Overview on the Draft of the Egyptian Consumer Finance Law

February 18, 2020

The Egyptian consumer finance market and the economic apatite were never more suitable for embracing and regulating consumer finance mechanisms. The Egyptian Financial Regulatory Authority (the “FRA”) recently confirmed that: “around 2 million Egyptians are indebted through consumer finance with up to EGP 70 billion. This is a huge amount when compared to bank loans of the same year which are estimated to be between EGP 60 billion to EGP 70 billion”.[1] This considerable number has incited the Egyptian legislator to regulate the Egyptian consumer finance market in efforts to provide protection for the market’s consumers.

 

SCOPE OF THE DRAFT LAW

A law regulating consumer finance activities is currently being discussed and is expected to be issued during the first half of 2020 (the “Draft Law”). It is intended to monitor and regulate the consumer finance institutions, excluding banks, and classify them as non-banking financial institutions. After the issuance of the Draft Law, the FRA will be in charge of enforcing it and shall issue the needed executive decrees.

 

WHAT QUALIFIES AS CONSUMER FINANCE IN THE DRAFT LAW?

Consumer finance is defined in the Draft Law as “any activity aiming to provide funds for the purchase of consumer and durable goods and services once practiced as a regular activity. Financing can be through commercial payment cards, or any other payment method approved by the Central Bank of Egypt”. Under the Draft Law, financing for which the installment period is less than the limit set by the FRA, which cannot be less than 6 months, is not considered as consumer finance.

The Draft Law regulates consumer finance of goods and services provided by consumer finance licensed companies, among which the following:

  • Means of transportation;
  • durable goods including electrical and electronic devices;
  • educational services;
  • medical services;
  • tourism and travel services; or
  • any other type of goods or services approved by the FRA’s board.

 

LEGAL ENTITIES PROVIDING CONSUMER FINANCE

  • Consumer Finance Companies:

The companies wishing to provide consumer finance should obtain a license from the FRA (the “License”). In this regard, the conditions to receive the License include: (a) the company shall be a Joint Stock Company (“JSC”); (b) its issued capital shall not be less than the limit set by the FRA’s board, which cannot be less than EGP 10 million; (c) its business shall be limited to consumer finance unless it obtains the FRA’s approval to practice other non-banking financial activities; and (d) 50% of the capital of the company shall be owned by juristic persons and at least 25% of said capital shall be owned by financial institutions.

  • Consumer Finance Providers:

The Draft Law further stipulates that producers or distributers of goods that also provide consumer finance, amounting to a threshold to be set by FRA which cannot be less than EGP 25 million per year, shall obtain a license from the FRA. The conditions to obtain said license include: (a) the company shall be a either an JSC, a limited liability company or a company limited by shares; and (b) the company shall allocate to the consumer finance activity an amount to be set by the FRA’s board, which cannot be less than EGP 10 million.

 

MEASURES FOR THE PROTECTION OF CONSUMERS

  • The Draft Law imposes a strict confidentiality obligation on Consumer Finance Companies and Consumer Finance Providers; and
  • the Draft Law also provides that in case the Consumer Finance Companies or the Consumer Finance Providers fail to comply with the provisions of the law, the consumers can submit a complaint to the FRA and a wide range of penalties can be imposed by the FRA’s board in case of violation.

Lastly, it is important to note that this article is not intended to provide a comprehensive analysis of the Draft Law but rather aims to provide an overview of the Draft Law and the main points covered therein, in efforts to give a heads up to all the market players. Further, the points tackled herein are based on the latest Draft Law published on January 2020 and may be amended in the promogulated law.

[1] The Egyptian Financial Regulatory Authority’s newsletter dated 10/2/2020.

 

 Our Corporate and Commercial  team Welcomes your questions:

Mohamed Abdelgawad 

Hana Awad 

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