New LE150 bn program aims to support small agricultural, industrial businesses

A new five-year, LE150 billion (around US$5.4 billion) program is set to launch this week after gaining approval by the Cabinet on Wednesday, and is to offer targeted support to small businesses working in the agricultural and industrial sectors.

The program, which is to be overseen by the ministries of agriculture and of trade and industry, will allow eligible companies to apply for financing at an interest rate of just 11 percent, in comparison with the much higher overnight lending rate of 17.25 percent set at the Central Bank of Egypt’s last Monetary Policy Committee meeting.

It replaces an earlier belt of programs that were offered by the central bank at an interest rate of 8 percent to companies working in industry, agriculture, real estate and tourism.

The prior programs were launched during 2020 to try and prevent a wave of business closures as Egypt weathered the impact of a shutdown in global supply chains during the first year of the coronavirus pandemic, and closed in November at the recommendation of the International Monetary Fund during negotiations with Egypt over the course of 2022 regarding the new, $3 billion loan program.

Each company that applies for funding is allowed to borrow a maximum of LE75 million (around $2.5 million), depending on the number of people it employs. In the event that the borrower has additional affiliated companies, their combined funding is then capped at about LE112 million.

The companies must deploy 93 percent of the borrowed funds on capital operations, use the remaining seven percent on purchasing capital goods, and are forbidden from using the funding to repay debts.

Hesham Hamdy, who works at an investment company, told Mada Masr that the upper limit on loans demonstrates that the initiative is targeting small and medium enterprises with a view to supporting them against closure in the prevailing, hostile economic climate.

Given that the financing aims to stimulate operations, it could improve small businesses’ financial conditions in the short term, said Hesham Ibrahim, a professor of finance at Cairo University. The program could thereby boost production and improve the supply of goods, softening the blow of rising prices at a moment of rampant inflation, he added.

The IMF’s recommendation to close the earlier central bank programs was based on the rationale that they were disruptive to the interest rates available on the market. Their closure was met with widespread opposition from the Federation of Egyptian Industries, the chambers of commerce and from workers in the affected sectors who said they would be unable to continue activity.

The new financing programs, which are to be offered via the relevant ministries, are more targeted than the former iterations on offer by the central bank, said Hamdy. The ministries will finance the lower interest rate they’re offering by issuing debt instruments, whereas the central bank program was essentially “free money.”