Situated in Northeast Africa, Egypt shares borders in the west with Libya, and in the south with Sudan. It is bounded on the east by the Red Sea and on the north by the Mediterranean. The surface area of Egypt is 997,739 square kilometers, of which only 35,190 square km is settled and cultivated. About 95% of the land is uninhabitable desert. Egypt’s population of more than 65 million continues to grow at the rate of 1.3 million people per year or 2.17%. Around 99% of the population live in the narrow strip of the Nile valley, which runs the length of the country, and in the Nile Delta. Population density in non-desert areas is therefore high, at about 1,381 per sq. km in 1985. Greater Cairo with more than 13 million inhabitants in 1995 has a population density of over 32,000 per sq. km. The economy in Egypt is dominated by the service sector, which including public administration accounts for half of GDP. Within this, tourism and the Suez Canal are important sectors.

Microfinance

UNCDF does not have any local governance programmes in Egypt, It has, however, through its Special Unit for Microfinance (SUM), contributed to the development of a vibrant microfinance industry.

Microfinance is a young industry in Egypt. Although the country contains at least 1.5 million microenterprises, more than 95 percent of the potential demand for microfinance is still not being met. Most of the entrepreneurial poor have limited access to financial services and tend to rely on self-financing or costly informal financing, such as rotating savings, credit schemes, and local moneylenders. Rough estimates indicate that the Egyptian microfinance industry could potentially have between two and three million clients, whereas only an average of 220,000 have access to financial services. Donors and practitioners have realized the potential in providing financial services to the poor and are presently in the process of shaping the field, setting principles, and developing best practices that reflect the needs of the local entrepreneurs in Egypt.

The UN Capital Development Fund has contributed its efforts in developing the Egyptian microfinance sector mainly through the MicroStart Egypt Project, which is a part of the global MicroStart programme. UNDP, in partnership with the Social Fund for Development, contracted UNCDF to pilot the MicroStart project under its Job Creation Programme as an effort to promote income generation among the poor in Egypt. The development objective of the programme is to improve access of financial services offered by local organizations to the economically active poor, in order to enhance their economic activities, increase their revenues, and create and consolidate employment.

Ultimately, the supply of microfinance services is expected to contribute to alleviation of poverty and to economic growth. The immediate objectives of this project are as follows:

1. Strengthen the institutional, organizational, and technical capacity of participating local organizations to provide microfinance services to the economically active poor.
   
2. Increase the financial capacity of participating organizations to provide microfinance services to the economically active poor.
   
3. Contribute to the development of knowledge, expertise, and information concerning microfinance, at the level of the participating organizations.
   
4. Enhance the capacity of the Social Fund to manage its existing microcredit projects and to propose new ones based on best practice principles.
   
5. Enhance the capacity of the Social Fund to provide technical assistance and training to Sponsoring Agencies (SAs) and necessary follow on SA funded projects, as part of its responsibilities as an apex institution.
   
6. Contribute to the development of reporting standards within the Social Fund for the microcredit operations under the Community Development Program (CDP) and link with relevant MIS development objectives.
   
7. Ensure the continuity of the initiatives taken in the pilot programme.

The MicroStart Egypt programme has served as both a learning laboratory and showcase to stakeholders from which to draw lessons and educate donors, government authorities and the private sector. The project has been successful thus far, with major project inroads made in the areas of building the sustainability and outreach of the three partner MFIs: the Small Projects Development Association (SPDA), the Community Association for Family Development (CAFD), and the Silla Community Development Association (SCDA). These three solid ‘start-ups’ have built their institutional capacities by transforming from charity-oriented to business-oriented organizations that share a common vision of sustainability. However, all three organizations face challenges in the second phase of the project as they transform from ‘start-ups’ to ‘institutionalizing’ organizations that intend to reach intermediate growth targets of 1000-3000 clients and beyond. Moreover, in keeping with the new sector development approach to microfinance, Phase II of the MicroStart project will shift focus from supporting individual MFIs to developing the micro finance sector as a whole, whereby the sustainability of financial services for the lower segments in the market will be developed as an integrated part of the Egyptian financial sector.