Microfinance: The unsung engine of job creation and economic growth in Egypt
With a population in excess of 100 million citizens, Egypt has a working age population of around 60 million — and a poverty rate that clocks in at nearly 28%, according to official figures. While unemployment has been stubbornly high, early sprouts of economic recovery after the November 2016 float of the Egyptian pound have seen official unemployment figures fall below the 12% mark to 11.9%.
Microfinance has quietly played an immense role in creating job opportunities and drive growth in Egypt. As a lateral solution to traditional workforce migration from rural areas to the capital, availing finance to local economies in the form of microfinance has not only played a sustainable role in creating income, but also develop local economies and create a reason for local workers to stay and generate revenue for themselves and their families.
As a key engine of financial inclusion, microfinance has played an important role in serving as a catalyst for “inclusive growth” sought by our partners at the World Bank, at the International Monetary Fund and at the highest levels of the Government of Egypt under our nation’s Vision 2030.
Furthermore, the UNCDF views financial inclusion as a predominant enabler of other developmental goals in the 2030 Sustainable Development Goals, where it is featured as a target in eight of the seventeen goals. These include SDG1, on eradicating poverty; SDG 2 on ending hunger, achieving food security and promoting sustainable agriculture; SDG 3 on profiting health and well-being; SDG 5 on achieving gender equality and economic empowerment of women; SDG 8 on promoting economic growth and jobs; SDG 9 on supporting industry, innovation, and infrastructure; and SDG 10 on reducing inequality. Additionally, in SDG 17 on strengthening the means of implementation there is an implicit role for greater financial inclusion through greater savings mobilization for investment and consumption that can spur growth.
The private sector has long seen opportunity to do good while creating returns for shareholders by investing in microfinance. And in recent years, it has found a willing partner in the CBE under the bank’s framework to support micro, small and medium enterprises. This drive dates back years, but has accelerated since 2014 as Egypt’s Financial Regulatory Authority (FRA) clearly defined microfinance as activities below the EGP 100,000 threshold under the microfinance law passed that year. The CBE has since worked with the FRA and other government agencies including the Ministry of Trade and Industry to adopt a government-wide definition: A micro-enterprise is one with sales or revenues of less than EGP 1 million.
It’s paying off: Egypt has seen the banking system’s MSME portfolio grow by EGP 22 billion in the first six months of 2017. For comparison’s sake, the system added EGP 27 billion in MSME loans in all of 2016, according to central bank figures.
For micro enterprises specifically, the change has been similarly apparent, the sector’s total outstanding portfolio standing at EGP 7.8 billion as of September 2017 — growth of 25% over the same period last year. In turn, hundreds of thousands more small entrepreneurs now have access to finance, with total microfinance borrowers standing at 2.2 million in early September, and increase of 11% over the previous year.
More change is in the pipeline. Since the microfinance law passed in 2014, government and the central bank have rolled out laws and guidelines that have established a microfinance reporting system, a micro insurance framework and guidelines to protect consumers of microfinance — and more is in the pipeline.
Since we founded Tanmeyah in 2009, the company has grown from a mere idea into a high-street lender operating at a local level to provide comprehensive microfinance solutions to lower-income business owners across Egypt who would otherwise have no access to the banking sector. Today, we have 146 branches nationwide serving 160,000 active borrowers and a total outstanding portfolio that exceeds EGP 1.2 bn, having lent out more than EGP 6 bn since inception.
With the sweeping change that has come to our industry in the past decade and the promise of an economic recovery ahead, we can’t wait to see the growth opportunities that present themselves in the coming 10 years.
Amro Abouesh is chairman, CEO and co-founder of Tanmeyah.