More and more people in Egypt are warming up to buy now, pay later (BNPL) schemes when making large or small purchases, with these seeing an upsurge of 27 per cent in the first half of 2023 compared to the same period in 2022, according to an Egyptian Financial Regulatory Authority (EFRA) report.
The global economic crisis and the repercussions of the Russia-Ukraine war have affected the economic conditions of many people in Egypt, causing them to opt for consumer-financing services when buying goods.
Goods bought on credit, paid for using credit cards with installment options or using the services of consumer-finance companies, range from essential items to seasonal sweets, such as the Moulid sweets bought to celebrate the birth of the Prophet Mohamed.
Some premium packages of such sweets this year carried a price tag of LE3,000.
Thanks to BNPL services, it is possible for people to buy goods in installments over a period of no less than six months.
Products available for purchase through consumer finance include vehicles and spare parts, furniture, household appliances, clothing, footwear, watches, jewellery, eyewear, medical and cosmetic products, sports gear, and electronic appliances, as well as groceries from major retail chains, children’s toys, stationery supplies, and food products.
Educational and medical services, sports club memberships, and travel and tourism packages can also be bought through consumer finance.
BNPL services exclude goods governed by the real-estate financing laws, financial leasing, factoring, microfinance, or the purchase of real estate from property developers.
According to the EFRA report, 1.7 million people benefited from consumer-finance services in the first six months of 2023. In June 2023, 284,000 people used BNPL services, up from 240,000 in June 2022, the report said.
Consumer-finance companies injected LE20.5 billion into the market in the first half of 2023, up from LE14.17 billion during the same period in 2022, the report said. The EFRA added that they had pumped LE3.6 billion into the Egyptian market in June 2023, up from LE3.1 billion in June 2022, recording 18.2 per cent growth.
According to Tarek Al-Husseini, chairman of the board of a company operating in the consumer-finance sector, consumer finance in Egypt amounted to LE16 billion in 2022 and is expected to surge to LE50 billion in 2026.
Al-Husseini said that rapid global economic and political developments and their impact on the local economy and people’s purchasing power had contributed to the increased demand for consumer finance.
This was perceived as a secure option to support people’s purchasing needs and safeguard them against liquidity shortages, especially in the face of rising prices, limited incomes, and the desire to acquire various goods, he said.
BNPL services have emerged as a key tool for bridging the gap between essential consumption and limited incomes, he added.
Economic expert Ali Abdel-Raouf Al-Idrissi said that while buying goods on installment plans has existed for a long time in Egypt, the system was now available in new forms with new payment methods and facilities designed to make consumer goods more accessible.
These have played a significant role in promoting financial inclusion, he said. Moreover, the banks now offer substantial credit limits, often up to 50 per cent of an individual’s income.
BNPL services have also kept consumer demand rising even amid rising inflation rates, notably benefiting sellers.
Egypt boasts numerous consumer-finance companies, including valU, Souhoola, Aman, and Forsa, each with varying terms and amounts available. The companies offer smartphone applications that streamline the process of taking out credit and typically take no more than 10 to 15 minutes for approval.
Additionally, they provide flexible and diverse installment plans tailored to individual financial circumstances.
Consumer-finance activities are subject to the supervision of the EFRA. Law 18/2020, which regulates these activities, also outlines the rules that consumer-finance providers must adhere to, including guidelines for determining the amounts available based on a customer’s ability to repay.
Al-Idrissi warned that people should be aware when using BNPL services of the danger of becoming indebted for long periods. “Consumer finance can sometimes be a trap used by sellers to convince people to purchase items that are not important to them, such as offering a LE100,000 iPhone to an employee whose salary is LE5,000,” he said.
“Saving is the essence of investment. If people spend more than their salary, they will compromise their ability to buy essential needs in the future,” he added.
“I decided against buying an air fryer after realising that its price, originally LE3,500, would go up to LE5,000 if I bought it in installments through a consumer-finance company,” said Noha, a mother of three, in Cairo.
Unfortunately, many people do not have enough awareness of their spending patterns, said Samia Khedr, a sociologist, noting that consumerism has become prevalent in Egyptian society.
Medhat Nafie, a professor of finance, recently wrote in a newspaper article that the spread of consumer finance and credit cards that enable people to buy almost anything in installments has given many limited-income people the illusion of wealth.
Increasing consumer finance in Egypt where there is low productivity, and promoting economic growth primarily through consumption rather than investment and production, could exacerbate inflationary pressures, significantly impacting prices, he added.
The government should therefore do more to regulate consumer finance during economic crises, with particular attention being paid to the inflationary pressures that have affected economies worldwide, he said.
* A version of this article appears in print in the 19 October, 2023 edition of Al-Ahram Weekly
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