The Social Fund for Development (SFD) was set up in Egypt in 1991 to channel aid to people expected to suffer as a result of the government’s market-oriented reforms. Donor governments and international agencies contributed generously, but with some reservations. The main criticism was that the fund would be over-centralised and bureaucratic, and that it would have been better to give a stronger role to non-governmental organisations.

Now, as the SFD prepares to embark on its second phase, donors acknowledge that their doubts were misplaced, and the fund has been remarkably effective in directing aid to people who need it and can benefit from it. ‘What has been really positive is that the fund has generated significant net increases in wealth in rural areas,’ says the representative of one donor agency, which is increasing its contribution to the second phase. ‘Because the Egyptian reform programme has proceeded so gradually, negative effects on the rural population have been negligible, and so the SFD activity has provided pure gains.’

The total funds received in the first phase have been $744 million, almost 60 per cent in grants, the remainder in concessionary loans. Donors include the World Bank, the EU, Arab aid agencies and Western governments. Some of the funds are allocated by donors for specific infrastructure schemes, but most go to small businesses.

SFD officials say 73 per cent of disbursements have been in rural areas. The fund has helped create 50,000-70,000 jobs a year since 1991. Its administrative costs are only 6 per cent of total funds disbursed, and it spends just $1,400 on creating each job. This compares with $2,000-5,500 a job in similar programmes elsewhere in Africa and Latin America.

The money is provided in loans and credits through some 1,500 intermediary agencies, which can be approached by existing small enterprises or people aiming to set up a new business. Interest for the former category has been set at 12 per cent, and 9 per cent for the latter. The SFD says the rates will come down to 10 per cent and 8 per cent respectively in the second phase, and the number of intermediary institutions will be increased.

The SFD expects to have a total $850 million in resources for the second phase, which starts on 1 January 1997 and will last four years. The fund’s chairman Hussain el-Gammal emphasises that its function is not only to tackle the problems of unemployment and poverty, but to help engender a spirit of self-reliance, fostering changes in attitudes to accustom people to the requirements of a market economy. So far, against formidable odds, the SFD appears to be winning the battle.