Developing small and medium- sized projects requires cancelling “arrest” policy
Bank incomes in a system of financing small-sized industries have been a burden
Huge capital industries are the most influenced by the dollar crisis
The Government & CBE should ensure investors of small-sized projects
By Mahmoud Hammad
Omar Askar, Investment manager of Cairo Financial Holding (CFH), said that the most important factor to encourage small and medium- sized projects (SMEs) in Egypt is cancelling “arrest” policy, i.e. if a small investor gets a bank loan to start a small or medium project and then fails to pay it back, he gets arrested. He explained, in an interview with MEO, it is possible to support small industries through ensuring capital risks; The central bank or the government may give notice to donor entities to imply financial guarantee of investors of small and medium- sized projects in case they fail. This system is applied in Lebanon, Kuwait and Saudi Arabia.
The interview handles how to develop small and medium- sized projects and the degree of its influence by the dollar crisis that Egypt suffers from.
What is the most significant factor to encourage small and medium- sized projects?
The most significant factor to encourage small and medium- sized projects in Egypt is to cancel “arrest” policy; if a small investor gets a bank loan to start a small or medium project and then fails, he gets arrested. The “guarantor” clause for small or medium- sized project loans should be as well cancelled as the project study is the most important. As for the low interest prices of small or medium-sized projects, it is not of a great importance in the way these projects work. Thus, the most significant two mechanisms that should be made available to facilitate small or medium projects work, are cancellation of “arrest” in case of project failure and placing the project as the “guarantor” without the need to sign a blank check and go to jail if the project fails.
Is supporting small projects possible through loans only?
It is not possible to support small and medium-sized projects through loans; banks do not prefer lending these projects as they face difficulties somehow. Facilities such as microfinance companies, financing lease and financing working capital are preferable. Banks incomes burden their participation in financing small-sized projects system because a bank makes the same effort with a customer, getting a small or infinitesimal loan, as a customer who gets a loan of EGP 1bn.
What about ensuring capital risks?
It is possible to support small and medium- sized projects through ensuring capital risks. Central bank or the government may give notice to donor entities to imply financial guarantee of investors of small and medium- sized projects in case they fail. This system is applied in Lebanon, Kuwait and Saudi Arabia.
What do you think of the government or central bank initiatives to support small projects?
They are positive initiatives, however; the small investor signs a blank check and if he fails to pay it back, he gets arrested. There should be mechanisms along with these initiatives such as: Qualifying investors to build joint-stock companies, speeding up license issuance, tax exemption of first 5 years for small and medium- sized projects, establishing compounds for these projects in specific areas so they could get lands for free and exempt them from taxes, further more exempting disassociation of taxes for the first time and supporting investors to attract highly experienced accountants and auditors who can operate and help the completion of the company’s projects. These mechanisms are more important than loans.
How does dollar crisis influence small and medium-sized projects?
There is a positive influence and a negative one; the positive influence is for exporting companies as their revenues grow as well as for companies relying on local raw materials; then they export their products. The negative influence is for importers who import raw materials; raw materials prices have increased with Egyptian pound falling price and dollar price increase. The negative influence goes to include new start-up projects which need to import machines and equipment; as a consequence their prices have increased. Similarly, it made the investment costs increase.
What are the most significant sectors in small industries that the government should focus on?
Government should focus on developing software and services because they do not rely on importing equipment. As a result, an awareness of existing small and medium- sized projects, the method of financing them and what could be achieved is required. It is notable to have a clear mechanism and specific strategy because randomness will spread everywhere if the state loses the ability to plan well.
