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Al-Ahram Weekly 6 - 12 January 2000 Issue No. 463 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 6 - 12 January 2000 Issue No. 463
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Heritage Millennium Features Profile Living Travel Sports People Time Out Chronicles Cartoons Letters The safety net
By Shaimaa LabibThe economic reform programme initiated by the Egyptian government in the year 1986 marked the beginning of a series of measures designed to break out of economic stagnation and achieve high and sustainable levels of economic growth. By March 1990, additional strategies had been put into effect within the framework of the Economic Reform and Structural Adjustment Programme (ERSAP). While focusing on measures to reduce inflation and stimulate medium and long-term growth, ERSAP also emphasised the need to protect the poorer segments of the population.
Towards this end, the Social Fund for Development (SFD) was established in 1991 by a presidential decree. The aim of this organisation is to provide a safety net to help soften the effects of the ongoing economic adjustment programme on the economically vulnerable sections of the Egyptian society.
Established with the assistance of the World Bank, the United Nations Development Programme (UNDP), several Arab funding institutions, some European countries and Canada, the SFD has targeted small and micro businesses as a means of creating new job opportunities. Its programmes are intended to benefit new graduates, unemployed youth, workers who may be laid off as a result of the restructuring of public enterprises and female-headed households, according to Hussein El-Gammal, managing director of the SFD.
The SFD's activities are implemented through five main programmes and an independent unit that deals with gender issues. These programmes are: the Public Work Programme, the Community Development Programme, the Small Enterprise Development Programme, the Human Resources Development Organisation and the Institutional Development Programme.
El-Gammal said: "Projects under each of the five SFD programmes are implemented by sponsoring agencies, which may be ministries, governorates, banks and financial institutions, non-governmental organisations (NGOs), public and private sector enterprises and local community agencies. These agencies submit proposals to the SFD, which evaluates them according to a set of appraisal criteria designed to assess their social and economic returns and then finance or provide credit access to those deemed feasible. Newly established projects are closely monitored to ensure their continuity and the timely repayment of the loans so as to enable the SFD to extend loans to other projects, thus guaranteeing the circulation of funds to as many projects as possible."
The SFD is now initiating a new policy to transform the Small Enterprise Development Programme, which provides technical and financial support to Small and Micro Enterprise (SME) projects, into a quasi-commercial organisation. This new body, called the Small Enterprise Development Organisation (SEDO), which was established by a presidential decree last December, will offer financial and business services to SMEs.
"SMEs are essential for promoting economic growth since they need only minimal operations' investments; they operate in a small space and are labour intensive, thus contributing to the alleviation of the unemployment problem. In addition, they act as training centres for unskilled labour, utilise local resources and create job opportunities in rural areas," El-Gammal said. However, he added that Egypt's SMEs face tremendous challenges. "With the current emphasis on globalisation, SMEs' products face severe competition in both local and foreign markets. In order to better compete in the global economy, SMEs must reduce their costs while constantly improving quality. Therefore, the government has decided to form SEDO to give a helping hand to these enterprises."
SEDO, which has a LE1.5 billion budget, is expected to promote the creation of approximately 200,000 sustainable job opportunities annually, starting this year, by providing access to credit and business services to both new and existing small enterprises. However, the guarantees that banks require from loan applicants represent a serious obstacle to youth seeking SFD loans since these young people often lack the collateral demanded by the banks.
The SFD was severely criticised for failing to devise a policy to protect the young entrepreneurs in its programmes from penalties imposed upon them because they had failed to make loan payments on time. According to El-Gammal, this shortcoming is currently being redressed.
"Contracts signed between the SFD and banks stipulate demanding some guarantees from entrepreneurs who apply for SFD loans," said El-Gammal. "However, some banks require more guarantees depending on the case offered to them. We try to convince these banks to focus on the economic significance of the project rather than the guarantees. In that respect, the SFD has constructed an insurance association to cover the credit risks that could be associated with SFD loans. This association is expected to compensate up to 70 per cent of the loan's value, " El-Gammal said.
He added that the SFD assists entrepreneurs in preparing the feasibility and marketing studies that the banks often require before extending credit.
"SFD provides young entrepreneurs with managerial, legal and technical training through the establishment of training centres known as 'incubators' in different parts of Egypt. Participation in training could also serve as a guarantee for the bank that the young entrepreneur has the necessary knowledge required to implement his/her project," El-Gammal said.
The 'incubators' provide two-to-four year courses that aim to improve the technological skills of trainees as well as provide them with knowledge of management, packaging and marketing.
Effective marketing strategies are critical to enable entrepreneurs to earn ample profits from which to pay back their loans. "The SFD initiates training programmes for young entrepreneurs with the aim of enabling them to market their products. These programmes include training in marketing, sales and exporting activities. We also invite these individuals to take part in local and international trade shows and exhibitions which would provide them with an opportunity to view closely how best to market and exhibit their products. Through these events, they could also find potential business partners," El-Gammal said.
Last year, SFD participated in 36 international exhibitions, as well as 54 exhibitions in Cairo and 35 in the rest of the governorates.
He added that the SFD encourages young entrepreneurs to apply for SFD loans with which to conduct marketing projects for other entrepreneurs working with the SFD.
"We also encourage large private sector projects to adopt some of the small and micro projects that feed their industries. This would help the young entrepreneur find a way to market his/her projects' products".
Entrepreneurs' problems were not limited to meeting banks' criteria for guarantees. Many also had difficulties paying back the loans.
"At the beginning of SFD operations, the Ministry of Local Administration [responsible for the administration of governorates] requested that the fund give it LE100 million for distribution to entrepreneurs wanting to start their own businesses. However, governorates did not have the capability to investigate the viability of the feasibility studies presented to them. Therefore, they gave loans to unqualified young people and financed low-quality projects. Consequently, these young people defaulted on their loans, putting them at risk of being imprisoned," El-Gammal said.
To remedy the situation, the Ministry of Local Development and SFD established a plan to categorise the defaulters according to the reasons they failed to pay their loans. A specific course of action would be taken based on each entrepreneur's category. El-Gammal explained: "We organised several committees last November to examine why 30,000 entrepreneurs defaulted on loan payments and to decide how to deal with them best.
"The first category includes those who were serious in carrying out their projects, but were hindered by market conditions. Those individuals will have their loans rescheduled so that they can pay them back in monthly instalments over the next 10 years, without any interest.
"The second category includes those who defaulted on the loans for personal reasons. Some people in this group will be permitted to sell some of their equipment to repay a portion of their debts, while the remainder would have their debts rescheduled in the same way as in the first category.
"The third category includes those who are not expected to continue their projects' operations. For them, their loans will be rescheduled, but they will still have to pay interest. The last category includes people whose projects' operations ended due to death and the loans of those individuals would be considered bad debts."
The SFD's Institutional Development Programme is carried out in coordination with the Ministry of Social Affairs and the General Federation for NGOs and Special Institutions. It is directed towards building and developing the institutional capacity of NGOs.
"This programme aims to support the management and technical capabilities of governmental and non-governmental institutions to enhance their collaboration with the SFD in effectively implementing SFD programmes and projects," El-Gammal said.
Hailed internationally for its projects, the SFD is considered to be one of the most effective social funds in the world. "The World Bank and the United Nations Development Programme, (UNDP), have acknowledged the SFD's success in achieving its objectives through providing 100,000 sustainable job opportunities annually for the past few years. Therefore, we are constantly asked to take part in developing similar funds in other developing countries," El-Gammal said.
The SFD receives financial contributions in the form of loans and grants. In the first phase of SFD operations (1992-96), these financial contributions amounted to $650 million while in the second phase (1996-2002), they are expected to reach $800 million. Loans provided to the SFD are given for income-generating activities, which can repay the loan. In contrast, grants, the costs of which are non-recoverable, are given in order to finance infrastructure development projects in predominantly poor rural communities and urban areas.
