On 06 February 2022, the board of directors of the Financial Regulatory Authority (“FRA”) issued decree no. 20 of 2022 (“Decree”) regarding standards and considerations of sensible pricing concerning the activities of (i) financing medium and small enterprises; and (ii) micro-financing.
The standards and considerations outlined in the Decree apply to companies, institutions and non-governmental organizations licensed by the FRA to undertake the activities of (i) financing medium and small enterprises; and (ii) micro-financing (the “Financing Entities”).
The Decree shall be effective on the day following its publication (the “Effective Date”). In this regard, the Decree was officially published in Al-Waqa’i Al-Masryah on 07 February 2022 and shall thus be effective on 08 February 2022. Financing Entities shall have a grace period not exceeding six (6) months from the Effective Date to reconcile their legal status with the provisions of the Decree.
The Decree defines sensible pricing as a high-quality professional commitment on Financing Entities towards their clients having medium and small and/or micro-projects. This commitment entails the submission of a fair and balanced pricing scheme for the products of said clients and the funding services offered thereto. Said scheme should, in brief, ensure complete transparency in line with the clients’ rights to have an accurate view of financing requirements and enable the clients to grow their business while preserving the Financing Entities’ capacity to achieve the required operational and financial sustainability rates. A comprehensive disclosure of all financial burdens and expenses incurred by the client to obtain the desired funding is the cornerstone of responsible pricing.
To this effect, the Decree sets out the minimum technical considerations that Financing Entities should follow when setting a pricing policy for the various products and financing services offered thereby. These include, inter alia, qualitative considerations (such as the financing period, the financing disbursement method and types of guarantees submitted) and quantitative considerations (such as primary administrative fees, secondary administrative fees and the average cost inflation rate).
Each Financing Entity must thus prepare a clear and objective financing policy for all its financing products and services and specify the final prices for each financing product which takes into account the technical considerations set forth by the Decree as per three tranches:
Such policy should be ratified by the Board of Directors or Board of Trustees of the Financing Entity. Such policy should also be revised periodically with a maximum of once per year and regularly updated when needed. The FRA should be kept up to date regarding the ratified policy and amendments duly introduced thereto.
To ensure the objectivity of the pricing policy, the Decree sets out pillars to be followed when establishing the policy and the mechanisms related thereto. Such pillars are namely:
Further, while the disclosure is mandatory, two levels of disclosure should be taken into account: basic disclosure (compulsory according to the FRA’s forms) and advanced disclosure (optional).
In all events, the Decree provides that the FRA shall publish the indicator reference to responsible pricing and sets forth an incentive scheme for Financing Entities whose sensible pricing indicators match the FRA’s indicator reference (“Compliant Financing Entities”). Such incentives are divided into financial incentives and non-financial incentives as follows:
Finally, there are specific qualifications to the scope of application of the Decree. These are as follows:
It is worth noting that, although specific cases, Financing Entities are under an obligation to disclose such collections and bear the responsibility of ensuring that clients are aware of such fees and the risks related thereto accurately and sufficiently. Further, the pricing scheme of such fees should be consistent and should be adequately lenient.
