• Dr. Omran: Market mechanisms will preserve the achievements of the Egyptian experience in microfinance activity
Dr. Mohammed Omran – FRA’s Chairman asserts that expanding access to finance for small and medium businesses alongside with microfinance requires providing human expertise and financial solvency of financial service providers. He adds that it is our duty as a regulatory authority that has issued a legislation to add SME financing to the activities of microfinance companies to be assured of maintaining levels of growth in the microfinance activity. In addition, he points out that whoever obtains a license to engage in SME financing shall maintain the expected growth in the microfinance portfolio. FRA’s Chairman emphasizes that the Authority trusts market mechanisms that will preserve the achievements of the Egyptian experience in microfinance.
Dr. Omran calls upon all the entities that wish to practice MSME Finance to apply for a license to practice the activity in order to prevent the issuance of a decision from FRA’s Board to suspend the activity and close the company’s headquarters. He adds that practicing the activity without obtaining a license from the Authority is considered a violation of the Law and the company shall be subjected to penalties, that is in conjunction with applying Law No. (201) of 2020 amending the provisions of Law No. (141) of 2014 on regulating microfinance after its publication in the official gazette No. (41) issued on 11 October 2020.
This came within the framework of a workshop called by the Authority and attended by officials of civil associations from category (A) licensed to practice the activity of microfinance and their market share represents 38.7%. Also, the workshop was attended by officials of microfinance companies whose market share represents 54.5% according to August 2020 report and the Egyptian Federation for Microfinance to exchange views on the general framework for licensing controls of SME financing.
FRA’s Chairman explained that the workshop allowed direct communication with the main players addressed by Law No. 201 of 2020. He added that this event disclosed to everyone that the Law aimed at expanding finance activity to provide financing for new clients who do not resort to traditional financing. At the same time, the workshop discussed the success story that was achieved in microfinance activity over six years, during which 3.11 million clients benefited from financing and contributed significantly to financial inclusion. Also, the workshop tackled women empowering where females who have received financing for micro-projects are approximately 64%. Moreover , FRA’s Chairman stressed that the Authority will not hesitate to intervene by setting up what it deems appropriate in terms of binding controls when needed if there is a lack of interest in microfinance.
Dr. Omran said that according to the law, FRA’s Board in coordination with the Micro, Small and Medium Enterprise Development Agency (MSMEDA) will set rules, controls for practicing SME financing, controls for practicing microfinance or the rules and controls for practicing both activities together. That is besides setting solvency standards that companies shall adhere to according to the activity they are licensed to do with reference to the solvency standards currently applied to the micro-finance activity.
Dr. Omran emphasized that setting financial solvency standards for SME financing require a change in the capital adequacy standard, which requires an increase in the capital base of the company or association wishing to engage in SME financing.
Mona Zulfikar, chairperson of the Egyptian Union of Microfinance asserted that microfinance has a special nature in its techniques, as well as the type of client benefiting from financing and that is what the funding agencies (companies-associations) have known and have become specialized in practicing microfinance.
Also, she added that it is important to establish a separate unit for SME financing away from the micro-finance as its clients have different nature. In addition, she called on the members of the Union to go towards studying SMEs, their financing requirements and determining the financing product that will compete with traditional financing.