The provision of Micro-Financial Services in Egypt

Microfinance is not a new idea. Small-scale micro-credit services have been offered since the 1700s but in Egypt it was not till the 1950s that agricultural micro-lending was made accessible through the government-owned bank, Principal Bank for Development and Agriculture (PBDAC). Since then, several other projects have been created such as the Productive Families project (PF), which was introduced by the Ministry of Social Affairs in 1977 to offer microcredit to low-income groups, conditional on having a government worker guarantor.

In 1982, the United Nations Children’s Fund (UNICEF) initiated a program for rural women with an emphasis on female-headed households. The program was implemented by the Ministry of Social Affairs while the Ford Foundation sponsored the Association for Garbage Collectors in Cairo in 1983 to offer credit and employment-related education (Barsoum, 2011). The project now manages under the sponsorships of the Ministry of Rural Development. The area of microfinance in Egypt significantly shifted in the late 1980s. In 1988 a project by the United States Agency for International Development (USAID) in Egypt geared such changes (USAID, 2013). USAID funds were earmarked for the development of the small and micro-enterprise sector. The fund was focused on seed capital, organized development financing, education, and technical aid, and do research (USAID 2013).

USAID created two examples for the distribution of credit in Egypt: the foundation model and the bank model. The foundation model was to create not-for-profit foundations to provide an intermediary among individual debtors and the providing banks where seed funds were placed as a guarantee of a credit line for these debtors (USAID, 2013). Two institutions were first founded: the Small Enterprise Development Foundation (Cairo Foundation, which offers credit in the Cairo governorate) and the Alexandria Small Business Organization (ABO). The model was later reproduced in five other governorates: Port Said (1995), Assuit (1996), Sharkyla (1997), Dakahleya (1998), and Kafr El-Sheikh (1999). The bank model was applied by the National Bank for Development with staff in 13 of its offices devoted to the establishment of small and micro-business lending and mobile companies spreading out of each branch (USAID 2013).

While increasing the field considerably, the USAID role introduced a new flow in the microfinance area in Egypt that recognized it from the earlier practices. It emphasized the business development model vis-a-vis the previous poverty mitigation model. Various approaches and targeting processes developed. The new focus group was small firms in urban places instead of the previous emphasis on rural home-based events.

The business of the new project was mostly male despite the donors’ emphasis on a female presence. Loan amounts were comparatively large. More emphasis was positioned on program self-sufficiency, sustainability, and even effectiveness (USAID, 2013) as opposed to the previous dependence on donor funds. In their targeting policies, programs emphasized the economic capacity of the borrower rather than their poverty. Expansion officers were primarily male, and a strict bonus and salary system was applied in order to tie the reimbursement rate of the borrowers to the salary of the extension officer who chose them and was accountable for the collection of their loan payments. This wage system formed a crucial structure that ensured that only thriving enterprises received credit and that unstable or low-income economic activities were filtered out.