Promoting Access to Financial Services for Small and Medium Enterprises

Project Context

Small and medium enterprises (SMEs) are the backbone of a strong economy and create jobs for millions of people. Their capacity for innovation and their ability to adapt to an ever-changing business environment makes them a vital building block for economic growth and prosperity. SME are of particularly great importance in Egypt, which has long been the largest SME hub in the MENA region (Middle East and Northern Africa).

Yet, despite their substantial economic value, Egypt’s SMEs face a large number of challenges, including legal and regulatory issues, slow technology adoption, an insufficiently skilled workforce and poor financing options. Most especially, the lack of access to suitable financial products is dampening SME's growth. Only about half of all SMEs have a banking relationship and only one in five has access to credit. Securing formal financing often requires SMEs to undergo long and tedious procedures, causing many to resort to informal funding channels – like borrowing from relatives or friends, for example.

In spite of their considerable potential, SMEs have virtually no interaction with non-bank financial institutions (NBFIs) which offer services such as leasing, factoring, equity finance or insurance. The reasons for this include regulatory issues as well as obstacles on both the supply and the demand side.

Following the global financial crisis and the sharp decline in conventional lending that went with it, the volume of NBFIs entering the market has expanded greatly. Many governments around the world now recognize the opportunities for innovation and growth afforded by financial services outside the traditional spectrum. Building on this momentum, this GIZ project focuses on promoting non-bank financial institutions and the services they provide for SMEs in Egypt.

The project “Promoting Access to Financial Services for Small and Medium Enterprises (PAFSME) is part of a special initiative, designed to stabilize and promote development in North Africa and the Middle East, run by BMZ. It is a bilateral technical cooperation project, under the guidance of the Egyptian Financial Supervisory Authority (EFSA), with technical assistance provided by GIZ on behalf of BMZ. It has been established in January 2016 with a duration of 6.5 years.

Project Objectives

Financial services offered to SMEs by non-bank financial institutions (NBFIs) are strengthened, especially in terms of their positive impacts on employment.

Project Approach 

The project promotes the delivery of non-bank financial services to SMEs in Egypt at several levels. In cooperation with the Egyptian Financial Supervisory Authority (EFSA), which is responsible for regulating NBFIs in Egypt, the project is working to improve the regulatory and supervisory framework for non-bank financial services, with a view to incentivizing more NBFIs to provide SME financing. Moreover, it is strengthening the financial market infrastructure by developing and implementing training programs for NBFIs. Also, the project is working closely with Egypt’s Credit Guarantee Company (CGC) to enlarge its guarantee portfolio and improve guarantee models – the objective being to make SME financing safer and thus more attractive for NBFIs.

The project’s objective is to enable SMEs and start-ups in Egypt to access appropriate, need-based financial services by improving the framework conditions of the financial system. It brings together relevant actors of both, the public and private sector. The project is being implemented in four activity fields: (i) Improving the Legal and Regulatory Framework, (ii) Strengthening the Financial Market Infrastructure, (III) Developing the capacities of non-bank financial institutions (NBFIs), and (iv) Improving Access to Finance for Young Enterprises.

Working directly with selected NBFIs, the project provides strategic, operational and technical advice for the expansion of their SME portfolios. Moreover, with the support of the GFA Consulting Group, it is also co-developing innovative financial products in joint training sessions and workshops.

Yet another key area of activity concerns the promotion of finance options for startups and young entrepreneurs. In this connection, the project is helping to establish regional investor networks. This includes regularly organising events at which young entrepreneurs can present their business ideas to potential investors. What is more, by developing new insurance products and distribution channels in cooperation with Egypt’s insurance industry, the project is promoting the dissemination and usage of insurance products customised to SMEs and their employees.

The project is part of a special initiative designed to stabilize and promote development in North Africa and the Middle East run by Germany’s Federal Ministry for Economic Cooperation and Development (BMZ). Through the projects that make up this special initiative, BMZ is helping to open up economic and social prospects for people in the region. Within this context, an additional sum of more than EUR 300 million has been earmarked for projects carried out by GIZ and other implementing organisations in the period from 2014 to 2021. The thematic focus is on youth and employment promotion, economic stabilization, democracy and stabilizing neighboring countries in crisis situations.