Circular dated February 22, 2021 regarding amending some provisions of the Micro, Small and Medium Enterprises Initiative

Cairo on: February 22, 2021

Dear Mr. Chairman of the Board of Directors

Bank of Tiba, greetings,

With reference to the Central Bank's initiatives to finance small and medium-sized enterprises at a low interest rate of 5%, under which a percentage of not less than 20% of the Bank's total credit facilities portfolio was allocated to finance small and medium-sized enterprises over four years from the date of issuance of those instructions, and adding microfinance granted directly to individuals, companies, and establishments or through microfinance companies, associations, and charitable institutions to the aforementioned 20% percentage, and allowing the financing of micro and small enterprises (with a maximum sales volume of less than 10 million Egyptian pounds) and with a maximum period of two years from the date of disbursement without obtaining audited financial statements from an auditor.

And in order to provide more support to micro, small, and medium-sized enterprises, meetings were held with officials in this sector in all banks in stages to identify the obstacles still facing the granting of financing to them and ways to overcome them. Based on this, and with the aim of encouraging banks to continue financing this sector due to its strategic importance and main role in economic growth, the Board of Directors of the Central Bank of Egypt agreed in its meeting held on February 21, 2021, to the following decision:

First: Amendment of Item (1) of the Circular Letter issued on January 11, 2016 to read as follows:

Increasing the portfolio of loans and credit facilities (direct and indirect) for small and medium-sized enterprises, companies, establishments, and projects, and microfinance granted directly to individuals, companies, and establishments, or through associations, charitable institutions, and microfinance companies, according to the definition issued under the Circular Letter dated March 5, 2017, from a percentage of 20% to a percentage of 25% of the credit facilities portfolio of the Bank, subject to the following determinations:

1. Banks are committed to achieving the aforementioned 25% percentage by December 31, 2022, with the basis for calculating the percentage being the net portfolio of loans and credit facilities (direct and indirect) granted to customers after excluding all guarantees considered in forming the provisions included in the instructions issued regarding the basis for evaluating customer creditworthiness and forming provisions, except for the guarantee of the Credit Guarantee Company (CGC).

2. Loans and credit facilities covered by guarantees are excluded from the scope of application of that percentage.

3. The highest percentage achieved of the portfolio of loans and credit facilities (direct and indirect) throughout the prescribed period and up to December 31, 2022, is considered.

4. A percentage of at least 10% of the net portfolio of loans and credit facilities (direct and indirect) must be directed to small companies and establishments, according to the position as of December 31, 2020.

5. Banks have absolute freedom to finance associations, charitable institutions, and microfinance companies according to their internal policy, with a maximum percentage of 2.5% to be considered - under item (1) - from the net portfolio of loans and credit facilities (direct and indirect) according to the position as of December 31, 2020, such that the facilities granted to a single customer do not exceed 0.5% of the net portfolio, without prejudice to the instructions issued regarding the maximum limits for employment with a single customer and related parties.

6. The Bank is required to provide the Central Bank by no later than March 31, 2021, with the Bank's plan to achieve the prescribed 25% percentage, including the targeted governorates and economic sectors, the number of employees in the small and medium-sized enterprise sector at the Bank, and the risk sector allocated for small and medium-sized enterprises.

7. After the plan is received by the Central Bank, the achievement of the 25% percentage will be monitored with banks on a quarterly basis and subsequently according to the form to be circulated.

8. In the event that any of the percentages mentioned in items first (1) and (4) is not achieved by the Bank during the period up to December 31, 2022, the Bank is obliged to deposit the balance of the percentages without interest at the Bank for the larger percentage without interest at the Central Bank, and in the event that both are not achieved, the balance is deposited according to item (z) of Article (144) of the Central Bank and Banking System Law issued by Law No. 194 of the year 2020.

9. After the end of the prescribed period (December 31, 2022), the achieved percentage is reviewed periodically on a quarterly basis to refund what the Bank achieved of the percentage.

Second: Amendment of Item (2) of the Circular Letter issued on March 5, 2017 to read as follows:

Allowing banks to finance micro and small enterprises, companies, and establishments (with a maximum sales volume of less than 20 million Egyptian pounds) without obtaining audited financial statements from an auditor, given that most of them operate in the informal sector, while ensuring that the Bank's credit policy includes appropriate controls that align with financing this type of companies. Banks are required to work on providing other alternatives for studying these companies and assessing their specific risks, including the use and analysis of alternative data for credit assessment through digital evaluation models based on customer behaviors, their social data, and their financial and non-financial transactions, according to the controls to be issued by the Central Bank in this regard.

Please be kind enough to alert to full compliance with the above, and to observe the conditions for benefiting from the initiative to ensure that the amounts allocated to the initiative reach their rightful recipients and to avoid accountability.

Please accept our highest regards,

Tarek Amer