Arab FinanceEconomic experts and heads of consumer and microfinance companies confirmed that the decision… Financial Supervision Authority Regarding stopping accepting applications for establishing new companies through traditional methods, it will have a good impact on the economy, reduce inflation rates, and is in line with the policies of the Central Bank of Egypt related to limiting cash liquidity in the markets and following a policy of monetary tightening.
Yesterday, the Financial Regulatory Authority stopped accepting applications for incorporation and initial approval for the establishment of companies wishing to obtain a license from the Authority to practice the activities of financing micro-enterprises or consumer financing through traditional methods. It also stopped accepting applications for obtaining a license to practice the activity of financing micro-enterprises for associations and institutions. Eligibility, for a period of one year, subject to renewal, in accordance with Resolution No. 184 of 2024.
A new financial solvency system
For his part, he said: Amr Kamal Abu Al-AzmCEO, Vice Chairman and Co-Founder of Irada Microfinance Company In exclusive statements to Arab Finance, the Financial Supervisory Authority’s decision regarding accepting applications for incorporation and initial approval for the establishment of companies wishing to obtain a license from the Authority to practice the activities of financing micro-enterprises or consumer financing through traditional methods is a “very good decision,” because current companies Currently, the work in this field is sufficient, in addition to the fact that the Financial Supervision Authority is working on a new financial solvency system that aims to raise the capital of companies operating in this sector in order to meet the needs of customers through a strong financial portfolio.
Abu Al-Azm added that the currently existing companies are cooperating with Egyptian banks with the support of the Central Bank to provide the necessary financing package, and the decision is for a year, and the authority will then consider the appropriate decision after this period, explaining that the Irada Microfinance Company has products based on financial technology in cooperation with Etisalat. e&, the main partner in the company, explaining that the Financial Regulatory Authority had previously noted the market’s need for new products and diversity in products and the desire to have new products, which is consistent with the Authority’s policies.
The decision limits cash flow and combats inflation
For his part, Dr. Ezz El-Din Hassanein, professor of finance and economic expert, said that the decision of the Financial Regulatory Authority is “correct,” especially since the increase in this type of companies that play the role of banks may cause a crisis, especially in light of the current economic conditions during which the Central Bank is following a policy of monetary tightening. .
Hassanein explained that the expansion of this type of consumer and microfinance companies leads to increased liquidity in the markets, which contradicts the goal of the Central Bank of Egypt to reduce the money supply in the markets to reduce prevailing inflation, as the current liquidity rates of the money supply have reached more than 25%. While the optimal rates should not exceed 12%.
Hassanein pointed out that banks resort to these companies to lend to customers in order to reduce the risk of non-payment by customers, pointing out that the Central Bank of Egypt, during its current monetary policy, is withdrawing more liquidity, in order to reduce it in the market, and thus reduce its supply, which leads to… To confront inflation, and therefore it is a correct decision on the part of the Financial Regulatory Authority and is in line with the policies of the state and the policies of the Central Bank, which combats inflation.
Consumer finance companies have recently expanded their lending operations
While Dr. Wael Al-Nahhas, professor of finance and economic expert, said that some consumer finance companies have recently expanded their lending operations, which increases default among their clients.
Al-Nahhas added that some of these companies lend at exaggerated and very high interest rates that may reach 50% annually, pointing out that some of these companies have caused crises in countries such as China and Europe as a result of defaulting on payments, and the whole world has begun to wake up to this crisis, noting that there are those who By exploiting this type of consumer financing to provide the necessary liquidity for him, such as someone who buys a deal of refrigerators and then sells them at prices lower than their price in what is called “price burning.” Then he stumbles after that and the crisis occurs here, which causes disruption in the markets. Some of these companies have come to the point of financing Cars without any guarantees, which creates a problem during payment, and these customers may default, praising the new decision of the Financial Regulatory Authority in this regard.
It is noteworthy that, according to the Financial Supervisory Authority’s statement issued the day before yesterday, the number of new licenses granted by the Financial Supervisory Authority to companies operating in the activity of financing micro-enterprises during the last two years reached 10 licenses, in addition to about 6 applications that are currently being studied from a total number of 25 companies that have obtained the license. A license, and about 10 applications from civil society organizations wishing to obtain the license, in addition to granting licenses to about 15 companies during the last two years for consumer finance activity, and about 4 applications are under study out of a total of 30 companies that have obtained the license.
The number of beneficiaries of microfinance activity is about 3.8 million beneficiaries and about 1.9 million beneficiaries of consumer financing, with financing values amounting to 56.2 billion pounds for microfinance and about 35.5 billion pounds for consumer financing.
With the continued keenness of the Financial Regulatory Authority to ensure the financial solvency and technological requirements of non-banking financial institutions, the Authority will announce within days a hypothetical community dialogue with companies operating in non-banking financing activities before the start of implementing financial solvency standards in accordance with Basel III, in parallel with reviewing the extent The commitment of companies operating in non-banking financing activities to the Authority’s decision that the minimum capital be 75 million pounds, unlike real estate financing, which is a minimum of 100 million pounds, as the new decision stipulates stopping accepting applications for incorporation and initial approval for the establishment of companies wishing to obtain a license from the Authority. To practice the activities of financing micro-enterprises or consumer financing through traditional methods. Acceptance of applications for a license to practice financing micro-enterprises for associations and civil society institutions is also suspended, for a period of one year, subject to renewal, in accordance with Resolution No. 184 of 2024.
The decision excluded from its provisions any company or entity wishing to practice any of the activities of financing micro-enterprises or consumer financing using the fields of financial technology, and in accordance with the law regulating and developing the use of financial technology in non-exchange financial activities issued by Law No. (5) of 2022.
According to the decision, the suspension decision also does not apply to companies, associations, or civil society organizations that were established or obtained initial approval for incorporation, or that submitted applications to obtain either of them or to obtain a license to practice either activity before the implementation of this decision, which began on the 11th. October 2024.
According to the Authority’s statement, this came within the framework of the Financial Supervisory Authority’s continued keenness to achieve financial stability for markets and non-banking financial institutions in a way that enhances their role in the national economy and meets the needs of individuals, and based on the remarkable growth of new licenses issued by the Authority to companies, entities and associations that operate In consumer financing and micro-enterprise financing activities, which entails the need for the supervisor to ensure the financial solvency of service providers.
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