Microfinance Law in Egypt

Mohamed HashishBy:

Mohamed Hashish
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E. m.hashish@shandpartners.com
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A new Microfinance Law under No. 141 of 2014 was issued and entered into force in Egypt on November 13, 2014 (the “Microfinance Law“) governing the provisions of the “Microfinance” services in Egypt.

The term “Microfinance” means any loan to be granted for economical, production, services, commercial purposes in the areas and amounts to be specified by EFSA’s Board of Directors provided that each loan shall not exceed EGP 100,000 (one hundred thousand Egyptian pounds).

Before issuing the new Microfinance Law, the Microfinance services were provided by (i) Non-profit Organizations that are duly registered with the Egyptian Ministry of Insurance and Social Affairs in accordance with the Non-Profit Organization Law No. 84 of 2008 (the “NGO Law”); (ii) Banks  and branches  of foreign banks that are duly registered with the Central Bank of Egypt in accordance with the Banks Law No. 88 of 2003 (the “Banks Law”); and (iii) Companies that have a valid license for the provisions of payday loans from the Egyptian Financial Supervisory Authority (the “EFSA”) in accordance with the provisions of Law No. 10 of 2009 regulating non-banking financial markets and instruments.

According to Article 17 of the Commercial Registry Law No. 34 of 1976 (the “Commercial Registry Law”), no one may carry out any kind of business activities (the “Commercial Activities”) in Egypt without being registered with the competent commercial registry.

It is worth noting that, according to Article 5 of the Trade Code No. 17 of 1999 (the “Trade Code”), credit services (including Microfinance services) are considered by law as “an act of carrying out commercial activities by way of profession” (i.e. the provisions of the Microfinance services are characterized under Egyptian law as “an act of doing business activities in Egypt” even if such Microfinance services are provided on a non-regular basis) and, therefore, companies that have no legal presence in Egypt may not provide without (i) complying with the abovementioned provisions of Article 17 of the Commercial Registry Law; and (ii) being licensed from EFSA.

This being said that in order for a non-Egyptian company to provide the Microfinance Services in Egypt, such company must incorporate a new company in Egypt (the “NewCo”) and register the NewCo with the commercial registry.

Regulation of Microfinance:

According to the new Microfinance Law, EFSA has the exclusive jurisdiction over the issuance of licenses to the companies that provide microfinance services in Egypt.

By virtue of the new Microfinance Law, the Board of Directors of EFSA issued a number of executive decrees specifying the compliance and supervisory rules, regulations as well as the financial adequacy that must be met by the companies that provide microfinance services in particular the following: (the “Executive Decrees“)

1. Good practice rules ensuring the protection of debtors rights;

2. Regulations for holding more than 50% of the share capital of the companies that provide microfinance services;

3. The requirements that should be met in order to authorize managers and legal representatives to hold management positions in the companies that provide microfinance services in Egypt;

4. The caps of microfinance loans for each customer;

5. Discloser requirements;

6. Regulations of advertisement for microfinance services in Egypt;

7. Creditworthiness cheque rules;

8. The requirements (including formalities) for microfinance Services contracts;

9. Governance rules; and

10. listing and delisting rules at EFSA’s registrar for auditors.

However, according to the new Microfinance Law, in order for a company to provide microfinance services in Egypt, the said company shall obtain a license from EFSA following the stratification of the following main conditions:

1. takes a legal form of a joint stock company;

2. the object of the said company shall only be limited to the provision of the Microfinance Services;

3. the issued capital shall not be less than EGP 5,000,000 (approx. USD 696,379), which shall be paid in full; and

4. shall have the all financial and technical adequacy including, inter alia, risk management and debt collection in accordance with the terms and conditions of the Executive Decree that shall be issued by the Board of Directors of EFSA.

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