12:15 – 13:30 p.m. - Session III Session III: International institutions supporting SMEs Finance and Guarantee Programs Husam Abudagga

Introduction to Small and Micro Enterprises (SMEs) in Egypt SMEs are the main creators of New Job Opportunities SMEs account for more than 98 percent of enterprises Generate more than 85 percent of employment in non-agriculture private sectors, and 40 percent of total employment (as per the Promoting Innovation Project Appraisal Document (PAD)) SMEs are more likely to grow 3.5 times (measured by employment) than other enterprises. Despite their importance, SMEs are significantly more financially constrained than large firms, especially in developing countries. About 33 percent of SMEs report difficulties in getting financing, compared to 25 percent on average in other emerging countries. ( as per the Central Bank of Egypt)

Challenges to SMEs in Egypt Egypt has a very low business entry rate (as per the Promoting Innovation PAD, source IFA). Financial intermediation has been low in Egypt—SMEs often resort to alternative sources of finance, relying on personal savings and informal loans from family and friends. There is a lack of term funding. Access to financial services amongst micro businesses and households in Egypt is also very low. Non-financial challenges include lack of adequate business development services, insufficient know-how and low levels of advanced technology, managerial and marketing skills, as well as skilled labor.

Role of Non-Banking Financial Institutions (NBFIs) Weaknesses: the lack of SME access to finance is largely a consequence of weaknesses in the enabling environment for finance (e.g. weak credit reporting systems, collateral regimes). They need to invest in lending technologies and risk management mechanisms that are different than those applied for large corporations, as well as improve their understanding of this sector. Banks should offer a wider range of financial products to MSMEs that the enterprises would find relevant to their financing needs. It is important to follow a more innovative approach and identify new ways of attracting those smaller enterprises One way to mitigate credit risks is the use of credit guarantee schemes. Credit guarantees are considered to be one of the most market-friendly types of interventions to facilitate access to finance. There is evidence that credit guarantees contributed to more SME lending in the MENA region.

The World Bank Supporting The Credit Guarantee Company-Egypt (CGC) Traditionally policy interventions have included Credit Guarantee schemes (CGs). The Regional MENA Micro, Small, and Medium Enterprise (MSME) Facility, supported credit guarantee schemes as a tool to enhance MSME finance in Morocco, Jordan, and Palestine—and currently in Egypt. The World Bank Group conducted an assessment for the Egypt Credit Guarantee Company, documented in a diagnostic report. The World Bank Group brought over the former CEO of the Malaysian Credit Guarantee Company, through the facility as mentioned before; and as a matter of fact, as a result of this successful cooperation initiated by the WGB, we will be witnessing the signature of an MOU between CGC Malaysia and CGC Egypt later in the event. We are also supporting this specific event by bringing over experts and speakers to share their experiences.

The World Bank Supporting The Credit Guarantee Company-Egypt The main objective is to conduct a current state assessment for the Egypt Credit Guarantee Company to report findings and come up with transformational policy recommendations, as well as proposing corrective actions, taking stock of lessons learnt from the Malaysian Model Based on the results of the diagnostic analysis, a result-oriented development plan for the company has been developed; including the needed capacity building, training, technical assistance, and study tours for the implementation of the recommended plan and properly linked to a clear time frame. In addition to this, the World Bank Group and FIRST Initiative convened and provided secretariat support to a Task Force representing international associations of both CGSs and lenders to develop a set of Principles for the design, implementation, and evaluation of public CGSs for SMEs. (As previewed by Pietro Callice in his presentation earlier in the event)

Role of the World Bank in supporting SMEs generally in Egypt Out of the current World Bank portfolio in Egypt, US$ 600 million has been allocated to micro and small enterprise development of which US$ 300 million were fully disbursed through the Enhancing Access to Finance project that closed in December 2015— while the other US$300 million are allocated to the currently ongoing Promoting Innovation for Inclusive Financial Access project

Role of the World Bank in supporting SMEs generally in Egypt Two lending operations amounting to US$ 300 million each namely: The Promoting Innovation for Inclusive Financial Access project (effective since July 2014, closing date in December 2019); and The Enhancing Access to Finance for Micro and Small Enterprises project (effective since April 2010, closing date was in December 2015). Both operations, channeled through the Social Fund for Development (SFD), aim at expanding access to finance for micro and small enterprises in Egypt, through on-lending to eligible financial intermediaries. The on-going project (Promoting Innovation for Inclusive Financial Access) taps on innovative financing mechanisms, with a special focus on youth and women, as well as underserved regions. It includes a venture capital component. Due to its innovative nature, this project helps SFD with the setting up of the full infrastructure to activate this component.

Role of the World Bank in supporting SMEs generally in Egypt To date, the projects have been reaching out to a vast number of diversified beneficiaries which is evident in the Promoting Innovation for Inclusive Financial Access project outcomes: Total of 21 contracts with intermediaries amounting to L.E billion (US$ million); Total amounts disbursed to end beneficiaries represent 72 percent of the total project value; and the remaining 28% is yet to be disbursed to end beneficiaries The increase in number of female MSEs with access to finance which reached 32 percent. The current estimation of total number of jobs created is 78,449. Almost 50% of beneficiaries are catered for in the lagging underserved region of Upper Egypt. The commercial sector is considered the main sector attracting micro and small enterprises, with 69% of the projects operating in this sector. It is followed by the services sector with a share of 16% of the projects, as well as the animal production sector accounting to 10%.

Role of the World Bank in supporting SMEs generally in Egypt Both operations have been complemented by: advisory services, technical assistance, and capacity building efforts provided through the Egypt MSME Development Facility. It supports Egypt-specific activities that fall under the same pillars of the Regional MSME Technical Assistance Facility, providing technical assistance and advisory services under three pillars, namely: (i) developing the enabling environment for MSMEs through supporting policy, legal and regulatory reforms to facilitate their access to finance; (ii) providing advisory services to financial institutions that serve MSMEs to attain a more inclusive system, focusing on youth, women and regional disparities; and (iii) building the capacity of MSMEs through entrepreneur networks, mentoring, and business incubator-type services.

Role of the World Bank in supporting SMEs generally in Egypt Also, on another note further support is presented through the first fiscal stabilization, sustainable energy and competitiveness programmatic development policy financing. The proposed operation is built around three pillars, which are also the operation’s Program Development Objectives (PDOs): (1) Advancing Fiscal Consolidation; (2) Ensuring Sustainable Energy Supply; and (3) Enhancing the Business Environment. The third pillar is mainly concerned with the investment law and its implementation, financial inclusion, industrial licensing, and Competition Law amendments. This should end up enabling the economic/business environment for all types of enterprises including SMEs.

Role of the World Bank in supporting SMEs generally in Egypt- On Ground The loans to the SMEs especially micro-enterprises, have been a source of hope and a sustainable source of income that kept families going and helped parents secure money for the well-being and education of their kids; especially loans that were given to women whose men lost their jobs in the tourism sector. Giving youth hope of a better tomorrow. Promoting inclusive growth (Lagging regions, Women, Youth). It has been one of the focus areas, through both lending projects and the facility, to support startups and young entrepreneurs. We have supported the RiseUp 2015 conference, the Se3eidy Startup conference, and have been promoting the use of venture capital deals through the innovative component of the ongoing lending project (Promoting Innovation for Inclusive Financial Access.

Moving Forward WBG Solutions – The Bank will work with the GOE on opportunities to further improve financial inclusion in Egypt particularly in underserved areas. WBG will continue to provide advisory support for financial infrastructure development through drafting and enacting the secured transactions law and the creation of a moveable collateral registry. WBG will also continue to provide advisory services to private banks and MFIs; support access to finance through its international trade finance program (the GTFP); develop SME- specific instruments for banks and help increase their SME outreach through risk-sharing facilities or long-term loans.