Access to affordable credit would help rejuvenate the Egyptian economy
A decade ago, while researching a book about the failure of the modern Arab economy, I spent a day with Mohammed Morsi, then a member of Egypt’s parliament and a senior leader of the Muslim Brotherhood. Morsi represented the Nile Delta town of Zakazik. An engineer by training, he was also a lecturer at the local university and as we strolled through the campus he lamented the dire mismatch between the demands of Egypt’s young population and the diminishing returns of its economy.
“When these students graduate,” he said, gesturing to the students around us, “where will they go? There are no jobs. We have 200,000 graduates in the market … and it’s hard for them to find any work.”
Since then, that number has risen to 700,000 and Morsi, one of two candidates in Egypt’s first genuine presidential election, is uniquely suited to answer his own question. The Brotherhood’s political wing, the Freedom & Justice Party, has unveiled an ambitious master plan to revive the country’s troubled economy and employment along with it. It promotes Egypt as a regional hub for manufacturing, calls for a revitalized tourist sector and robust new investment in the country’s dilapidated infrastructure. But there is nothing about enhancing the country’s banking sector, presumably because of orthodox Islam’s proscription against usury.
That’s a shame, because the single biggest obstacle to modernizing the Arab economy is not the fact of interest bearing loans but the lack of them, particularly to the small-to-mid-sized enterprises, or SMEs, that form the backbone of commerce. As the Arab region’s largest market, Egypt should be a major financial center. Instead, it is burdened with some of the laziest bankers in the world. According to Egyptian economist Tarek El Ghamrawy, credit for new investment is worth a mere 3.5 percent of the total, compared with an average 12.8 percent for the Middle East-North Africa region. Only 4.2 percent of that amount is held by SMEs.
A few years ago, the Central Bank of Egypt allowed banks to effectively lend from their reserve requirements if the money was earmarked for SMEs, but little came of it. Shunned, business owners either borrowed from family members or turned to independent lenders at usurious rates of interest. Not long after that, a grass-roots rebellion overthrew the regime. Coincidence? Not according to Magda E. Kandil, executive director of the Egyptian Center for Economic Studies, who told me last week that risk-averse banks “contributed to the revolutionary environment” by “deliberately avoiding SMEs.”
Bankers should duly take note. Unless Egyptian entrepreneurs and businessmen are provided with access to affordable credit, the prospect for another revolution will intensify along with the nation’s economic and social malaise.