Small and medium-sized enterprises (SMEs) play an important role in national economies by providing employment and advancing innovation. In contrast to large organizations, SMEs are known for being more nimble and agile, which allows them to adapt to market changes more quickly. They typically also maintain lower overheads, which gives them an additional competitive advantage over their larger counterparts.

In emerging markets specifically, SMEs provide additional benefits as catalysts for social and economic development. As stated in the Future Business Journal, these types of businesses generate income and create the majority of jobs in the market, accounting for up to 70% of new employment in emerging economies. As the backbone of a healthy economy, SMEs are responsible for 60% and 75% of jobs in the manufacturing and services sectors, respectively, according to a report by the Organisation for Economic Co-operation and Development (OECD). Additionally, the OECD indicates that SMEs generate between 50% and 60% of value-added services on average in emerging economies, contributing up to a whopping 33% of GDP.

Given the substantial impact of the SME market on the economy, it is essential to support the health and sustainability of this ecosystem. However, the access to financial services for SMEs currently remains severely restricted in many developing countries, in turn curbing the growth of these economies. In the Middle East and beyond, premier financial institutions that are well positioned to provide credit solutions have a key role to play in bolstering the SME landscape and generating synergies through targeted financing campaigns.

The ripple effects of SMEs throughout the economy and alignment with wider economic goals

To support the SME segment across different sectors of the economy, private banks must take active steps to provide financial assistance programs that help organizations buttress their operating capital, including equipment finance, revolving loan facilities, and receivables finance. Academic literature illustrates how enabling SMEs’ access to no-hassle financing channels has a multi-fold positive impact with ripple effects on economic activity. A pre-pandemic report from the International Monetary Fund noted that increasing SME access to finance in the Middle East and Africa (MENA) region to an average level comparable to their counterparts in all emerging economies would raise annual growth by 1%, potentially creating up to 8 mn jobs in the Arab world by 2025.

An emphasis on SME financing from private banks, however, does not operate in a vacuum. Rather, the credit extended to SMEs triggers economic growth through the benefits that are reaped from a healthy SME ecosystem and aligns this approach with both national and international economic development objectives. In this context, the work of private banks with SMEs advances the United Nations Sustainable Development Goals, a collection of 17 goals that provide a global framework for shared peace and prosperity. Leading financial institutions’ approach to SME financing may intersect with 3 of those goals, demonstrating the interconnectedness and significance of the sector. Goal 8 outlines decent work and economic growth, both of which are triggered when SMEs create employment opportunities. SMEs also enable industry, innovation, and infrastructure – Goal 9 – by their very nature as agile components of national economies. Finally, Goal 10 focuses on reducing inequalities, which is realized when SMEs grow the incomes of their respective workforces.

As a further example of the alignment between private banks’ SME financing and national economic growth objectives, the Central Bank of Egypt (CBE) has encouraged banks to expand their financial services for SMEs and increase the proportion of the total lending that goes into that sector to reach at least 25% by end of 2023. The CBE has additionally stimulated private and public banks to establish special units that are devoted to providing SMEs with financial services. Driven by corporate sustainability strategies and a keen focus on supporting national objectives, banks must find ways to support central banks’ economic development strategies by deploying SME financing initiatives such as directing credit to businesses with sales turnover of less than EGP 50 mn and targeting manufacturing companies.

SME financing is a key pillar for our collective future

A healthy SME sector is a vital ingredient for inclusive growth and creation of jobs across regions and sectors, including for low-skilled workers. It provides opportunities for upskilling and supports employee access to healthcare and social services. A focus on SMEs has been one of Egypt’s national priorities since the launch of its Sustainable Development Strategy, Vision 2030, and is also a key element of the United Nations Sustainable Development Goals. SMEs form a key pillar of both initiatives and represent stakeholders across the economy that can accelerate the progress towards the achievement of these visions.

To spur the growth of the SME sector in Egypt, Mashreq has established loan programs for organizations operating in sectors identified as those most affected by SMEs.These include food and beverage, chemicals plastics and rubber, paper printing and packaging, pharmaceuticals and medical equipment, and electrical manufacturing.

Mashreq’s role in financing SMEs in the country has grown over time to reach EGP 1.53 bn in 2021. The positive trend continued in 2022 with the total amount reaching EGP 2.43 bn. Through various funding services, Mashreq is expanding its involvement in the Egyptian SME landscape and providing expertise in the regional debt market to help fulfill the growth objectives of SME customers.

One such example is a manufacturer based in Upper Egypt that is active in the field of electrical product manufacturing like tubes, controllers, and generators. The company was established in 2017 as a sole proprietorship with paid-in capital of EGP 2.5 mn. To capitalize on its initial success in the field, it rolled out ambitious growth plans to set up additional manufacturing capacity in Egypt. Mashreq granted the company a medium-term loan for EGP 2 mn for a tenor of 36 months, which has enabled the company to accelerate its growth plans and directly contribute to the nation’s economic development and job creation.

These examples show how concerted efforts by lenders can pave the way for small and medium-sized businesses to grow organically and sustainably. In this way, these empowered SMEs become an important catalyst for achieving economic growth and development goals. As governments and public institutions are gradually changing their regulatory policies and launching targeted initiatives to accelerate the growth of these businesses, there is no better time than now for banks to also step up their credit offerings and close the financing gap for SMEs in the region. At Mashreq, we are committed to playing our part to achieve these goals, as we believe that sustainable development is the way forward to a sustainable and socially conscious future.

This op-ed was written by Ahmed Mobarak (LinkedIn), head of Business Banking-SMEs, Mashreq Egypt.

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