CBE issues new regulations for microfinance in banks

Excluding credit portfolios purchased from micro finance companies or associations in 20% allocated to SMEs from loan portfolios at banks

The Central Bank of Egypt (CBE) has placed new controls to regulate financing granted by banks to NGOs, institutions, and microfinance companies.
In 2017 CBE decided to include microfinance granted directly to individuals, companies, establishments, microfinance associations, and foundations to the 20% provision allocated for small and medium enterprises (SME) out of the banks' total loans portfolios.
At the time, the decision also included setting up guidelines for banks to use when preparing credit studies to finance these entities.
However, decided to tighten control on banks in this regard. Accordingly, the CBE Governor, Tarek Amer announced that the Board of Directors of the CBE agreed on its meeting on 9 October on the addition of policies to tighten control over the funding granted by banks to NGOs, institutions, and microfinance companies.
To achieve this goal, CBE's controls issued included declaring, monthly, both authorized or used credit limits granted to companies or NGOs for microfinance to i-Score.
Also, banks will have to continue to adhere to what is reported to the General Directorate of Credit Risk Collection at the Central Bank of Egypt.
Per the new guidelines, before granting a loan, banks should also obtain a commitment from these companies or associations to inquire about customers to verify that the number of loans granted per customer does not exceed three loans from three institutions.
Moreover, the CBE also obliged banks not to include credit portfolios purchased from companies or associations of microfinance within the 20% allocated to SMEs from the loan portfolios of banks.
The CBE required banks to obtain a letter from the Financial Regulatory Authority(FRA) stating the sound performance of companies or microfinance associations, their compliance with the standards and rules of practising the activity specified by the authority, and the absence of any irregularities that exist until the issuance of these controls.
CBE's instructions also included that companies must disclose to i-Score all their customers, and their credit behaviour, per the contract between these institutions and i-Score. The CBE will also be reviewing the credit data contained in an i-Score report to analyse and evaluate customer payment behaviour.
According to the CBE's instructions, the leverage of microfinance associations should not exceed 10x the original granted amount or the commitment of companies or associations working in microcredit to the maximum amount granted to microfinance, by law 141 for 2014.
The CBE asserted that in case of company's violation or association to the provisions of this law or the rules of practising the activity, banks shall not increase the volume of financing granted to them or grant them new financing until the violations are corrected according to the time stipulated by the FRA.
Furthermore, the leverage of microfinance associations should not exceed 10x the original granted amount or the commitment of companies or associations working in microcredit to the maximum amount granted to microfinance, by law 141 for 2014.
The CBE asserted that in case of company's violation or association to the provisions of this law or the rules of practicing the activity, banks shall not increase the volume of financing granted to them or grant them new financing until the violations are corrected according to the time stipulated by the FRA.