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New Law for Easier Funding Of Small Businesses Awaits Egyptian Parliament Approval

20 November, 2016
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Small businesses and start-ups are on the rise in Egypt. Although small and medium-sized enterprises (SMEs) account for 90% of private companies in Egypt, they still face numerous problems, particularly in regards to access to funding.

In response, the Egyptian Cabinet approved a new SMEs law that regulates the establishment of a sole proprietor business, and awaits its passing by the Parliament.

The law allows the establishment of a one-person company with an independent legal personality, as a legal entity on its own, with a financial disclosure separate from that of the owner's. The company would be with limited liability by capital provided by the owner, and there would not be any interference in their personal funds.

For example, if the company borrowed money from someone and couldn't pay back, the company can get sued, but not the owner of the company—as the owner is another entity, explained economic analyst Yahia Abdul Wahab.

Under this law, crediting agencies of banks cannot seize business owners' properties to settle their debts in case of financial hardship.

"The Ministry is currently working to provide a coherent legislative agenda in order to make a quantum leap in the investment climate in line with global developments," said an Investment Ministry statement, adding that the new law is part of this agenda.

The Ministries of Investment, Trade and Industry, and Justice will all apply the law upon Parliament's approval.

The new law seeks to encourage many SMEs to register their business activities and get rid of their fear of the financial liabilities that might keep them away from registering their businesses, according to the Ministry of Investment.

Minister of Investment Dalia Khorshed said the new investment law will encourage business owners to register by exempting them from the condition of having other partners, reported the state-owned Egyptian Gazette newspaper.

The bureaucracy associated with legalizing businesses is a constant hindering aspect in the Egyptian economy.

"The registration of small businesses is still an arduous mission for entrepreneurs, even as the government continues to emphasize the importance of integrating these small businesses into the formal economy," said the Egyptian Gazette.

"Getting the required licenses and permits is a maze of legal procedures," agreed Abdel Wahab. In the SMEs' case, the Investment Ministry-affiliated General Authority for Investments (GAFI) is the institution responsible for establishing and issuing tax and commercial registers.

Another issue with SMEs in the country would be funding. "Monetary regulations along with the currency black market make it difficult to attract foreign investments or even get imported goods," the analyst said.

In May, a conference was held under the title "Roadmap for the Future" to discuss the initiative by the Central Bank of Egypt (CBE) to support the sector and create a suitable economic climate for SMEs. CBE's initiative resulted in pushing the banking sector to provide EGP 200 billion in loans to SMEs, with the low interest rate of 5%. The initiative was schemed to provide financing to 350,000 clients and to create 4 million new job opportunities over the course of four years.

The CBE defines SMEs according to their annual revenue. Enterprises that have reported an annual revenue less that EGP 1m are classified as micro-enterprises, between EGP 1m and EGP 10m as very small enterprises, between EGP 10m and EGP 20m as small enterprises, and between EGP 20m and EGP 100m as medium enterprises.

Currently, there are around 2.5m SMEs in Egypt, representing 75% of the total employed workforce and 99% of non-agricultural private sector establishments. However, the percentage of SMEs operating in Egypt that export to the international market does not exceed 6%, according to a report by the Studies and Research Department at the Union of Arab Banks.

"These companies face difficulties translating their local success to the outside world," AbdulWahab stated.

Photo: Gerry Gelens // CC BY-NC-ND 2.0

Tags small to medium enterprise SMEs entrepreneurship SMEs in Egypt business in Egypt SME law