Formalizing SMEs

CAIRO - 8 November 2017: Since establishing the Micro, Small and Medium Enterprises Development Agency (MSMEDA) in April, the government has been working to include small and medium enterprises (SMEs) in the formal sector. Business Today Egypt sat down with MSMEDA Director Nevine Gamea’ for a close look at the nature and scope of its work.

What is the difference between the Social Development Fund (SFD) and MSMEDA?

On April 24, Prime Minister Sherif Ismail issued a decree to merge the SFD with the MSMEDA to become one entity. The SFD has been serving SMEs for over 25 years, but it was time for a new vision. The new agency will work to upgrade and develop this sector by offering financial and non-financial services. The agency will also be coordinating with all SMEs entities and initiatives to make sure these calls are implemented.The agency’s role is more inclusive than the SFD’s.

What are the main factors and aspects the agency is focusing onz?

We revised the legislative climate that serves the SMEs sector.There was a law issued for this sector [141/2004], but we are amending it to take into account a unified definition for SMEs,because we have noticed that entities are adopting different definitions for this sector. We coordinated with the Central Bank of Egypt in reaching a unified definition as it had launched an SMEs initiative last year. We are also working to include the informal sector under the formal sector umbrella, as it shapes 80% of Egypt’s products.

What points will be included in the legislative reform of the sector?

We will offer incentives to SMEs but we can’t disclose them now as we are still coordinating with the tax and insurance authorities. We are also [supporting] productive projects in line with the government’s priorities.It doesn’t mean that the service and commercial sectors are notneeded, but we have recently noticed an increase on those two sectors,which don’t serve the economic growth. There are a lot of products we
import that can easily be locally produced.

What non-financial services will the authority offer?

We are launching new training programs that will develop skillsof project founders. There are four programs certified by the International Labour Organization (ILO). One of the programs will teachparticipants how to come up with a project idea, because we have seen people who want to launch their own projects but they don’t
have ideas.

Who can access these training programs and how much will they cost?

Anyone with a midlevel education degree and who is between 21 to 50 years old can apply. The program will be offered at the premises of the agency for free. Of course, the programs’ licenses and certificates are covered by the agency, but we can’t ask participants for fees so as not to discourage them. In 2017, we are targeting
10,000 trainees. Other programs include ‘how to start a project,’ in addition to providing relevant advice and mentorship. We also teach them how to manage a project and prepare a business plan.

How do you measure the success of these training programs?

I would say if participants launch their projects, [then the program has been successful]. It is not necessary that they apply for loans from the agency as they might be willing to self-fund their own projects.We also consider the training successful if participants finish it knowing how to pay salaries, how to manage needs of projects and how to separate their personal finances and the project’s finances.

Tell us about the loan values

Beneficiaries can access a maximum value of LE 3 million and a minimum value of LE 10,000 if the projects are in the commercial or service sectors. Loans can reach LE 5 million if the project is in dustrial. In some cases, we reach beneficiaries through [collaborating with a network of] 450 development associations, which reach some citizens we can’t access [without their help], giving them micro-small loans with value between LE 500 and LE 10,000. For example, some of these association can loan LE 1,000 and LE 2,000,especially in villages in Upper Egypt.

The agency launches monitoring campaigns to make sure that people who have obtained the funds have spent them on the project, within 90 days. We have set a credit policy in coordination with banks for that aim. The agency is also offering direct loans outside the banking system because the values are relatively small. With regards to the insolvency rate, around 5% of the participants are unable to repay the loans.