Chapter One: Initiatives of Micro, Small, and Medium-Sized Companies and Establishments

First: Definition of Micro, Small, and Medium-Sized Companies and Establishments:

In light of the interest the Central Bank of Egypt attaches to the small and medium-sized enterprises sector, and confirming the role of banks in financing these companies due to the fundamental role of this type of financing in developing the national economy, providing job opportunities for youth, and reducing unemployment rates, it is hereby informed that in light of the differing definitions banks use for this category of small and medium-sized companies, it was necessary to establish a unified definition for micro, small, and medium-sized companies and establishments. It was also necessary to make amendments to some existing supervisory instructions in line with what is practiced in most countries of the world, in order to provide comprehensive and accurate data about this sector. Accordingly, the Board of Directors of the Central Bank of Egypt, in its session held on December 3, 2015, decided the following:

1. Issuing a definition for micro, small, and medium-sized companies and establishments, which was amended by the Board of Directors' decision issued in its session held on February 28, 2017, to become as follows:

	Criteria
New (Established)
	Micro	Small	Medium
Paid-up Capital*	Less than 1 million EGP.	From 1 million EGP to less than 5 million EGP.	From 5 million EGP to less than 15 million EGP for industrial establishments, and from 5 million EGP to less than 50 million EGP for non-industrial.
Workforce Size*	Less than 10 individuals.	From 10 to less than 50 individuals.	Less than 200 individuals.
Sales Volume / Annual Revenue	Less than 10 million EGP.	From 10 million EGP to less than 50 million EGP.	From 50 million EGP to less than 150 million EGP for industrial establishments, and from 50 million EGP to less than 200 million EGP for non-industrial.

• Workforce size is indicative and not definitive for the definition of the company or establishment.

2. Regarding the submission of the Egyptian Credit Bureau (Score-I) for credit assessment and rating services for micro, small, and medium-sized companies and establishments, and the commitment of all banks, mortgage finance companies, and financial leasing companies to obtain credit information and data regarding the debts of these companies and establishments whose total credit facility granted to any of them does not exceed 1 million EGP according to the new definition above, it is required to declare according to the size of the credit facility granted, instead of declaring according to the new definition within their issued reports by the Egyptian Credit Bureau (Score-I).

3. Amending the rules for evaluating customer creditworthiness and forming provisions, issued by the decision of the Board of Directors of the Central Bank of Egypt dated May 24, 2005, as follows:

a. Amending paragraph (a/1) regarding the financial analysis of the customer's financial position based on financial statements for at least three years... allowing banks to finance micro, small, and medium-sized companies (with a maximum sales volume of less than 20 million Egyptian pounds) without obtaining audited financial statements, given that most of them operate in the informal sector. It is noted that the bank's credit policy must include appropriate controls consistent with financing this type of company, and banks must work to provide other alternatives for studying these companies and evaluating their risks, such as using and analyzing digital evaluation models based on alternative data for credit evaluation through customer behaviors and their financial and non-financial transactions, in accordance with the controls issued by the Central Bank in this regard.

b. Considering the application of credit risk management rules and creditworthiness evaluation rules for institutions mentioned in paragraph (a) to medium-sized companies and establishments.

c. Amending paragraph (c) to become "Credit Risk Management and Classification Rules for Micro, Small, and Medium-Sized Companies and Establishments," and amending the definition contained therein according to the new unified definition.

4. The necessity of developing specialized departments in banks for financing micro, small, and medium-sized companies by establishing internal policies, procedures, and systems, and beginning to collect the necessary data to establish a suitable classification system for the nature of this category of customers, to be applied within a maximum of three years from the date of the instructions.

5. Banks must review the database of micro, small, and medium-sized companies and establishments according to the categories mentioned in the new definition to include more data on the type of activity, business volume, and number of accounts of these companies and establishments divided by sector (industrial/agricultural/service/commercial/...), according to forms to be prepared by the Supervision and Inspection Sector.

Second: The Mandatory Ratio Directed to Financing Micro, Small, and Medium-Sized Companies and Establishments:

1. The Board of Directors of the Central Bank of Egypt, in its session held on January 6, 2016, decided to increase the loan portfolio and credit facilities (direct and indirect) for small and medium-sized companies and establishments according to the definition issued by the Board of Directors of the Central Bank of Egypt to reach a ratio of not less than 20% of the total credit facilities portfolio of the bank.

2. And continuing the efforts made to encourage banks to grant loans and credit facilities to small and medium-sized companies and establishments, the Board of Directors of the Central Bank of Egypt, in its session held on February 22, 2021, decided the following:

• Increasing the loan portfolio and credit facilities (direct and indirect) for small and medium-sized companies and establishments and microfinance projects granted directly to the private sector and companies and establishments, or through charitable associations and institutions and microfinance companies - according to the definition issued by Circular Letter No. 5 dated March 5, 2017 - from a ratio of 20% to a ratio of 25% of the bank's credit facilities portfolio, according to the following determinants:

• Banks are committed to achieving the mentioned 25% ratio by December 31, 2024, with the annual calculation of the ratio being the net balance of loans and credit facilities (direct and indirect) granted to customers after excluding all guarantees considered for forming provisions according to the instructions issued regarding creditworthiness evaluation rules for customers and forming provisions, except for the guarantee of the credit risk guarantee company which is not excluded from the numerator and denominator, according to the position on December 31, 2020, throughout the specified period.

• Loans and credit facilities covered by loans and credit facilities purchased from companies/associations of 24 credit finance granted to financial companies, and credit portfolios of 7 microfinance are excluded from the scope of application of this ratio.

• The highest ratio achieved from the loan portfolio and credit facilities (direct and indirect) throughout the specified period until December 31, 2024, is considered.

• A ratio of at least 10% of the net balance of the loan portfolio and credit facilities (direct and indirect) according to the position on December 31, 2020, must be directed to small companies and establishments.

• Banks have absolute freedom to finance charitable associations and institutions and microfinance companies according to their internal policy, provided that a ratio of 2.5% at most of the net balance of the loan portfolio and credit facilities (direct and indirect) according to the position on December 31, 2020 is considered in the 25% ratio account, such that the facilities granted to any single customer do not exceed 0.5% of the net balance of that portfolio, without prejudice to the instructions issued regarding maximum limits for employment for any single customer and related parties.

• The bank must be provided with the bank's plan by March 31, 2021, at the latest, prepared to achieve the 25% ratio, including governorates and targeted economic sectors, and the number of employees in the small and medium-sized companies sector in the bank, and the risk sector specialized in small and medium-sized companies.

• After the plan is received by the Central Bank, the achievement of the 25% ratio is followed up with banks on a quarterly basis according to the form to be circulated later to banks.

• In case any of the mentioned ratios (25% and 10%) is not achieved during the period until December 31, 2024, the bank is obliged to deposit the amount with the Central Bank without interest for each of the ratios, and in case both are not achieved, the larger ratio is deposited without interest, according to paragraph (z) of Article 144 of the Central Bank and Banking Institutions Law issued by Law No. 194 of 2020.

• After the end of the specified period (December 31, 2024), the ratio is reviewed on a quarterly periodic basis to refund what the bank achieved of the ratio.

• Banks have absolute freedom to collect all guarantees appropriate for the credit facilities granted to customers, as well as obtaining checks if necessary under the credit studies.

3. Adding banks' contributions to the capital of direct investment funds targeted at emerging small companies within the 25% ratio.

4. Adding banks' contributions to the capital of investment funds in Funds of Funds and funds and companies targeted for investment in the capital of small and medium-sized companies, including emerging ones, within the 25% ratio, subject to the following conditions:

• Obtaining the necessary license to practice the activity from the Financial Regulatory Authority.

• The bank's share from the amounts invested in the capital of small and medium-sized companies in the fund - or the total of its contribution to it, whichever is higher, is considered from the date of investment in the fund, as follows:

• During the first year: 70% of the total contribution.

• During the second year: 50% of the total contribution.

• During the third year: 30% of the total contribution.

• Starting from the fourth year: The bank's share from the amounts invested in the capital of small and medium-sized companies in the fund is considered.

• The Supervision and Inspection Sector must be provided with a quarterly periodic report clarifying the bank's share from the amounts invested in the capital of small and medium-sized companies in the fund compared to the bank's contribution.

Third: Initiatives for Financing Small Companies and Establishments:

1. A decision was issued by the Board of Directors of the Central Bank of Egypt in its session held on December 16, 2008, regarding exempting banks that grant loans and credit facilities to small companies and establishments from the reserve ratio, in the limit of what is granted by them starting from January 1, 2009, to encourage banks to grant credit to small companies and establishments. The Supervision and Inspection Sector on Banks at the Central Bank of Egypt issued the decisions detailing the conditions, procedures, and rules for applying the provisions of that decision (Attachment 1).

It is worth noting that this initiative was suspended, and another initiative was issued to encourage financing small companies and establishments according to a decision by the Board of Directors of the Central Bank of Egypt issued in its session held on January 11, 2016.

This initiative allowed banks to deduct the full value of direct loans and credit facilities granted in Egyptian pounds to small companies from the numerator of the reserve ratio, according to the following conditions:

a. The lending rate for these companies and establishments must not exceed a simple decreasing return of 5%.

b. Attention should be given to important economic sectors, especially industrial companies and establishments and those producing intermediate components for industry or import substitution, in addition to labor-intensive activities, with attention given to projects with innovative ideas and export-oriented projects. Taking into account the geographical and sectoral distribution of these companies and establishments to try to reach as many of them as possible across governorates.

c. The Egyptian pound assets used in direct loans and facilities (debtor assets) without contingent liabilities are deducted for each of the following:

• What is granted of loans and credit facilities to new customers starting from January 1, 2016.

• The increase in existing loans and credit facilities, considering the assets of December 31, 2015, as the base for calculating the value of the increase subject to the aforementioned deduction.

• For existing loans and credit facilities previously granted to the same companies and establishments before this date, the exemption from the denominator of the reserve ratio applies, taking into account the new definition of these companies and establishments. New facilities are not allowed to be granted to settle existing ones to benefit from the new pricing.

d. The Board of Directors of the Central Bank of Egypt, in its session held on July 12, 2017, decided to reduce the minimum business volume (annual sales/revenues) for small companies and establishments operating in the agricultural, agricultural manufacturing, dairy, animal feed, fisheries, and poultry and livestock sectors (whether fattening or breeding or feed, or milk or egg production) to less than 50 million pounds (instead of 250 million pounds), to be granted credit facilities at a low interest rate of 5% (simple decreasing return) under the initiative issued on January 11, 2016.

e. Banks are committed to applying the interest rate determined for each initiative to be the final price inclusive of all currencies and expenses, except:

• Commercial mortgage expenses (including advisory expert office expenses, if any).

• Taxes and stamp duties expenses according to prevailing laws.

f. The Board of Directors of the Central Bank of Egypt, in its session held on March 28, 2021, decided to allow municipal bakeries aiming to convert to the use of natural gas to benefit from the small companies initiative issued by the Central Bank of Egypt in January 2016 at an interest rate of 5% (simple decreasing return) and its amendments without being subject to a minimum business volume limit, in order to improve their efficiency and develop their activities, subject to the following conditions:

• The financing bank must obtain a letter from the Ministry of Supply and Internal Trade or the General Authority for Commodities Supply stating that the bakery wishing to obtain financing is suitable, containing all necessary information and the repayment mechanism deducted from the bakery's dues with the Ministry or Authority.

• The bakery owner must open an account with the financing bank through which dues of the executing entities (gas companies, Arab Organization for Industrialization) are paid.

• A declaration signed by the bakery owner accepting that the Ministry of Supply and Internal Trade or the General Authority for Commodities Supply will pay the due installment from his dues with them and transfer it directly to the bank upon maturity, and this transfer continues until the full settlement of the financing and the issuance of a certificate by the concerned bank of completing the settlement and paying all dues.

• The bakery owner must provide all documents and papers specified by the financing bank necessary for contracting according to the credit policy.

g. The Board of Directors of the Central Bank of Egypt, in its session held on January 4, 2022, decided the following:

• Allowing human doctors, physical therapy doctors, and dentists who are members of the Union of Medical Professions Syndicates to benefit from the small companies initiative issued by the Central Bank of Egypt in January 2016 at an interest rate of 5% (calculated on a decreasing basis) and its amendments without being subject to legal form or minimum business volume limits.

• Commitment to use the facilities granted under the aforementioned initiative to finance investment costs for purchasing medical devices and equipment, monitoring the use for this purpose, ensuring the continuity of the activity, and conducting credit checks periodically.

• It was also emphasized that banks play an important role in providing electronic payment means for the financed doctors within the scope of this initiative to support digital transformation and financial inclusion.

Fourth: Initiative for Medium-Sized Companies Operating in the Industry and Agriculture Sectors:

In its keenness to support medium-sized companies in productive sectors, especially the industry and agriculture sectors, to achieve real and sustainable development that raises the national product and standard of living, and provides new job opportunities, an initiative was issued targeting the availability of medium and long-term financing for regular medium-sized companies operating in the fields of industry and agriculture at reduced interest rates determined by the Executive Management of the Central Bank of Egypt as follows:

Item	Interest Rate (Decreasing)	Final Interest Rate for the Customer (Fixed since disbursement throughout the loan period)
	7%

Based on the above, the Board of Directors of the Central Bank of Egypt, in its session held on February 17, 2016, decided the following:

1. The Central Bank of Egypt allocates an amount of 5 billion Egyptian pounds in tranches, which banks will on-lend to regular medium-sized companies operating or newly established in the fields of industry and agriculture and the sector of new and renewable energy, in order to finance new machines, equipment, or production lines that have not been previously used, for a maximum of 10 years, according to the following conditions:

a. Reduced interest rates (calculated on a decreasing basis) are determined by the Executive Management of the Central Bank of Egypt.

b. For regular customers, the applied interest rates cannot be changed after disbursement throughout the loan period, and the bank may change interest rates if the customer defaults.

c. The Executive Management of the Central Bank of Egypt has the right to reconsider the pricing for new tranches directed to banks according to market considerations, at most once a year.

d. The amount is made available to banks against treasury bills or bonds (if their own bonds are issued) periodically.

2. Banks repay the loan principal in quarterly installments according to agreed repayment schedules and grace periods with customers, and the interest is repaid monthly.

3. In all cases, the customer is not allowed to benefit from the initiative provided by the Central Bank of Egypt more than once, with a maximum amount of 40 million Egyptian pounds through one bank.

4. The Supervision and Inspection Sector on Banks at the Central Bank of Egypt issues a memorandum detailing the procedures and rules for applying the provisions of this decision (Attachment No. 2).

5. Banks are committed to applying the interest rate determined for each initiative to be the final price inclusive of all currencies and expenses, except:

• Commercial mortgage expenses (including advisory expert office expenses, if any).

• Taxes and stamp duties expenses according to prevailing laws.

Thus, banks wishing to benefit from the initiative must make the funds supported by the Central Bank of Egypt available to medium-sized companies operating in the fields of industry and agriculture in a way that achieves added value to the economy and works on import substitution and targeting exports.

In light of the success of the initiative in achieving its intended goals and exhausting the available amount for it, it was emphasized to stop granting new financing under the mentioned initiative.

Fifth: Initiative for Financing Working Capital for Medium-Sized Companies and Establishments:

1. Making an amount of 10 billion pounds (in tranches) available through banks at an interest rate of 12% to be used in granting short-term credit facilities for financing working capital to medium-sized companies and establishments that work in the industrial and manufacturing, agricultural, and new and renewable energy sectors only, with attention and priority given to those companies operating in the field of export or import substitution.

2. Compensating banks for the interest rate difference, through the Central Bank of Egypt, as follows:

Lending interest rate for one night + 1% = 12%

And the mechanism to be followed to compensate banks for the interest rate difference for the initiative is as follows:

1. The necessary financing for customers who meet the conditions of this initiative is provided through the banks' own resources at interest rates of 12%.

2. The interest is recalculated by applying the compensation mechanism mentioned for the initiative to the user.

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