Boosting small and middle-sized enterprises (SMEs) should kill two birds with one stone in the long run.
These types of projects create millions of jobs for unemployed people, while drive economic growth and increase GDP.
The fundamental challenge is how to enhance credit accessibility for startups.
The objective is to sustain the nation’s socio-economic development in the 21st century by creating jobs for roughly one million entrants of jobseekers who join the labour market annually.
To this end, the Central Bank of Egypt (CBE) has launched a number of initiatives since 2015 to finance SMEs at reducing interest rates between five and eight per cent.
Egypt’s bank portfolios for SMEs have leapt by 250 per cent since 2015 to LE316 billion ($20.1 billion) in December 2021, according to CBE data.
In February 2021, the CBE obligated banks to allocate 25 per cent of credit to SMEs, up from 20 per cent.
The increase has been a necessity in the wake of the economic repercussions of the Covid-19 pandemic.
Clear-cut definition
In a bid to achieve financial stability, combat poverty by the creation of jobs, the CBE has prioritised SMEs.
Certainly, the CBE aims at cementing financial inclusion and sustainable development across the country via pumping credit into SMEs and microbusiness.
In December 2015, the CBE issued a unified definition of SMES.
According to the definition, medium-sized enterprises are firms with a turnover worth LE50 million-LE200 million per annum for operating businesses and from LE5 million to LE15 million for industrial firms under incorporation.
As for medium-sized, non-industrial firms, the capital ranges between LE3 million and LE5 million. Small enterprises are defined as firms with a turnover from LE1 million to LE50 million for operating corporations.
As for industrial firms under incorporation, CBE sets the capital between LE50,000 and LE5 million.
For small, non-industrial firms under incorporation, the capital stands at up to LE3 million.
The CBE set an LE1 million turnover for operating microbusinesses, which are startups with capital of up to LE50,000 and labour of up to 10 people.
Moreover, the CBE has obligated banks to set up specialised divisions for SMEs.
Default in the SME sector is within acceptable levels despite the global economic turmoil.
The SME sector’s nonperforming loans (NPLs) stands at four per cent, according to CBE data.
Economic role
The roles of the state and the public sector are diminishing worldwide.
Therefore, private sector involvement in social community services should bridge the gap.
Moreover, a proper business climate should be advantageous for all — the government, investors, banking and society as a whole.
The SME sector is labour-intensive, and can provide permanent jobs for millions if given adequate funding at reasonable interest rates.
Therefore, the country’s socio-economic development rests on SMEs for job creation to bridge the gap in supply and demand four labour.
In the long run, entrepreneurships will be the only reliable way to create jobs in this country, where social change is needed to foster a risk-taking culture.
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