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FRA?s BOD approves a draft law on amending Microfinance Law to include small and medium-sized enterprises (SMEs) along together with micro-enterprises - Wednesday 22/5/2019

• Dr. Omran: 25 million EGP is the minimum issued and paid-up share capital of the company wishing to be engaged in MSME finance.

FRA’s BOD approved in its session today a draft law on amending the provisions of Law No. (141) of 2014 on regulating microfinance. 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. The draft law will be sent to the Prime Minister for its issuance.

 Dr. Omran emphasized that the draft law is a step that is taken by the regulator to comprehend the developments revealed by the actual application of the law over the past four years regarding the need to increase finance value 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 field, despite it represents more than 80% of the structure of the Egyptian economy and % of private agricultural sector in Egypt.

Dr. Omran added that the new draft law 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, pursuant to the best international practices in this regard.

The draft law’s legal framework includes an amendment to Microfinance Law to regulate SME finance along with microfinance activities in terms of rules and regulations set for the companies to practice both activities in a manner that achieves flexibility and ease of application.  That is in addition to the possibility to amend and develop these rules in accordance with the needs of the industry and its development.  The project also emphasizes that MSME finance is one of the non-banking financial tools and then subjected to the provisions of Law No. (10) of 2009.

Dr. Omran noted that the most important part of the draft law includes the following:
- Replace the title of Law No. (141) of 2014 on regulating microfinance activity, with the following title: “Law on regulating MSME finance”. The term "Microfinance" shall be replaced by the term “MSME finance” whenever it is mentioned in Law No. (141) of 2014 referred to.
- The licenses granted to companies, associations and NGOs to carry out microfinance activity shall continue to apply unless they are canceled in accordance with the provisions of the law.
- Add definitions related to MSMEs
- Issued and paid-up capital of companies operating in SME finance shall not be less than 20 million EGP 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.
- The statute of the Egyptian Union of Microfinance - currently exist - shall be amended to include entities engaged in SME finance and changing its name to become “Egyptian Union of MSME finance”.
- Companies, associations and NGOs licensed by the Authority to engage in SME finance may operate in financial leasing activities, taking into account the provisions stipulated in Law No. 176 of 2018 promulgating the Law regulating Financial Leasing and Factoring activities.

It is worth mentioning that the draft law has witnessed several sessions of community dialogue in the past period with representatives of financial institutions operating in SME finance, the Micro, Small and Medium Enterprises Development Agency (MSMEDA), the Egyptian Union of Microfinance as well as companies and associations licensed to engage in microfinance activity.