The Alexandria Business Association (ABA) began its activities in 1983 as the Economic Committee for Businessmen under the auspices of the Alexandria Chamber of Commerce. Its objectives were to provide support to the private sector, promote the interests of the businessmen, consolidate business and social ties amongst them, and represent the sector to the government. This concept soon developed to include community service work, as members became involved in building and improving hospitals, schools, and institutions for the elderly.

These new activities necessitated the formation of a new entity, the Alexandria Businessmen’s Association, which was registered with the Ministry of Social Affairs in March 1988 as a private non-profit organization. Today the Association has a membership of more than 300 individuals representing the leading businesspersons in Alexandria. An elected board of 15 prominent businesspersons directs the ABA.

Communications between the Alexandria Businessmen’s Association (ABA) and the Director of USAID in Egypt resulted in a seven-year cooperative agreement being signed in April 1989 and the ABA Small and Micro Enterprise Project was born. USAID would provide financial and technical services to the ABA, which would implement a program to offer financing to the existing small and micro businesses in Alexandria, which are not able to access credit from the formal banking system.

The ABA/SME Project was launched in January 1990. After only two years of operation, the ABA/SME credit service generated enough income to cover all operating costs. In 1994, the ABA’s operating cost ratio ranked among the best in the world. In May 1997 the project started its operations in the Governorate of Kafr El-Sheikh

2. Goals & Objectives

Goals: To develop and promote existing small and micro enterprises, to raise the income of SMEs, to help the transformation of SMEs from informal to formal, and contribute to solving the problems of unemployment.

• to provide credit, training and technical assistance to SMEs in Alexandria, Kafr El-Sheikh and other potential provinces of Egypt
• to provide short-term loans for working capital initially and later move to longer term fixed asset lending
• to use local banks for loan disbursement and repayment
• to be managed from a private sector perspective in tune with the problems faced
• to be business driven and ensure self-sufficiency
• to charge borrowers appropriate commercial interest rates
• to ensure the size of loan is appropriate for the type of business and is disbursed at the right time
• to encourage the strongest enterprises graduate to the formal banking sector

3. Target Market & Client Profile

ABA’s target market includes owners of small and micro enterprises who are not able to access credit from formal banking system. Small & micro are defined by number of employees ( 1-5 employees are considered micro, 6-15 employees are small). Start-up businesses are not considered for loans, clients must have at least one year of experience operating their business. The micro sector represents 74% of the portfolio. Manufacture activity represent 63% of the portfolio, while trade represents about 26% and services represents only 11%.

For its outreach program, ABA capitalized on the tight social networks in densely populated areas and used word of mouth to publicize its micro finance services. Since ABA first began its SME Project, it has achieved a range of outreach comparable to those of the most successful micro finance ventures in the world: up to December 1999, the project has served over 50,000 with about 23,000 active clients. It has extended over 140,000 loans amounting to almost US$ 116 million. However, although the foundation has reached a significant number of clients, the share of the available market that it serves is less than five percent, and significant room for expansion remains. In addition to the number of clients, the composition of the loan portfolio speaks to the effectiveness of ABA‘ s outreach activities. While manufacturing and processing were initially the primary targets of the SME Project, ABA has diversified its portfolio so that it includes loans to clients involved in trade and to those specializing in the service industry. Furthermore, ABA has been very effective in reaching lower income entrepreneurs. Approximately, 75 % of its loans go to micro enterprises.

As a completely self-reliant project, the ABA is an excellent model of a practice that can be effectively sustained. The project covers the costs of its micro finance and technical assistance services entirely through the revenue generated from loan recovery. The association has developed that capacity through several means: it charges an appropriate but reasonable interest rate on loans; it extends loans with high degree of efficiency; and it selects borrowers with care so that their repayment rate is above 99%. Moreover, because of the high level of client satisfaction, the demand for the services provided by the project and its client base is continually expanding, ensuring a dependable and growing source of revenue.

The structure and methodology of the project has actually been replicated by a number of foundations throughout Egypt that have also been established for the delivery of micro finance services and technical assistance.

ABA’s extension officers are key to the methodology and success. They are responsible for conducting outreach and identifying SMEs that would benefit from the services of the project. They evaluate each enterprise potential for growth, assess its financial and business needs, and determine the appropriate loan size and loan repayment schedule. They then assist with the relevant paperwork, and monitor and collect repayment installments.

The payment of the extension officers represents one of the most innovative aspects of ABA’s operations: they are given basic salary supplemented by an incentive package. These incentives, which encourage extension officers to extend large numbers of loans while maintaining a superior repayment rate, benefits all parties involved: the SMEs, the extension officers, and the ABA.

The efforts of ABA have translated into the remarkable success of this micro finance operation. Several indicators point indisputably to its effectiveness. (See the following table)

C. INSTITUTIONAL CHARACTERISTICS

The organization structure of the SME Project provides for:

Deputy Director, Operations Manager, Financial Manager, MIS Manager, the Alexandria Small Business Center (ASBC) Manager, and Legal Department Manager.

The Branch Managers were all originally hired and trained as Extension Officers. This experience is considered invaluable.

Extension Officers: All Extension Officers (EOs) have university degrees; most of them are recent graduates in their mid 20s. They are hired based on recommendations from existing staff, ABA members, or other contacts. They should have: good interpersonal skills, clear handwriting, intelligence, and some experience working with the private sector. The EOs training is a continuing issue with the project as the program is continually expanding and has a continuing demand for new EOs above and beyond staff turnover. The new EOs spend two weeks in training at head office. During the first week, they receive an awareness and orientation to the SME Project and to the micro enterprise sector. During the second week, they are introduced to the policies and procedures of the project. They then go to the branch where they will eventually be placed to apprentice with experienced EOs for the rest of the probation period.

Typical Branch Structure: Each branch typically has one Branch Manager, one Deputy, 10 - 15 Extension Officers, one Branch Accountant, one MIS Officer, one Lawyer, and one Messenger/Janitor.

Since lending began in January 1990, ABA has taken a very measured approach in extending its services. All loans are given on an individual basis, without utilizing groups. Most promotion is done by the Extension Officer or by word of mouth from existing clients.

The Extension Officer is the key person in developing new clients. S/he is assigned to a branch office (currently 12). Each branch office has a specific geographic area to cover. The Extension Officer appraises the credit needs and develops the loan application in concert with the potential borrower. Applications are then reviewed and approved by the branch loan committee headed by the branch manager. In exceptional cases some applications are referred to control management. The exceptional cases usually arise when the proposed loan size exceeds the norms significantly, or if some of the brief documentation required does not appear to be correct.

Loan releases are made on scheduled days throughout the months. A schedule is determined at the beginning of the year, showing the dates of loan disbursements. New client loans are disbursed twice monthly, while repeat loans are disbursed four-five times each month.

The operational approach to lending is both innovative and traditional. An approved borrower receives a check in the amount of the loan and signs post-dated checks in the amount of the installments that will come due over the course of the loan. At the respective bank office, the post-dated check is shown as being paid in full. Late repayments are considered bad checks and penalties can involve fines or imprisonment through the legal system. All borrowers who have repaid on time and in full are usually guaranteed subsequent finance and qualify for a larger loan.

For new loans, clients come to the branch office to receive their disbursement check and attend a 45-minute briefing/orientation given by the Branch Manager. A 15-minute video film is also played to explain the concept of the project. At the end of this session, disbursement checks are distributed. The briefing session has the following agenda:

• Clients introduce themselves and state their enterprise activity.
• A 15-minute video film is shown.
• Manager explains history and purpose of ABA.
• Manager emphasizes importance of on time repayment.
• Manager describes non-financial services of ABA.
• Manager explains the contents of a folder, which is prepared for each client and includes the loan check, a record book and a sticker with the ABA logo.
• Folders are disbursed to each client.

The Management Information System (MIS) operated by the project, is integrated into the operational approach. The MIS, along with the status of the current and previous loans, maintains all information on the borrower. At the end of each business day, the bank that is receiving the repayments faxes to the ABA and the information is put directly into the MIS, with a daily report then generated for the management and the extension officers. The responsible extension officer, along with a letter of collection, immediately follows up any late payers. If the repayment is still not made after one week, the loan is turned over to the Legal Department for formal recourse.

The SME Project has a markup on its cost of capital to cover its operational costs. The USAID did provide operating expenses to the project during its initial operation. After only two years of operation, the credit service generated enough income to cover operating costs including the interest charged on loan capital but excluding depreciation and provision for bad debt. In 1994, the credit service generated enough income to cover all operating and financial costs. The operating cost ratio of the project is ranked among the best in the world.

The SME Project has a Provision and write-off policy based on the age of the portfolio in arrears. The provisions for doubtful debts are calculated as follows:

Based on the above, the portfolio at risk is always below 2 % of the outstanding portfolio.

For accounting purposes the project writes-off uncollected installments once they reach 12 months beyond their due date. However, this does not mean that collection procedures stop, the legal department continues to collect these funds.

Transaction costs are small compared to the overall performance of the project. Loan processing time for new borrowers is two weeks from application. Repeat loans are approved and disbursed within 3 days.

The fiscal year end for the SME Project is December 31st. Audited financial statements are produced each year. Unaudited semi-annual financial statements are also produced for the project and for each branch.

The SME Project established the ALEXANDRIA SMALL BUSINESS CENTER (ASBC)

as a technical support facility designed to address the non-financial needs of the Micro Entrepreneurs. It performs a complementary function to the credit delivery mechanism.

Objectives of the ASBC

These objectives are achieved through four types of services:

1. Training: Business training in taxation, liscencing, social security, bookkeeping, and marketing. Technical training in woodworking, garment making and other activities.
2. Marketing: Sourcing retail outlets for client products, displaying products in the ASBC’s showroom, organizing exhibitions, and obtaining supply contracts on behalf of clients.
3. Library: Maintaining a library of catalogues allowing clients to be aware of new fashions and production techniques.
4. Technical Assistance: Cooperating with international organizations such as USAID, through the International Executive Service Corps (IESC), and the German GTZ through CIM with sourcing of volunteer experts from various sectors to provide technical assistance to clients.

These services are provided against fees. Clients pay a fee for right to access the library, for training courses, and for technical assistance. Products sold on behalf of clients, either through the showroom or through other retail outlets, are marked-up by 10 - 20 %.

Nothing is provided free of charge.

The ABA/SME Project has developed a quantitative system to measure changes in its clients over time. A representative sample of clients was identified and has been tracked over the course of 18 months. The preliminary results of this analysis are:

The project focuses on providing working capital for its clients. The results from the ITS sample do reflect this emphasis, with over 77% of clients claiming to use their loans on raw materials. Using SME Project loans to purchase raw materials has allowed clients to buy in bulk at lower prices. Other uses of the loans included:

Wages .............................................................. 9.4%

Higher Quality Materials................................... 32%

New Equipment................................................. 11%

Revenues increased during the 18 months for many clients, averaging 25% increases among the various sectors. The increases were higher (33%) among the service and manufacturing sectors, while trade showed around 16% increases in revenues for the period of the 18 months. When asked to attribute these increases, clients often noted increases in production and quality (16% and 21% respectively). Many clients also associated increases in revenue to the addition of new product or service (25%). Still, a large percent noted the seasonally of demand as a major reason for their increased revenues (23%).

The Project clients often used their increased income to support the expansion of their businesses. During the 18 months, increased income was used in the following manner:

Additional Raw Material ...................... 53% Savings................................... 12%

New Equipment.................................... 14% Increased Household Expenses... 17%

This survey identified the creation of 239 permanent jobs and 196 temporary jobs in the enterprises surveyed and supported by the project. The largest increases came in the manufacturing sector, with a 39% increase in permanent employment during the course of 18 months; this was followed by services (25%) and trade (15%).

Client Problems

Although the project’s primary assistance is in the form of loans, many clients (42%) noted a need for additional working capital. Other client problems included:

Marketing Assistance.‎........... 16% Lack of Skilled Workers........... 6%

Government Procedures.......... 19% Inadequate Location................. 6%

Problems with the loan program included wanting larger loan size (41%); a grace period (39%); and longer loan terms (27%). Still, almost half (41%) of all clients noted no problems with the loan program.

Solid Product/Market Match: The ABA’s credit service is filling a need of a large and densely populated target market.

Strong Customer Service: Clients praise the level of service offered by the project. They like the fact that extension officers "go to them" and they find the eligibility requirements easy to meet. They are particularly happy with the quick loan procedures.

Excellent Delinquency Management: The follow-up procedure for delinquent payments is very effective.

Excellent Management Information System MIS: ABA produces excellent management reports, such as a client status report, loan status report, and expected repayments report, which facilitate operations and sound decision-making.

An Elaborate Staff Incentive Scheme: ABA has developed an elaborate Incentive System that has a significant effect on staff behavior and project performance.

Effective Relationship with Banks: The use of commercial banks to disburse and collect payments results in lower operating costs, better client service (since bank branches are conveniently located) and less losses due to error or fraud.

One of the challenges of transformation is determining what ABA, as NGO will do after the bank is created and most of the staff and assets are transferred to the new institution.

Until a final decision is reached, ABA continues its expansion in Alexandria and Kafr El-Sheikh Governorates by increasing its outreach through opening new branch offices, hiring and training more field officers, and considering the approach of new markets and developing new products.

(New program targeting poor women)

Stemming from ABA’s organizational commitment to extend credit and non-financial services to the poorest of the poor, especially poor women - Female Headed Households (FHH), ABA has initiated a distinguished program – Blossoms of MicroEnterprises – in late 1999.

The new program is generally targeting the poorest of the poor with specific emphasis on FHHs. The program focuses on the rural and urban low-income communities. In more specific terms, the program objective is to assist individuals in initiating/expanding income generating activities to improve their living standards. The program also aims at improving the social, cultural, and health standards for participating FHHs and their family members.

The program adopts " solidarity group" mechanism in loan extension, each group consists of five members from the same neighborhood. Loan amounts ranges from 50 to 1000 Egytpian Pounds (US$ 14 to 340 ) and are repaid on weekly installments. Loan tenor ranges from 10 to 40 weeks according to individual cases.

In its pilot phase and within very few months, the program has reached over 150 groups including more than 750 FHHs in only one of ABA’S twelve branches. The program is maintaining a zero delinquency rate since inception and as of the date of this report.

ABA is planning to apply the new program in all its branches where the volume of the demand justifies extending this type of services.

Given the very specific nature and needs of poor FHHs, the program blends financial with non-financial services in the same package. Every month a "Friends" meeting for 3 to 5 groups from the same neighborhood is held. Before the meeting day, a topic is selected and discussed by participants. Examples of those topics include personal family hygiene, pollution prevention, solid waste handling, first aid, obtaining Identity cards for women, illiteracy, among others. Where possible, ABA recruit individuals or organizations specialized in these services to provide guidance, practical solutions and insight to the "Friends" meeting.

L.

(1) Alexandria Governorate