From April 12-21, 2006, short-term financial advisor Carrie Averch, jointly with USAID CTO Mr. Gregg Wiitala and the extended Commodities Import Program Messrs. Robert Van Horne, Team Leader, and Tawfik Frega, Program Manager, explored interests in participation as potential lenders for a Development Credit Authority guarantee facility to stimulate broad lending in Upper Egypt to SMEs and larger enterprises, with private sector commercial banks, Egyptian American Bank and Commercial International Bank, and leasing companies Citileasing and MANTRAC.
A DCA concept paper was prepared, along with suggested points of discussion with CIB and MANTRAC; sample letters of intent for CIB and MANTRAC; draft concept paper; outline and resource list for Loan Portfolio Guarantee Borrower Cohort Report; outline of DCA action package; sample monitoring plan and updated schedule to submit DCA action package to Credit Review Board for fiscal year 2006. These were handed to the USAID Mission at a meeting advising of deadlines and requirements for establishing the proposed guarantee facility for Upper Egypt in fiscal year 2006.
This proposed DCA guarantee is on hold until there is a clear indication from the GOE of the types of development assistance sought from USAID.
Objective
In Egypt, private enterprises have few alternatives for financing equipment, fixed assets, and other major capital expenditures with a long repayment period. As part of the Egypt Financial Services (EFS) project’s mandate to foster the development of new financial instruments, the objective of this assignment was to determine the feasibility of using USAID Development Credit Authority (DCA) guarantees to encourage private sector financial institutions to lend to SMEs and large enterprises in Upper Egypt (UE), with a focus on medium-term financing for equipment and fixed asset purchases.
The nine governorates comprising Upper Egypt are historically underdeveloped as compared to Egypt’s primary cities of Cairo and Alexandria. Aside from tourism in Luxor and Aswan, much of UE’s economic activity centers around agriculture, and the region is perceived as higher risk by the financial sector. Credit access has been limited to large corporations, primarily based in Cairo and Alexandria, and there has been some recent success in stimulating short term credit for micro-enterprises supported by donor programs. Additionally, USAID/Egypt’s Commodity Import Program (CIP) has been able to support medium-term and equipment import financing through the provision of credit lines through commercial banks, but the program is entering its last year. A large segment of borrowers in the “missing middle” remain underserved by the financial sector, and USAID/Egypt is exploring market-oriented mechanisms to create a sustainable solution for catalyzing the private sector to offer this type of credit to borrowers in underserved areas and sectors.
The expected expansion in lending and leasing catalyzed by a partial credit guarantee would contribute to EFS objectives of creating longer term credit products, as well as more broadly fostering economic growth in Egypt per the Mission’s Strategic Objective 16: Environment for Trade and Investment Strengthened.