Will regulating the microfinance market in Egypt help breach a gap between supply and demand? Sherine Nasr seeks answers A draft microfinance law is in the making. It is intended to regulate the provision of financial services to micro projects. It will allow, for the first time in Egypt, privately owned companies to provide loans according to a number of criteria that would offer loan seekers access to more diversified financial services. Expected to be ratified by the People's Assembly (PA) during its next session, the new draft law aims at striking a balance between microfinance borrowers' innate vulnerability while also ensuring the rights of shareholders in such companies. A four-day training session held in Cairo last week aimed to help in building the capacity of the microfinance industry provided opportunity for stakeholders from the industry to meet and discuss the new draft microfinance law. "Loan seekers are eager to be treated as clients rather than beneficiaries. Although they have their own needs, they can also be saving money," said Aftab Ahmed, country officer and managing director for Egypt of Citi, the global financial services company. Throughout the past decade, Citi Foundation -- targeting the economic empowerment of individuals and families with a priority focus on microfinance and microenterprise -- has been actively involved with some 100 micro institutions around the country. "We have seen dedicated growth in different areas. There is certainly more to do to provide access to more funding," said Ahmed. Studies have underlined the wide gap between microfinance demand and supply in the market. In July 2009, the Egyptian Financial Supervisory Authority (EFSA) was established to act as a single regulator for non-banking financial organisations. By drafting the new microfinance law, EFSA is seeking to help the market expand by allowing more players to provide more diversified financial services to a wider scale of entrepreneurs. According to Ghada Wali, advisor to the chairman of EFSA and one of the architects of the new law, private companies providing microfinance under the new law have to start their activity with a minimum capital of LE20 million while the limit for micro loans is LE50,000. "There has been a need to regulate the market. The new law is based on a number of initiatives and projects that have been discussed during the past few years," said Wali who added that the United States Agency for International Development helped provide a survey on different laws across the world. In the meantime, the Social Fund for Development and legislative committees representing concerned ministries have all been involved in the process. "At present, two private companies are already operational. We expect five more companies to join track soon." "It is the task of the company to check on the validity of the entrepreneur. On our part, it is our responsibility to examine the structure of the company, its portfolio and management scheme among other things," said Wali who added that the newly established companies are obliged by law to use a credit information service whose task is to check upon clients so as to avoid incidents of loan default or duplications. "The new law aims at helping the borrower, but also aims to protect the investment of shareholders." The new law will not put a cap on interest rates as practice has shown that the interest rate (many banks provide microfinance credit at market interest rates) is not the main obstacle, but rather having access to marketing tools. Unlike other countries, such as Yemen, the new Egyptian microfinance law will not allow companies to collect savings from their clients. "Deposit saving is not allowed by the new law and I do not see it coming soon," said Wali, who added that the government once had a notorious experience with money investment companies and that the Post Authority, with a network of over 3,000 offices across the country, is more qualified to perform the task. According to Sanabel, a regional network established in 2002 to serve microfinance institutions in the Arab world, only four licensed banks in Egypt offer microcredit, none of which offers tailored microsaving products. "Most of the available microcredit is provided by NGOs which are prohibited from offering deposits to clients, leaving the Egyptian Post Office as the main provider of savings products to Egyptian micro entrepreneurs," reported a study recently conducted by Sanabel. While developing the microfinance industry in Egypt has been identified as a national priority by the government, the fact that many players are now in the market is a bit confusing. Typically, NGOs are operating under the Ministry of Social Solidarity, banks are supervised by the Central Bank of Egypt, while EFSA is the regulatory authority under which the newly established microfinance private companies will operate. "How will EFSA care for other clients of other institutions? This is one important question that still needs to be figured out," said Wali.
