SMEs Portfolio To Represent 30% off AIB’s Loans by 2014

Hany Seif El Nasr, chairman & managing director of Arab Investment Bank, said the Bank’s strategy for the current year targets expanding in all banking operations and to post growth rate of 20% and in financing small and medium enterprises (SMEs) to represent 30% of the Bank’s loans portfolio in two years.

Seif El Nasr added in an interview with Amwal Al Ghad that SMEs are the backbone for development and a main factor for boosting production, advancement and employment rate and will have a positive effect on Egyptian economy. Therefore, the government shall play an effective role in boosting this kind of projects through removing the obstacles facing these enterprises including difficulties of licensing, lack of lands and the absence of facilities.

The Bank plans to increase its branches to 30 branches; 10 of which for Islamic banking so as to meet the increasing demand on such services. The Bank also studies launching unique savings instruments and car murabaha (Islamic finance) if it is approved by Central Bank of Egypt.

The Beginning

When Seif El Nasr chaired Social Fund for Development since nine years, it was important for him to understand the nature of SMEs and differentiate between its need for finance and its importance in improving national economy. Accordingly, he went to many countries where these enterprises had a very important role in contributed in developing their economies including Canada, Malaysia and countries of Eastern Europe so as to study their experiences and localize them in Egypt. These experiences proved that small enterprises represent the main basis for production and improvement in all countries, boost internal investment and create sustained jobs.

SMEs were the main reason behind the integrated recovery of European countries after the world war. In addition, the countries of Far East depended on SMEs for their fast recovery through establishing complementary and primary projects. These projects affected on the volume of production and growth rate.

Mechanisms

The Bank has set an integrated strategy to support these enterprises through offering finances to serious customers. Additionally, the financial bodies such as SFD have highly contributed in supporting and financing SMEs aiming at achieving sustained development. This was at a time where financiers were wary of lending these enterprises, although they proved to be the pillar for production, development and sustained jobs that will make economy and national growth surge.

SFD’s role is forming projects and providing non-financial services such as training on management and marketing so as to provide people with the needed skills to supervise these enterprises. Giving finances is not the main role of SFD; however, the Fund played that role as banks were reluctant to finance new projects.

Solutions:

There are many obstacles facing Egyptian youths in forming, operating, getting licenses and facilities for new projects. Therefore, there shall be specialized bodies such as SFD to support these enterprises.  The obstacles also include the absence of integrated plans for small enterprises and the high borrowing cost.

The Bank’s strategy is based on continuing the efforts exerted by previous administrations towards expanding in all sectors and achieving growth rate of 20% within this year. The strategy is focusing on SMEs and the Bank has the required mechanisms to expand in this sector including the chairman’s long experience in this sector which enabled him to recognize the obstacles facing financing these enterprises and the possible solutions to overcome these difficulties through offering financing programs suitable for all customers in this sector. This reflects the Bank’s belief in the importance of SMEs in developing the economy and that banks’ main role is financing these enterprises.

Therefore, the Bank formed an integrated sector for SMEs to offer loans with reasonable interest rates for customers suitable with the customer’s income and the nature and size of the project. This can be made through cooperating with concerned bodies including Ministry of Industry and SFD. This will result in an increase of loans portfolio and customers. The Bank is choosing customers carefully to avoid bad debts.

Important Figures

The Bank has recently formed a specialized department for SMEs. The portfolio is still small as there are less than 100 customers, however, the Bank has a strategy to expand in this sector and increase the volume of portfolio and customers. In addition, AIB targets providing medium business customers with studies and technical, technological and financial experiences to be large business customers.

The Bank targets to achieve growth rate of not less than 30% in two years. As Arab Investment Bank did not receive the required finance from SFD yet, the Bank depends on the deposits. However, the expansion plan made the Bank in need for SFD’s finances.