CBE’s Further Clarifications Regard
CBE’s Further Clarifications Regarding Credit Facilities for SMEs
In early 2016, the Central Bank of Egypt ("CBE") issued a circular to offer additional means of credit for individuals and owners of SMEs by way of increasing the size of loans and credit facilities portfolio offered to SMEs to reach at least 20% of the total amount of credit facilities provided by banks over the next four years, with interest rate that does not exceed 5%. The January Issue of Egypt Legal Update has extensively discussed this matter.
However, the CBE received several queries regarding the rules and procedures for carrying out the mentioned circular. Hence, the CBE issued, on 22 March 2016, a circular with complementary clarifications.
Most notably, the clarifications include the following:
- The 20% of total amount of credit facilities allocated by each bank towards SMEs will be estimated according to the utilised amounts of direct and indirect credit facilities.
- The scope of application of both the estimate of 20% as well as the reduced interest rate does not include loans and credit facilities in case they are: a) granted to non-governmental and charitable organizations and micro-finance companies, b) granted to financial institutions, or c) fully covered loans and credit facilities.
- Banks must ensure the utilisation of the credit provided for the designated purposes; this should include a) a declaration by the client that s/he would use the amounts for the designated purposes, b) not putting the amounts into term-deposits, and c) a duty on the bank to ensure that the amounts are being used towards the agreed-upon purposes. Where these terms have not been met, the client will be bound to pay the difference between the reduced interest rate and the ordinary interest rate applied by the bank on the date of lending.
- Redefining beneficiary enterprises as follows:
- Concerning newly incorporated medium enterprises, paid-in capital should be adjusted to exceed 5 million Egyptian Pounds with a cap of 10 million Egyptian pounds for industrial enterprises, and exceed 3 million Egyptian Pounds with a cap of 5 million Egyptian Pounds for non-industrial enterprises.
- Concerning newly incorporated companies and enterprises, and according to the definition schedule, very small and small companies have been merged with respect to capital. Accordingly, the client is to be classified in the first year as very small until the size of the client business is acquired.
In early 2016, the Central Bank of Egypt ("CBE") issued a circular to offer additional means of credit for individuals and owners of SMEs by way of increasing the size of loans and credit facilities portfolio offered to SMEs to reach at least 20% of the total amount of credit facilities provided by banks over the next four years, with interest rate that does not exceed 5%. The January Issue of Egypt Legal Update has extensively discussed this matter.
However, the CBE received several queries regarding the rules and procedures for carrying out the mentioned circular. Hence, the CBE issued, on 22 March 2016, a circular with complementary clarifications.
Most notably, the clarifications include the following:
- The 20% of total amount of credit facilities allocated by each bank towards SMEs will be estimated according to the utilised amounts of direct and indirect credit facilities.
- The scope of application of both the estimate of 20% as well as the reduced interest rate does not include loans and credit facilities in case they are: a) granted to non-governmental and charitable organizations and micro-finance companies, b) granted to financial institutions, or c) fully covered loans and credit facilities.
- Banks must ensure the utilisation of the credit provided for the designated purposes; this should include a) a declaration by the client that s/he would use the amounts for the designated purposes, b) not putting the amounts into term-deposits, and c) a duty on the bank to ensure that the amounts are being used towards the agreed-upon purposes. Where these terms have not been met, the client will be bound to pay the difference between the reduced interest rate and the ordinary interest rate applied by the bank on the date of lending.
- Redefining beneficiary enterprises as follows:
- Concerning newly incorporated medium enterprises, paid-in capital should be adjusted to exceed 5 million Egyptian Pounds with a cap of 10 million Egyptian pounds for industrial enterprises, and exceed 3 million Egyptian Pounds with a cap of 5 million Egyptian Pounds for non-industrial enterprises.
- Concerning newly incorporated companies and enterprises, and according to the definition schedule, very small and small companies have been merged with respect to capital. Accordingly, the client is to be classified in the first year as very small until the size of the client business is acquired.