that CBE has played an important role in solving theses difficulties, as the regulator exempted banks from the 12% obligatory reserves on deposits that finance SMEs. In addition, the first database about 36 thousand SMEs is launched. CBE also share risks with banks, through launching a risk fund to protect banks’ from investment risks in SMEs. The Egyptian Banking Institute made a unit for training bankers, setting feasibility studies and offering programs for SMEs.

Because of having 90 thousand small and medium SMEs, Credit Bureau is offering credit ratings of SMEs to banks, so as to lessen risks.

CBE targets developing banks in Egypt by introducing modern systems as banking market represents 75% of the financial sector in Egypt. CBE has made many reform steps such as encouraging mergers and acquisitions and preparing banks to apply Basel II regulations. There are currently 39 banks in Egypt with total volume of assets exceeding EGP one trillion, compared with EGP 600 billion in 2004 and a capital base of EGP 82 billion, in addition to the increasing returns on equities that rose from 7.7% in 2004, to 14.3% in 2011.

Lubna Hilal stressed that all bodies shall cooperate to solve the difficulties facing SMEs. The state shall introduce legislative system that encourages SMEs. Local financial institutions shall provide the sector with technical support and experience. Hilal also emphasized on the importance of mutual cooperation with Arab countries over that matter.