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Al Alaam Al Youm Newspaper

Junior businessmen puts forward a future vision for small and medium enterprises

A recipe for growth: Integration of roles of finance institutions and entrepreneurs

The Egyptian Junior Businessmen Association has red-flagged the file of small and medium enterprises (SMEs) as one of the most important issues that need to be taken care of at present, indicating their significance for the development process and their being the most capable job provider as they represent 80% of the Egyptian economy.

It all started at the board of directors of the association under the chairmanship of Engineer Hasan Al-Khateeb, who stressed that neglecting the SMEs means we are ignoring 80% of enterprises operating in Egypt. He pointed out their importance for development of society and their bigger capabilities for providing jobs.

Accordingly, the banks and finance committee at the Egyptian Association of Junior Businessmen, headed by Mohamed Mohyee and his deputy, Ahmed Abou Al-Dahab, started to seek cooperation with all committees in the association. The idea of developing a guide to help the SMEs deal with finance entities came into existence with the cooperation of private enterprises support center. The guide will be announced at the end of workshops that have already been agreed upon and will also be presented in a big conference in the coming period.

The two committees of the association, i.e. consultations and finance, started preparations for conducting seminars on financing the SMEs, role of banks, and the importance of having an advisor as an essential link in the relationship between the enterprise owner and finance institutions.

Dr. Hala Al-Badrawi, chairperson of the committee, said that the initiative started with a workshop about the relationship between small enterprises and finance entities, and the way to benefit from the existence of an advisor to facilitate this process within a scientific, regulated framework to contribute to economic development. Thus, the role of the advisor, she noted, would be very vital.

Dr. Hala added, “What drove them to adopt that approach was the interest of banks and finance entities in the SMEs given their importance for the process of economic growth. On the other hand, banks are prepared to serve this category of enterprises. So, we decided to work on raising awareness about the role of the advisor between the enterprise and the finance entity, facilitating role of banks and helping companies to secure finance from banks or investment funds, or through getting listed in the Nile Exchange for the SMEs.”

Mohamed Mohyee, chairman of the banks committee of the association, stressed, “This initiative is based on our conviction of the importance of having advisors who are fully familiar with the sector of small enterprises and its importance for the economy and job provision.”

He said that an efficient advisor is really indispensable to get proper finance. “Accordingly, our campaign”, he added, “aim at raising awareness about the role of the advisor who determines the needs of an enterprise in terms of proper finance and qualification, and has knowledge of bank requirements for financing as well as requirements of the bank, the exchange or other finance entities.” Thus, the advisor has a role to play in qualifying the enterprise owner to be eligible for the finance process.

He said that recommendations of the first roundtable in this regard focused on collaboration with the Stock Exchange in the campaign for raising awareness about the role of the Nile Exchange and development of a list of certified advisors to handle finance mechanisms and companies.

He also asserted that the first seminar that was held for that purpose uncovered many facts and size of challenges that each sector face in small enterprises. For example, in the contracting sector, Eng. Mohamed Murad Al-Zayat pointed out many finance obstacles facing contractors, in addition to lack of awareness of available mechanisms for finance, and other existing technical and procedural obstacles that face the owners of small and medium enterprises.

Hebatallah Al-Seify, an economist, talked about the role of the Exchange. Also, Ahmed Abou Al-Dahab highlighted the role of banks and their visions in general, and commented about how banks can contribute to the link between the advisor and the finance applicant. Alyaa Solaiman talked about advisors of direct investment funds and venture capital.

Mohyee said that they were working then on producing a guide for small and medium size companies with the purpose of serving banks and advisors.

He pointed out that the role played by the association in this regard was to convert enterprises into entities that can be admitted into the exchange and qualified for getting bank finance.

On his part, Mamdouh Afya, head of the association of management advisors, said that the association was a partner in a pioneer initiative adopted by the Egyptian Association of Young Businessmen, pointing out the importance of participation of advisors in development. “Hence, we are convinced”, he added, “that SMEs are the most important mechanisms available nowadays to create economic development given the fact that they represent more than 75% of enterprises.

These enterprises also employ 80% of manpower. In addition, they feed big industries. Thus, they are worthy of consideration and attention.

“On our part”, he said, “we are convinced that the role of the advisor is an important link between all parties through providing information and raising awareness. An advisor is also important when he performs his job actively, efficiently and creditably.”

Mamdouh Afya believes that regulating the profession of advisors will serve the cause of development in all fields.

In the first seminar, the Egyptian Association of Junior Businessmen declared its intention of issuing a guide for banks and SMEs to facilitate the finance process and qualify companies to list in the Nile Exchange.

Eng. Hasan Al-Khateeb, chairman of the Egyptian Junior Businessmen Association, said that the objective of issuing the guide is to shed light on the way banks and companies can interact in simple language.

Al-Khateeb also said, “Issuing a guide will not only solve a problem for the association members but also a problem for society of which its impact is felt by us since SMEs represent 80% of the economy and provide the greater percentage of employment opportunities.”

About the role of the Nile Exchange in this regard, chairman of the Egyptian Junior Businessmen Association said, “We believe it has an important role to play and we cooperate with it. We also believe that it has numerous opportunities to offer to this kind of enterprises which, we think, are capable to solve a real society problem.”

On his part, Mohamed Mohyee, chairman of the banks and finance committee at the Egyptian Association of Junior Businessmen, asserted that the committee continues discussions about challenges facing SMEs in a series of seminars, which will be included in a guide listing available finance mechanisms and tools in the market, i.e. banks, direct investment funds and the Nile Exchange for small and medium enterprises. The committee, he added, will, in cooperation with the center for support of private enterprises (CIPE), educate companies and qualify them in terms of management and technical aspects in order to be eligible to have access to proper finance tools.

Eng. Mohamed Murad Al-Zayat, chairman of the contracting committee at the Egyptian Junior Businessmen Association, presented the status of SMEs, stressing that such enterprises are considered the main support of economy in any country in the world.

He said that SMEs are still the backbone of the Egyptian economy although they suffer from severe shortage of finance.

He asserted that finance available for enterprises, which constitute 80% of the economy, does not exceed 10% according to most estimates, indicating that industrial companies get finance much easier whereas the contracting sector faces many difficulties in that regard.

He also pointed out that it is necessary to reconsider laws that need more transparency and clarity and to solve the issue of finance, which is the common denominator in the growth of small enterprises, noting that increasing surplus at banks is considered a serious indicator and that it is necessary to channel these funds into the market and finance enterprises.

Yasser al-Bendari, chairman of the special foods company, criticized the failure of banks on financing SMES at a time when small enterprises managed to export to international markets, which requires continuous encouragement by providing proper financing, educating owners of enterprises about the kind of finance available as well as qualifying them.

Nehal Badawi, head of SMEs credit department at the CIB, pointed out that banks started back in 2008 making clear infrastructure and strategy to finance small and medium enterprises with the purpose of bridging the gap between banks and companies.

She said that there is delay in financing these enterprises. However, speed is picking up and interest in this vital sector is gaining momentum.

Mamdouh Afya, head of the association of management advisors, suggested forming an entity to finance SMEs following the example of the center for modernizing industry. He pointed out that interest in this issue is based on a national perspective given the fact the developing such enterprises is a national cause.

Bassel Hussein Rushdy, member of the Egyptian Young Businessmen Association, and general manager of Nile Capital Company, described the relationship between direct investment funds and financing enterprises as a “matrimonial relationship”, explaining that venture capital, unlike banks, is a partner in the enterprise and is interested in selecting projects, assessment of management, maximizing return, and selecting promising enterprises to achieve profits and tolerate losses.

Regarding factoring as a finance tool for small and medium enterprises, the second seminar presented several facts about the concept of factoring and its significance as illustrated by Ahmed Shaheen, manager of Egypt Factors and member of the association. He indicated that factoring depends on financing companies that sell on credit terms. Factoring companies buy the original accounts receivable to collect [amounts due] from customers to make sure the buyer pays 100% of the value of the invoice, which provides a guarantee to the customer. He explained that factoring companies also provide finance equivalent to 90% of the value of the invoice.

He added that factoring is different from banks as the former deals with companies that work on the open account system whereas the latter finances only large companies that conduct their business using that system. In addition, it does not require guarantees. Moreover, it can finance SMEs and traders. It can be conducted with or without recourse to the seller. There is also another advantage, i.e. speedy approval, which is not the case when dealing with banks. He explained that a bank would look into a specific production line and the company budget whereas factoring companies have their eyes on the invoice and following it up.

Shaheen stated that Egypt Factors is the only company specialized in factoring in Egypt, with another one specialized in exports factoring. The company, he explained, deals with all companies, industrial or service, such as tourist companies, food stuff companies, and packaging companies. However, it is difficult to deal with sectors where a sale transaction has not been fully completed, such as the contracting sector. The most important aspect of the business is continued cooperation between the selling company and the purchasing company on condition of quality performance, which is considered a condition precedent for dealing with the company. He added that it is expected that several companies will practice factoring in the coming period.