Companies to provide microcredit for the first time in Egypt

Ahram Online, Thursday 29 May 2014

New law approved by Egypt's government will give informal businesses greater access to loans, with a maximum of LE100,000 available in microcredit

Mounir Fakhry
Mounir Fakhry, Egypt's investments minister (Photo: Al-Ahram)

Egypt’s cabinet has approved a new law organising and supervising microfinance through the Egyptian Financial Supervisory Authority (EFSA) which will allow companies to enter the industry for the first time, according to a ministerial statement released on Thursday.

The law aims to motivate informal microenterprises to enter the formal sector by facilitating access to credit.

Companies specialised in the provision of non-bank microfinance services and products will be allowed to enter the Egyptian microfinance industry which has so far been restricted to banks and NGOs.

Mounir Fakhry, Egypt's investments minister, said in the statement that microcredit is set at a maximum of LE100,000, but the cabinet will have the right to raise the amount 5 percent annually if requested by the EFSA.

A new unit will be created in the EFSA to implement the law and supervise the microfinance industry.

Banks and the state-run Social Fund for Development are excluded from the law as they are subject to central bank supervision, but companies and NGOs will fall under the EFSA's supervision.

The EFSA asserts on their website that such a move will serve to reduce the credit-supply gap from which the industry suffers.

In a report entitled "Microfinance in Egypt: Brief Overview of Current Status", EFSA reveals that by the end of 2009 active microcredit clients in Egypt had exceeded 1.4 million, distributed equally between men and women.

These small loans are provided by more than 400 institutions with a total outstanding portfolio of LE2.2 billion.

More than 40 percent of the loans are provided in Upper Egypt, while almost three-quarters of the loans are directed towards the trade sector, leaving only a quarter to manufacturing and services sectors.

Microcredit programmes were first introduced in Egypt in the 1980s by the National Bank for Development and Alexandria Businessmen Association along with the technical and financial support of USAID.

 

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