Regulatory Alerts2016-03-08
A circular dated January 11, 2016 regarding encouraging banks to grant loans and credit facilities to companies and small and medium enterprises.
The Central Bank of Egypt has issued a clarification notice concerning the implementation of the financial inclusion strategy in the banking sector. According to this notice, the Central Bank of Egypt will implement the following: 1) Starting from January 1, 2016, the government will gradually reduce its subsidy on lending and direct financing (the SME Fund) without affecting existing commitments as follows: a) Providing loans or direct financing to new businesses is considered a part of the SME Fund capital. b) The increase in outstanding loans and direct financing provided by the Central Bank of Egypt is considered as the SME Fund's base capital, excluding the previously mentioned reduction amount. 2) As for the outstanding loans and direct financing provided to small and medium enterprises (SMEs) before this date, they will continue to apply interest rate margins as specified in the Central Bank of Egypt's board resolution dated December 16, 2008, with reference to the new definition of such debtors, as stipulated by the Central Bank of Egypt's board resolution dated December 3, 2015. Furthermore, issuing new direct financing to these borrowers for liquidity purposes is allowed. 3) Every bank must establish specialized units to manage SMEs and retail banking services, and fulfill their commitment to provide adequate training and development programs for those entrusted with this task. 4) The importance of the role of the Egyptian Central Bank and affiliated institutions under the Ministry of Trade and Industry in training and developing skills of those entrusted with these tasks is emphasized by adding to this role. This includes cooperating with the Arab Federation for Small and Medium Enterprises in preparing specialized programs for SMEs, as well as increasing the number of specialized programs aimed at employees working at banks. 5) To ensure the continued implementation of the Central Bank of Egypt's board resolution dated December 16, 2008, it is necessary for banks to cooperate with the Central Bank of Egypt within a **set period** leading up to February 2016, in order to apply this resolution by the end of January. It should be noted that there will be an effort to motivate lending to SMEs effectively. Kindly agree on implementing the mentioned strategy. And we kindly request your approval of implementing the aforementioned **strategy**."