Aggregated News From Investment Management Regulators

FRA is undertaking a series of meetings to extend the legal framework governing finance activity in Egypt to include small and medium-sized enterprises (SMEs) along together with micro-enterprises

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• Dr. Omran: Doubling microfinance ceiling to reach two hundred thousand EGP compared to the current maximum limit
• Dr. Omran: 25 million EGP is the minimum issued and paid-up share capital of the company wishing to be engaged in MSME finance.
• Dr. Omran: the statute of the Egyptian Union of Microfinance shall be amended to include the entities engaged in Financing SMEs and the Union’s name shall be amended.

In light of positive results occurred in the field of microfinance during the last four years and the achievements witnessed by the end of last year where  the number of beneficiaries increased to more than 2.7 million citizens and the size of financing funds exceeded 11.5 billion pounds during 2018 which contributed to reducing unemployment. And  within the framework of achieving the objectives of FRA’s comprehensive strategy of non-banking financial activities (2018-2022) to improve financial inclusion and develop capital markets in parallel with strengthening the legislative framework of non-banking financial sector,

 Dr.  Mohammed Omran – FRA’s Chairman revealed that a series of meetings will be held to hear the views of representatives of NGOs and financial institutions on FRA’s proposal to amend Microfinance Law no. 141 of 2014. The new amendments to the Law shall match the developments revealed by the actual application of the law over the past four years regarding the need to increase finance value that may be granted to clients.  In addition, the new amendments will provide a new finance ceiling for another category to facilitate the associations and civil institutions engaged in finance activity in light of the variables witnessed by the Egyptian economy.

Dr. Omran said that the Egyptian constitution issued in 2014 has committed the Egyptian state to protect economic, productive, service and information activities as one of the basic components of the national economy. Since Financing SMEs –is held outside the banking sector- and is not subjected to an integrated legal regulation, besides a large part of it is practiced through informal mechanisms and customary practices that lack the legal basis. Consequently, the national economy loses advantages of efficiency, justice and stability in financing transactions in this area, despite it represents more than 80% of the structure of the Egyptian economy and % of private agricultural sector in Egypt.

He added that the Authority has prepared a draft law amending the provisions of Law No. (141) of 2014 on regulating microfinance activity. The new amendment will cover all financing activities granted for micro, small, and medium-sized enterprises (MSMEs). In this respect, this will enable the maximum number of target groups and SMEs to access various means of finance, in a move to attract hundreds of thousands of jobs annually which contributes to the elimination of unemployment. On the other hand, the draft law regulates the work of entities granting finance, reduces risks, encourages the expansion of this activity and protects the rights of beneficiaries through putting microfinance entities under a strict regulatory system.

 FRA held a meeting with representatives of financial institutions interested in financing small and medium enterprises, Micro, Small and Medium Enterprise Development Agency (MSMEDA) and the Egyptian Union of Microfinance, as well as companies and associations licensed to finance microfinance activities. Dr. Mohammed Omran emphasized that the draft law defines what is meant by  micro, small, and medium-sized enterprises (MSMEs). The draft law states that medium enterprises includes each company or establishment whose annual turnover exceeds 50 million pounds and does not exceed 200 million pounds. In addition to every company or new industrial establishment whose paid-up capital increases 5 million EGP, not exceeding 15 million EGP or any newly established non-industrial company or establishment whose paid-up capital exceeds 3 million EGP and does not exceed 5 million EGP.

 Also, the draft law states that small enterprises have been identified as each company or establishment whose annual turnover exceeds one million EGP and does not exceed 50 million EGP, or each company or a newly established industrial establishment whose paid up capital exceeds 50,000 pounds and does not exceed LE 5 million. Also, small projects include each company or establishment non-industrial newly established whose paid capital exceeds 50 thousand EGP and does not exceed 3 million EGP.

FRA’s Chairman noted that he was keen to listen to the opinion of the attendees on the description of micro-enterprises that was set in the draft law . as the draft law stated that micro-enterprises shall include any company or facility or natural person whose  annual turnover does not exceed one million pounds, or each company or a newly established establishment whose  paid capital does not exceed 50 thousand EGP . Also, the draft law to redefined the term “micro, small, and medium-sized enterprises (MSMEs) finance” as any finance granted for economic, productive, service or commercial purposes to (micro, small, and medium-sized enterprises) and the value of micro – financing for one enterprise shall not exceed two hundred thousand EGP.

Dr. Omran stressed that in order to maintain the safety and stability of MSME finance and in order to strike balance among their clients, the draft law stipulates that finance companies must obtain a license from the Authority to carry out MSME finance. At the same time, the draft law states that civil institutions may provide finance to others in accordance with its statutes, and it shall carry out MSME finance after obtaining a license from the Authority. The provisions of this law shall not apply to banks subjected to the supervision of the Central Bank of Egypt (CBE) and the Micro, Small and Medium Enterprises Development Agency (MSMEDA).

FRA’s Chairman added that the draft law specified the conditions that must be met by the companies wishing to be engaged in MSME finance. These companies shall be Egyptian Joint Stock Company and it shall limit its activity to MSME finance.

 Also, it’s issued and paid-up capital shall not be less than the amount determined by FRA’s BOD and not less than 20 million EGP for financing medium and small enterprises and 5 million EGP for financing micro enterprises. On the other hand, companies wishing to engage in financing SMEs and microfinance activities together must meet the minimum issued and paid up capital for each of the two activities as referred to in this item.
In addition, the company shall have the technical capabilities and information systems, risk management, funds’ collection. It shall follow-up financing operations and shall have a system for checking clients’ complaints in accordance with the rules issued by FRA’s BOD decision.

Dr. Omran pointed out that in order to achieve flexibility, compatibility with market mechanisms, FRA’s Board of Directors set rules, and regulations for MSME finance, which include the rules of guaranteeing the proper functioning of the company, protecting the rights of creditors and clients. That is besides controls set for ownership of 50% or more of the company’s capital shares. Also, FRA’s BOD set the terms and conditions for granting license to those who are responsible of the company’s management, credit and finance.

 Moreover, FRA’s BOD defines capital adequacy standards that the licensed companies are obliged to abide by – including the controls and limits of finance and other services that the company may provide to its employees, the maximum value of transactions held with one client, the basis for calculating allocations in the light of credit, finance and operational risks. Also, FRA’s BOD clarifies the rules set for supervising and regulating disclosure rules, the data to be published and how to publish it, the rules of advertising for the financial services and products and the consequences of breaching obligations that is established.  That is besides, governance rules that the company shall stick to and the conditions and procedures necessary to conclude collective financing contracts with a number of clients involved in the repayment of finance.

Dr. Omran stressed that in all cases, members of the Board of Directors, those who are responsible for the company’s management and those responsible for credit and finance and their relatives until the second degree are prevented from obtaining finance from the company or any of the related services and activities.

FRA’s Chairman pointed out that the draft law has assigned to – an independent – unit inside FRA the task of organizing, monitoring and following up MSME finance. The said unit shall include associations and civil institutions which have a board of trustees representing the ministries and concerned bodies. The Unit’s formation shall be issued by FRA’s BOD decision. In addition, the draft law establishes a union that includes the entities engaged in MSME finance called “Egyptian Union of MSME finance”.
FRA’s BOD  shall issue a decision on the Union’s statute. The statute shall include the percentage of representation of these entities in the Union’s BOD, its resources, in particular the fees set for membership and annual subscriptions, and the fees set for training and research services. In addition, the statute of the Egyptian Union of Microfinance – currently exist- shall be amended to include entities engaged in financing of small and medium-sized enterprises and changing its name to become “Egyptian Union of MSME finance”. All parties operate in MSME finance are committed to join the Union and abide by its statute.

Dr. Omran pointed out that the draft law provides the right to companies, associations and civil institutions to appeal against any administrative decision before a committee or more established by a ministerial decree. The decision of the Committee to decide on the grievance shall be final. The decision shall not be cancelled unless a grievance is filed and reviewed by grievance committee.
 

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Regulator Information

Abbreviation: FRA
Jurisdiction: Egypt

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