The Central Bank of Egypt's instructions to banks to increase the ceilings of their loans to small- and medium-sized enterprises (SMEs) over the next four years, from five to 10 per cent of their loan portfolios to 20 per cent, is positive for the economy, according to Moody's, the ratings agency.
In its comments earlier this week, Moody's also noted that the increased number of SME loans necessary to reach the 20 per cent target will likely weaken loan performance, which will impacts the credit worthiness of Egyptian banks.
According to Moody's, expanding SME financing will provide more job opportunities. The country's jobless rate currently stands at 12.8 per cent. SMEs employing fewer than 10 workers make up 97 per cent of Egypt's businesses, according to CAPMAS, the state-run statistics body. A World Bank Enterprise Survey has recently shown that a lack of access to credit is one of Egyptian business leaders' chief complaints.
The Central Bank measure should support the country's economic recovery by reviving investment. Although real GDP growth rose to 4.5 per cent in the second quarter of 2015 from 2.6 per cent in the first quarter, and growth for the fiscal year that ended in June 2015 was 4.2 per cent, second-quarter 2015 growth was primarily supported by a 15.7 per cent fall in imports.
© Al Ahram Weekly 2016
