- Egypt tightens microfinance legislation to improve access for small companies
- Companies have until May to comply with new regulations
Egypt is tightening regulation surrounding the provision of microfinance in the country to improve access to finance for very small companies.
Sherif Samy, chairman of the Egyptian Financial Supervisory Authority (EFSA) tells MEED that private companies and non-governmental organisations (NGOs) have a grace period of up until May to formally comply with the licensing laws.
Under a Microfinance Law drafted by the EFSA and passed by the government in November last year, all microfinance providers must acquire licences to operate.
A total of 55 NGOs and one company have been granted official licences to date. There are still many more entities that need to comply, with approximately 400 organisations in Egypt currently providing microfinance.
Samy says the new law is the most important piece of economic legislation brought in over the past four years, saying it will not only help protect borrowers, but also strengthen lenders position.
Credible NGOs were happy to see the new regulation, as they knew that with the enhanced credibility and status, they could tap more aggressively soft loans from development agencies and even Egyptian banks, he says.
Under the microfinance law, lenders cannot take deposits. Typically, they would use funding from banks and financial institutions to then on-lend to small companies.
According to the regulation, the lending ceiling for microfinance is £E100,000 ($13,000), but Samy says it is unlikely that many companies would hit this limit.
Improved regulation also aims to boost access to finance among large sections of the Egyptian population on low incomes and struggle to access basic financial services.
By ensuring microfinance companies are licensed, it will also help the EFSA compile detailed data on how big the microfinance industry is and what kind of companies are using such forms of finance. Samy says the EFSA expects to report its first findings in the third quarter of the financial year.
The Microfinance Law is part of a part of a range of legislative measures the EFSA is bringing in to reform the economy, encourage growth and attract investment in to the country.