MICROCAPITAL.ORG STORY: Egypt Government to Draft Legislation Regulating Microfinance and Microinsurance Providers

A recent press release announced decisions on the part of the Egyptian government to draft a new legislation for the purpose of microfinance regulation in Egypt. The legislation is meant to provide a framework within which all microfinance institutions (MFIs) in Egypt can operate [1].

Currently, the Ministry of Social Solidarity is the official governing body for non-governmental organizations (NGOs) and MFIs in Egypt. According the Aga Khan Agency for Microfinance, the United States Agency for International Development (USAID) found that growth of the microfinance sector in Egypt has been stunted due to regulations restricting microfinance programs to operating as NGOs or charitable foundations. This restriction in turn prevents MFIs from accessing external equity or debt financing. USAID expects the new legislation to address this issue, allowing the formation of MFIs and facilitating the entry of external shareholders into MFIs [2].

Based on the findings of this study, USAID recommends advocacy as a key mission of the new legislation. A USAID report summarizing the findings of the study says there should be clearly defined goals for advocacy efforts resulting from stakeholder consensus. “In the case of Egypt, the National Microfinance Strategy document can be used as the ‘springboard’ for policy dialogue, with other issues” [3].

According to the Consultative Group to Assist the Poor (CGAP), a National Microfinance Strategy document is a “publicly approved document, developed through a consultative process… [including] an overview of microfinance, a vision for the sector, strategic objectives, and an action plan for implementation” [4]. For more information, please visit: http://cgap.org/gm/document-1.9.4349/Briefs_NatMicroStrat-Update.pdf.

Mohamed Farid, head of the Ministry of Investment’s Capital Markets Unit, explains that with a regulatory framework, “people will know exactly what to do to establish a company in this area or to promote microfinance products, which would prompt more companies to enter the business of providing microfinance” [1].

Following his address to the Euromoney Conference in September, the Minister of Investment Mahmoud Mohieldin explained that the law will have nothing to do with the Social Fund for Development (SFD) and the banks operating in this area, as they have an existing legal framework. Mr. Mohieldin explained the importance of funding this project, among others, through the Public Private Partnerships (PPP) system [5]. The PPP system is a public services provision whereby the Government works with private sector companies to build finance and operate infrastructure for public services or for its own use [6].

Egypt’s Ministry of Investments is drafting the legislation with the help of financial firms and business associations, the names of which have not been released. Involved in the formation of the new legislation is defining how many employees and what size capital a company must have to be considered a microenterprise. Furthermore, a paper discussing the issues of microfinance regulation in Egypt says legislation will need to distinguish between the authorization of a supervisory body and a monitoring body, the latter having less authority of supervision over an MFI. Issues like this will have to be worked out before the new bill is presented. Mr. Farid says the ministry has plans to submit the bill in October 2009. Once approved, the bill will likely take another three months to implement [7].

USAID is a U.S. agency which was established in 1961 to provide foreign assistance to “countries recovering from disaster, trying to escape poverty, and engaging in democratic reforms.” USAID’s involvement in microfinance includes financial and technical assistance, policy reforms, and initiatives linking small enterprises and poor producers into higher-value markets [8].

By: Diya Chopra, Research Associate

Bibliography:

[1] Reuters

http://af.reuters.com/article/investingNews/idAFJOE5900RN20091001?pageNumber=1&virtualBrandChannel=0

[2] Common Ground News Service (CGNews)

http://www.commongroundnews.org/article.php?id=24253&lan=en&sid=1&sp=0

[3] USAID

http://pdf.usaid.gov/pdf_docs/PNADK823.pdf

[4] CGAP

http://cgap.org/gm/document-1.9.4349/Briefs_NatMicroStrat-Update.pdf

[5] Ministry of Investment Egypt

http://www.investment.gov.eg/en/Highlights/Pages/Euromoney%20Conference2-29-09-2009.aspx