Private Sector Access to Credit in Egypt: Evidence from Survey Data

Abstract:
This study aims to investigate the extent of credit decline to the private sector in Egypt and whether it is due to supply factors (credit crunch), demand factors (credit slowdown), or other factors (e.g., crowding out). For that purpose, a detailed survey was conducted of 19 state- owned and private banks and 351 firms from various sectors. The study finds that non- interest lending criteria have been tightened and that interest rates are no longer the decisive factor in lending decisions. In addition, due to the problem of non-performing loans, banks are becoming more risk-averse as reflected by the reduction in credit and investment in more liquid and less risky assets such as treasury bills and government bonds. Consequently, Egypt is currently experiencing a credit crunch. To conclude, the paper offers a number of recommendations to improve private sector access to credit, such as resolving the problem of non-performing loans, establishing more credit bureaus and enhancing the business environment through a set of legal and judicial reforms.