In an attempt to empower small enterprises and entrepreneurs, Egypt is working on regulating the microfinance sector. Sherine Nasr reports Providing finance to micro-entrepreneurs has played an effective role in alleviating poverty in many countries. Last week, the Egyptian Financial Supervisory Authority (EFSA) launched a draft of the general rules under which microfinance companies in Egypt will operate. According to Ziad Bahaaeddin, chairman of EFSA, these rules are the result of a whole year of deliberate efforts by the Microfinance Working Group to study the best international practices of microfinance regulations and standards of operation in order to provide the appropriate regulatory framework that would preserve the rights of both borrowers and lenders. "There is a growing need to regulate the microfinance market in Egypt. Currently, the activities of microfinance companies are not subject to any supervision," said Bahaaeddin. He added that the draft of proposed rules and principles developed by EFSA is now subject to discussion in order to reach a consensus among the various microfinance stakeholders on how to best serve the interests of both the companies and the micro-entrepreneurs. "The current rules, though, don't represent a legal tool but rather an operational framework for microfinance companies," said Bahaaeddin. The launch of the new draft rules was marked by the visit of Princess Maxima of the Netherlands to Egypt last week. In her capacity as the UN secretary-general's special advocate for inclusive finance for development, Princess Maxima met with top government officials to study issues related to financial inclusion as a tool to help the poor. "What does this financial inclusion really mean? This is a universal access, at a reasonable cost, to a wide range of financial services, provided by a diversity of sound and sustainable institutions," said Princess Maxima during a seminar held Wednesday at the American University in Cairo. Services include savings, insurance, payments and remittances as well as loans. "Financial inclusion is about individuals and also small and medium enterprises [SMEs] which are local engines of job creation," she added. Clearly, the concept of providing financial services to the poor has been expanded to include microfinance, small and medium finance as well as other provisions of financial services to poor individuals excluded from these services. According to Princess Maxima, one striking characteristic of being poor is not simply having little income but also irregular income, particularly in rural areas where farmers sell their harvest and need the cash they make to last them the whole year. "Financial services can then help the poor manage their cash flow, invest in opportunities and strengthen resilience to setbacks. This, in turn, will help them make more of what they already have. Moreover, they will be part of the country's economic development," Princess Maxima said. In Egypt, it is essential to have a diverse range of financial service providers to be able to produce the right product in the right place at the right cost. "The financial system should be transparent and competitive. It should protect the consumers. It should also lie upon the right infrastructure," she added. In Egypt, some 1.3 million people are being served by microfinance institutions. However, the demand by micro-entrepreneurs is believed to be much higher. A recent survey underlined that less than 10 per cent of SMEs in Egypt have access to formal loans. "This means that a lot of informal arrangements and self-financing is being done. We know that informal finance is often expensive and unpredictable. Thus, an inclusive financial system in Egypt will be one with many different kinds of institutions providing services and products that clients need across the value chain," Princess Maxima said.