Circular dated May 26, 2019 regarding encouraging banks to invest in targeted investment funds for small emerging companies

Dear Sir, Chairman of the Board of Directors,

Greetings,

With reference to the interest the Central Bank of Egypt attaches to micro, small, and medium enterprises and its efforts to develop this vital sector, and in light of the instructions issued on January 11, 2016, and May 23, 2017, which mandated banks to increase their portfolio of direct and indirect credit facilities for micro, small, and medium enterprises and establishments to reach a ratio of not less than 20% of the bank's total credit facilities portfolio within a period of 4 years ending in January 2020, and to continue, and in the spirit of expanding the base of providing financing to micro, small, and medium enterprises through encouraging banks to invest in direct investment funds targeting small emerging companies, at their various stages (Angel Investment, Venture Capital, Growth Funding), the Board of Directors of the Central Bank of Egypt approved the following decision at its meeting held on May 22, 2019:

First: Adding bank contributions to the capital of direct investment funds targeting small emerging companies to the 20% ratio of the bank's total credit facilities portfolio directed to micro, small, and medium enterprises, pursuant to the instructions issued in this regard.

Second: Calculating a relative risk weight of 0% on banks' contributions to the capital of these funds, subject to the following determinants:

1. Setting maximum limits for the value of banks' investments in the capital of the aforementioned investment funds, such that the value of these investments does not exceed 10% of the bank's core capital.

2. The bank's share in the fund's capital must not exceed 50%, so as not to fall within the banking group.

3. The bank investing in these funds must meet the capital adequacy ratio by an amount exceeding the minimum limit, as well as comply with all internal capital adequacy assessment process (ICAAP) guidelines.

4. The bank's investments in these funds must be included in the financial leverage ratio.

5. The necessary license to conduct the activity must be obtained from the Financial Regulatory Authority, and these funds must be subject to the supervision of the General Authority for Financial Supervision, as these funds are non-banking financial institutions.

6. The fund's articles of association must include the possibility of the bank exiting the fund, especially in the event that the fund does not achieve profits for 3 consecutive years.

These instructions apply from the date of issuance and do not apply to any bank investments in investment funds targeting small emerging companies prior to that date.

In case of any inquiries, please contact via the following email: Seif.Seifelnasr@cbe.org.eg Gamal Naguib