Dr. Omran: Reducing or postponing the value of the installments by 50% of the value of each installment for microfinance beneficiaries
Dr. Omran: Exempting regular microfinance clients from commission payments for outstanding debts or reducing administrative expenses upon renewing existing loans
In the context of monitoring and following up the daily performance of microfinance activity by the team work formed by FRA to contain the current economic burdens of the activity linked to the interests of 3.1 million Egyptian citizens, Dr. Mohammed Omran – FRA’s Chairman issued the fourth periodical memo which includes a package of additional measures to support microfinance beneficiaries and to maintain the safety and stability of the activity. The said measures were issued after consulting representatives of both the Board of Directors of the Egyptian Microfinance Federation and Board of Trustees of Microfinance Unit as well as representatives of major companies and Societies and NGOs operating in microfinance.
Dr. Mohammed Omran explained that the periodical memo included several additional facilities for regular microfinance clients. It aimed at reducing the burden of debts on their shoulders. The additional measures introduced many options to reduce financing cost for clients who paid their dues regularly. Also, it stated that microfinance entities shall sign an agreement with insurance companies to pay – on the behalf of its clients – the value of compulsory micro insurance premiums against risks of death and permanent total disability.
It also includes facilities to provide free financial services to clients such as bearing the burden of expenses of various electronic financial transactions that are held with other electronic payment agencies other than banks and / or field collection expenses, or exempting clients from commission payments for outstanding debts or reducing administrative expenses to renew existing loans.
In addition, the periodical memo directed microfinance entities to reduce or postpone the installments by 50% of the value of each installment. Financing entities shall cover costs and burdens of financing obtained by the microfinance agencies from various financing sources such as banks and Micro, Small and Medium Enterprise Development Agency (MSMEDA). As well as covering the administrative and operational expenses for the entity that incurs it in order to keep providing services to its clients, that is in addition to the burden of debit balances allocations.
FRA’s Chairman stressed that the mechanism of applying reduction / postponing facilities should be done according to the treatment mentioned in the periodical memo, pursuant to the following instructions:
– The reduction will be granted by the microfinance entity for each case separately and for a certain period of time , no less than the monthly installments (March and April 2020).
– The value of reduced installments (deferred debt) is postponing the number of new installments by the end of the original payment schedule
– Postponement premium cost -during this period -agreed upon with the client is calculated according to the debtor’s current rate of return and other financing charges that the entity bears with banks or other financing sources on behalf of its clients. As well as its operating expenses incurred not to exceed the limits approved by its pre-crisis work policy and without any other margins, and they are added either in the form of supplementary premiums at the end of the period or distributed on the original installment schedule according to the circumstances, and in a manner that the client does not carry more than his usual payment capacity so that he will be able to pay regularly .
– The client shall be notified and he clearly aware of the costs that will result from postponing and how to pay it. Client’s approval shall be obtained through a clear request and / or a contract annex consistent with the requirements of Article No. (32) entitled “Finance Contract Controls” mentioned in the rules and controls of practicing microfinance activities. In this respect, microfinance entity shall use the means it deems appropriate to prevent overcrowding in its branches.
– In the event that the client does not want to bear the additional cost as result of the postponing process , the original payment schedule shall be applied and the client shall be informed in the appropriate way, while maintaining the right to benefit from the advantages mentioned in the item related to regular clients’ facilities.
FRA’s Chairman also referred to basis of calculating clients’ credit score, so that the Egyptian Credit Bureau “I-Score” shall approve clients every month in accordance with the monthly approval instructions and according to the regularity status in the payment schedule for the affected clients in the light of previous facilities.
Dr. Omran added that in case of credit portfolio clients whose debit balances are transferred from microfinance entities to other parties and collection is held on the part of the assignor (the microfinance entity), then microfinance entities have the right to apply the same previous facilities to their clients in these portfolios. It shall take into consideration obtaining the approval of the assignee on handling the clients’ debt in terms of postponing conditions and other related items that may need to be reviewed in contract of assignment and taking into account the appropriate disclosures stated in the financial statements of the assignor. FRA shall be notified of all these in a timely manner.
In the event that the assignee is a securitization company, a fair pricing mechanism shall be set, as bondholders may be affected due to financial obligations that may result from postponing the payment of instalments. Also, there must be an agreement whether the maturity period shall be extended with the same contractual rate of return or a new rate of return. FRA shall approve all these procedures and then inform all concerned parties in a timely manner.
Dr. Omran pointed out that microfinance entities shall apply the benefits package for clients who pay regularly and the facilitation package for other clients. Also, it shall adhere to the Emergency Action Plan (EAP) and business continuity shall be the responsibility of the board / board of trustees and the actual management of the entities licensed to practice microfinance activity. He added that they have to take the necessary Urgent tasks and procedures that would preserve the assets of various microfinance entities.