CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

Innovations in SME finance

Cairo, March 28, 2010

Marriott Hotel

Antonino GittoPartner at McKinsey & Company Inc. ItalyItalian mobile: +39 348 8952839Egyptian mobile: +20 106 5540501 E-mail: antonino_gitto@mckinsey.com

McKinsey & Company 1|

Worlds most powerful and

capable consulting firm It commands unrivalled respect

Fortune

Distinguished by its excep-

tional people, top manage-ment approach and one-firm principle

Business

Week

Long history of working with leading corporations

Serving 96% of Global 100 and 76% of Global 500

Across all industries

Broad geographic reach

Now with 94 offices in 52 countries, including 5 offices in the Middle East (i.e., Bahrain, Doha, Dubai, Riyadh and Abu Dhabi)

Common philosophy, base of experience, skills and standards

Unrivalled talent pool

8,900 consultants from 52 countries

4 in 5 possess advanced management degrees

3 in 5 have significant managerial experience

Strategy to deliver impact to leading organizations on a global basis through our extensive expertise

Global reach and best practice learning

Substantial reinvestment in industry knowledge building

Depth of specialist support

Combine industry insight and functional knowledge

Worlds largest strategic management consultant

Wall Street Journal

McKinsey & company is the worlds leading management consulting firm

McKinsey & Company 2|

KEY MESSAGES

Currently 200,000 SMEs companies are underserved with ~30% bancarization

rate and ~20% of total corporate market revenue pool1

So far only few players have introduced a dedicated service model for SMEs2

Several factors could boost penetration rate e.g. i) the increased attention of

the Egyptian Government towards SMEs, ii) the increased appetite of Financial

Institutions willing to enter a high margin white spot 3

We expect SME revenue pool will grow at CAGR of ~23% and expected to

reach 25% of the overall corporate banking revenue pool by 2015 4

To serve SMEs, Financial Institutions need to define and implement a specific

value proposition and business model5

Banks in other emerging market succeeded in targeting this segment achieving

a steady profitability of 2.5% net of cost of risk and cost to serve6

McKinsey & Company 3|

~195

~2250

~2.9

~0.5

~0.1

~2.5 mln companies

SOURCE: CAPMAS; Social Insurance Fund, CBE; McKinsey analysis

SMEs ARE CURRENTLY UNDER-SERVED, NEVERTHELESS REPRESENT A RELEVANT PORTION OF THE REVENUE POOL

1 Includes revenues from wholesale deposits, wholesale loans, trade finance, Forex, leasing, and factoring

Calculated as NRFF plus F&C

10

30

100

100

100

360

3,698

4,812

5,131

5,881Government and public institution

Large corporate

SMEs

Micro (Business)

Mid corporate

>~200

MEGP

~50-200

MEGP

~5-50

MEGP

ESTIMATES

29%

26%

24%

19%

2%

% of total Revenue 2010

< 5

>100 for industrial >20

for trade and

services

>10 for industrial >2

for trade and

services

< 0.05

>500

# of companiesThousands

Market revenue pool1

EGP Millions

BancarizationratePercent

Segmentation criteria

CapitalEGP Millions

EmployeesUnits

McKinsey & Company 4|

% citing as key to defining their main banking relationship Product usage top 10 products

TODAY SMEs ARE MAINLY USERS OF TRANSACTIONAL AND FEE BASED PRODUCTS

Percentage of respondents

10

9

11

10

16

20

24

Most of credit facili-

ties are with them

We do our trading

with them

Our payroll goes

through them

We have a personal

relationship with them

We do our cash

management with them

That is where I

cash checks

We keep most of

our deposits here

19

20

21

25

31

32

33

37

68

77

Local bills discounting

Document delivery/

pick up

Foreign exchange

LG (Letter of guarantee)

Overdraft

LC (Letter of credit)

(Internet) Payment

solution

Payroll services

Check clearing

Cash/check deposits

SOURCE: Small and medium enterprise banking customer survey 2008; team analysis

McKinsey & Company 5|

WHILE SEVERAL OPPORTUNITIES ARE AVAILABLE TO FULLY COVER THE WHOLE SPECTRUM OF FINANCIAL NEEDS

SOURCE: McKinsey analysis

Products and services Typical SME profiles

co

re f

inan

cia

l n

eed

s

SMEs needs by priority

Transaction Current accounts and deposits Cash/non-cash payments

Payroll services/Basic cash management Internet transactions

All SMEs, product/service mix differ by SME size, industry, transaction behavior

Treasury Advanced cash management Treasury management services,

short-term investment services to increase yield

from excess cash

SME with high liquidity on current account SME with multiple sites and entities

Working capital

Overdraft Factoring

SME with high working capitalrequirement (especially accounts receivable/payable)

Industry: services, retail

Asset finance Collateralized loans (typically MLT) Leasing

Capital-/asset-intensive SME with major long-term needs to purchase/replace property, plants and equipment

Trade partner LC/LG

Documentary collections

SME within with national/cross-border business

relationships

Insurance Insurance to cover business exposures:

Property TPL Transportation

All SME for plain vanilla (e.g. property)

Different profiles for other products (e.g., per industry: trade/retail for transportation, service for liability)

Owner wealth management

Investment services to SME owner Integrated solutions and relationship coordination

across business lines

SME controlled by one/very few owners Typically SMEs with high excess cash flow or mature

SMEs with owners

Employee pro-ducts/benefits

Standard retail banking products

for salaried employees of SME, e.g. salary accounts, credit cards etc.

SME with sizable employee base

McKinsey & Company 6|

1

16

18

25

36

Other

Pricing

Brand

Proximity

Service level

SMEs choose a bank evaluating .

% of SMEs ranking the factor as the most important factor among the 6

Sample size = 110

SERVICE LEVEL AND PROXIMITY DRIVE SMEs IN THEIR BANK CHOICE

SOURCE: McKinsey - Enlight Market Survey; team analysis

McKinsey & Company 7|

~2250

~195

~2.9

~0.5

~0.1

~2.5 mln companies

< 5

>100 for

industrial >20

for trade and

services

SOURCE: CAPMAS; Social Insurance Fund, CBE; McKinsey analysis

>10 for

industrial >2

for trade and

services

< 0.05

SMEs WILL REPRESENT A LARGER PORTION OF THE REVENUE POOL AND GROWING AT DOUBLE SPEED IF COMPARED TO THE LARGE SEGMENT

1 Includes revenues from wholesale deposits, wholesale loans, trade finance, Forex, leasing, and factoring

Calculated as NRFF plus F&C

10

30

20

45

100

100

100

100

100

100

1,106

360

10,519

3,698

9,106

4,812

8,702

5,131

12,860

5,881

2010

2015

>500

Government and public institution

Large corporate

SMEs

Micro (Business)

MIdcorporate

>~200

MEGP

~50-200

MEGP

~5-50

MEGP

Focus of this section

17%

11%

14%

23%

25%

30%

21%

22%

25%

3%

ESTIMATES

Revenue growth (CAGR) 2010-2015

% of total Revenue 2015

# of companiesThousands

Market revenue pool1

EGP Millions

BancarizationratePercent

Segmentation criteria

CapitalEGP Millions

EmployeesUnits

McKinsey & Company 8|SOURCE: McKinsey

HOWEVER, SERVING THIS SECTOR IS CHALLENGING AND HIGH RISK High performing bank

Poor performing bank

ILLUSTRATIVE EXAMPLE

SME ROA

Percent

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Main challenges

Lack of official

financial information

(e.g. p&l, balance

sheet)

Significant presence

of informal economy

Significant presence

of liquidity

Limited knowledge on

financial trade off

between using

liquidity and asking

for financing

McKinsey & Company 9|

Extensive access points dedicated to SME e.g.

Hub and Spoke SME centers

Effective pull campaign with SME

TO SERVE SMEs, FINANCIAL INSTITUTIONS NEED TO DEFINEA WELL-THOUGHT AND INTEGRATED BUSINESS MODEL

SOURCE: Team analysis

Value proposition

Effective riskmanagement

Enabling ITinfrastructure

Extensive Distribution

Efficient and effective

operations

Quality of service

11

22

33

44

5