Welcome to USAID Egypt

Economic growth projects in detail
Q&A: USAID's Small and Micro-Enterprise Lending Programs in Egypt

United States Support to Small and Micro-Enterprises in Egypt: Questions and Answers

U.S. Agency for International Development in Egypt
Adapted from USAID/Egypt Director Kenneth C. Ellis’ interview with Nile TV
January 2004

Click link to skip to:

SMEs: A priority

Supporting Egypt's strategy

How it works

Strengthening the financial industry

Accomplishments to date

Training and technical assistance

Future of the program

1. Given the size and scope of U.S. economic assistance to Egypt, why has the U.S. set as a top priority its assistance to Egypt’s smallest businesses?

Small and micro-enterprise development has for many years been of great interest to the U.S. Government and the U.S. Agency for International Development, USAID. U.S. assistance is directed at lower-income entrepreneurs, and particularly women, with the goal of giving those groups the capital that they need to start and build productive small and micro businesses.

It might not be immediately apparent how important small enterprises are. The category of small and micro enterprises, or “SMEs,” refers to businesses that employ up to 10 workers or as few as just one worker. You can think of a business in the traditional sense, but this category also includes any income-generating activity. These are mostly individually owned, local businesses that are little known outside of their communities. But they are absolutely crucial to providing jobs and income for Egyptian communities.

This type of enterprise, the SME, represents 98 percent of all the privately owned economic units in Egypt. These SMEs provide about 80 percent of private-sector value added. Jobs at SMEs make up more than two-thirds of Egypt's entire labor force; and if you set aside agriculture and public-sector jobs, SMEs make up three-quarters of the workforce. So while SMEs are small in size, they are large in number.

The United States has placed a high priority on assisting SMEs because they provide a high rate of return. Providing a relatively small amount of assistance to a small or micro-enterprise produces quick results that are high in proportion to the initial funding: The business expands and hires new employees, who bring wages to their households and increase their purchasing power, leading to a spillover effect for other local businesses. This is a way of invigorating a local economy from the grassroots up. It’s one of the most important investments any country can make to ensure stable and equitable economic growth.

2. How does USAID’s Small Business Development Program support the Government of Egypt’s overall strategy for development?

As with all USAID activities, we began assistance to small business only after first consulting intensively with the Government of Egypt to identify mutual goals and shared approaches to achieving them. Small business support is particularly attuned with the Government of Egypt’s vision for economic development. The Government outlined its vision in a document titled "Egypt in the 21st Century: Vision 2017,” and it set out a number of targets including the creation of more than 550,000 employment opportunities each year through the year 2017. A considerable portion of those jobs will have to be provided by viable small businesses. If we can assume that SMEs will continue to represent a large share of the total labor force, SMEs will be expected to provide 325,000 sustainable employment opportunities per year.

So the United States and the Government of Egypt very much have a shared vision of expanding productive employment, especially among lower-income people, in order to expand Egypt’s economy. USAID’s SME development activities support this in partnership with Egyptian financial institutions.

3. How does USAID provide loans to Egyptian small businesses?

USAID has several different channels for extending financial services to small businesses in Egypt. We work with six not-for–profit business associations and two commercial banks, and we helped launch a private credit guarantee company that works with dozens of Egyptian banks. Most recently we introduced a Poverty Lending Model that provides credit to female-headed households in Egypt’s economically disadvantaged areas to help them start or expand businesses.

Taking into account all these channels, USAID has become the largest financier of microfinance initiatives in Egypt, supporting an estimated 70 percent of all activities in microfinance.

4. How does USAID’s Small Business Development Program strengthen Egypt’s financial services industry as a whole?

One of the objectives of the SME development program is to strengthen and deepen the commercial financial system in Egypt. Strengthening the system is vital for creating sustainable access to financial services for lower-income entrepreneurs that could continue without our involvement.

Part of this goal is to raise awareness of the value of the lower segment of the lending market, lower-income entrepreneurs. USAID is actively providing information to influential Egyptians in the media, government, and private sector to encourage them to assist in raising this awareness.

At the same time USAID works with its lending partners to create business models that serve the small borrowers while helping the lenders grow. USAID ensures that lenders are using efficient, effective practices and providing loans, refinancing or other financial services on the basis of commercial grounds. USAID’s cooperation with Egyptian microfinance institutions is based on international best practices. For example, the institutions must:

Design lending products tailored to the needs of Egypt’s lower-income entrepreneurs and continuously adapted as those needs change.

Make sure that the cost of lending covers the credit risk as well as the full operational and financial costs of the program -- key for ensuring financial self sufficiency and growth.

Maintain timely credit-monitoring and strict follow-up policies.

Operated with an internal governance structure that meets the requirements of a formal financial institution.

And use sophisticated management techniques, and adequate financial and accounting systems, so they can properly manage the risks and stay focused on growth.

The awareness campaign and the success of the borrowers and lenders alike will encourage other lenders to integrate SME lending into their usual business.

5. What progress has been made to date?

Nine partner institutions (six not-for-profit business associations, two commercial banks, and a private credit guarantee company) are actively implementing SME lending programs that are effective and efficient and operating on a self-sufficiency basis.

From 1990 through 2003, more than 1.3 million loans have been extended, with a total value of more than 2.3 billion Egyptian pounds, to about 500,000 Egyptian entrepreneurs. The rate of default on the loans has been less than 3 percent -- excellent by international standards. Currently outstanding loans at the end of 2003 are to 205,000 active SME borrowers.

The program has made a major difference for the borrowers and women in particular. The majority previously had no access to credit from financial institutions. Of the cumulative 500,000 SMEs assisted from 1990 through 2003, 200,000 or about 40 percent are female borrowers. Of all the currently outstanding loans, more than 55 percent are to female-headed households located in the poorest areas of Egypt. The majority of the past and current borrowers are female heads of households operating enterprises in Egypt’s economically disadvantaged areas.

The program included the creation of a private Credit Guarantee Company or CGC which has become successful and self-sustaining. (A guarantee company does not directly make loans but provides guarantees to other banks to give them the assurance to make loans). The borrowers are small and medium-scale enterprises and health care providers. Thanks to the CGC’s guarantees, through 2003, 32 participating banks have issued 20,400 loans valued at 2.2 billion Egyptian pounds.

The most important result is jobs for average Egyptians. USAID estimates that as a result of all the SME loans, more than 300,000 job opportunities were created.

6. How does USAID help businesses that need something more than money, such as training and technical assistance?

The SME program worked with National Council for Women in establishing the Women's Business Development Center and supports its continuing operation. The Center provides training, market information and other assistance to women entrepreneurs, and it prepares new female graduates for productive business careers through job placement and skill upgrading.

In addition, USAID operates workforce development programs that help Egyptians obtain advanced business skills, and professionals in the microfinance sector have taken advantage of this training. In total, since 1997, USAID has funded training for more than 34,000 Egyptians in economic growth and workforce skills.

7. How will USAID continue its support to the small business sector in the future?

The Government of Egypt and USAID have agreed to extend the Small Business Development Program to September 2007.

Through 2003, the small and micro-enterprise lending activities had assisted 500,000 Egyptian entrepreneurs; by the year 2007, those activities will have assisted more than 700,000 such borrowers.

At the end of 2003 the program was making loans at a capacity of 500 million Egyptian pounds (L.E.) in a year’s time; by 2007 the annual lending capacity will reach to L.E. 800 million.

The credit guarantee activity through 2003 had provided guarantees that allowed 20,400 loans worth L.E. 2.2 billion; by 2007 that number is expected to grow to about 40,000 loans worth about L.E. 4.5 billion.

USAID is committed to continuing its support for projects that increase opportunities for Egypt's lower-income groups to be productive members of the private sector and full participants in Egypt’s economic growth. The SME program has laid a strong foundation: Small business development activities have proven that they are viable, and many people in Egyptian society have recognized the importance of the small business sector. USAID’s partner institutions function well, with high rates of growth and productivity and sound organizational structures that will ensure sustainability.

For an in-depth look at the United States' support for SME financing around the world, see Microenterprise: Laying the Foundation for Economic Development from the U.S. State Department's Economic Perspectives magazine.

This document was last updated in Friday, August 20, 2004

NEWS

U. S. Fetes Egyptian Alumni of Professional Training Programs

Information on U.S. Assistance to Iraq

USAID Opens Fayoum Office To Assist Farmers

Loan Fund Will Back Private-Sector Water/Sewer Ventures

More Water, Sewer Improvements for Beni Suef

U.S.-Egypt Cooperation Improve Luxor Sewer Service

Small Business Lending Expands Into Damanhour

U.S., Egypt Cooperate To Improve Utility Customer Service

'Alam Simsim' Outreach Program Celebrates Pilot Phase

Small Business Loans Yield Great Results

Egyptian Executives Succeed With Global Business Strategy

Aswan High Dam Gets Modern Controls With U.S. Assistance

USAID, Egyptian Bank Create Major 'Green Loan' Fund

U.S., Egypt Celebrate Bab Zuweila Restoration

More News

Subscribe to our newsletter

Home \| ÇáÕÝÍÇÊ ÇáÚÑÈíÉ \| FAQ \| Contact Us \| Site Map
USAID Privacy and Security Information This page is best viewed at 800x600 resolution