Chairperson of the Financial Regulatory Authority (FRA) Mohamed Omran, said that his administration launched the national strategy for Non-Banking Financial Institutions (NBFIs) (2018-2022).
This strategy is based on 10 strategic objectives, which include themes for the development of market mechanisms and services, as well as legislative and procedural aspects, enhancing the growth rates of the sector, and developing governance, policies, and institutional framework.
He added that the FRA’s management introduced five laws, that are currently pending the parliament’s approval during its current session. The laws include the Central Depository Law and its role in establishing a specialized company to settle government bonds, the Consumer Finance Law currently under discussion in the cabinet, in addition to the Law of Small and Medium Enterprises, the Law on Insurance and Private Insurance Funds, and finally amendments to the Microfinance law.
Omran explained that his administration is keen to take into account all the needs of NBFIs during the preparation of those laws and various legislative amendments to raise their contribution to economic development.
Currently, NBFIs contribution is limited to 16% of the size of the financial sector in Egypt.
During his speech at the fourth session of the Non-Banking Financing Tool forum, Omran added that in light of the changes in global economies and the prevailing fears about slowing global growth rates, it is increasingly important to revitalise the NBFIs to support the market’s ability to meet these expected future challenges.
He pointed out that the meetings of the International Monetary Fund (IMF) have highlighted several issues such as the slowdown in global economic growth, global indebtedness, and the necessary measures for developing countries to avoid the impact of these challenges.
He also stated that during the IMF meetings, participants viewed the Egyptian economy in a positive light, especially with the decline in inflation rates, and the completion of the economic reform programme.
In light of external challenges, Omran stressed the importance of the national strategy for non-banking services, through which they aim to restructure the non-banking financial sector and increase its role as a major player in the process of economic and social development. He also emphasised the importance of inclusive economic growth, in addition to providing tools to finance national and infrastructure projects, supporting SMEs by facilitating procedures and providing financial tools and mechanisms suitable for them.
Government IPO programme to press on
On the capital market, Omran pointed out that the FRA issued a decision on extending the deadline granted to companies listed on the Egyptian Exchange (EGX) and did not complete the procedures for the implementation of the offering for six months ending on 31 March 2020.
The list includes about four companies, most notably Banque du Caire and Sky Light for Tourism Development. The companies have to notify the EGX by 30 November 2019 with a time plan including the measures they will take to implement the offering.
Omran explained that this decision is of great importance to ensure the activation of the initial public offering (IPOs) and the speed of the start of companies’ trading, adding that his management has since 2017 obliged all companies wishing to be listed on the EGX to obtain the necessary approvals for the fair value and the prospectus to be offered within 30 days from obtaining FRA approvals.
He touched on the Central Depository and Registration Law, revealing the approval the FRA to amend some provisions and become a comprehensive law, aiming to regulate clearing and settlement operations both in the present and future market.
This is through adding some provisions governing the clearing and settlement of contracts.
He added that the proposed amendment included allowing companies to be licensed by the FRA to conduct clearing and settlement of contracts that are traded on futures exchanges, whether this license is for depository companies or through a new company established for this purpose.
Omran pointed out that one of the most important aspects of the amendment was to allow the Central Bank of Egypt (CBE) to establish a joint-stock company either wholly owned by it or in partnership with other entities, to conduct clearing and settlement operations for government bonds and treasury bills. The Board of Directors of the FRA shall issue the conditions, controls, and procedures necessary.
Leasing, microfinance highest growth financial sectors
In terms of financial leasing and microfinance, he pointed out that these sectors are among the most non-banking financial sectors which recorded growth rates during last year by about 46% and 63%, respectively.
He added that a large percentage of financial leasing activity is based on the real estate sector, which requires controls to ensure that these funds are used for the purpose allocated to them.
Omran welcomed the submission of proposals by the authorities responsible for the financial leasing activities to obtain a share of the CBE’s initiative to finance the segment of small and medium enterprises, and in the field of factoring.
He added that the FRA board aims to discuss current studies on the establishment of the first union for financial leasing and factoring.
According to Omran, the market will witness this month the issuance of the first short-term bonds in Egypt, stressing the importance of green bonds, which have become a good tool that companies must use to achieve growth rates.
On the insurance law, he revealed that his administration submitted the law to the cabinet in the mid of October after discussing with the market stakeholders of the Egyptian Insurance Federation and the Insurance Advisory Committee, brokerage firms, and private insurance funds.
With regard to real estate investment funds, Omran said that the FRA has recently submitted a proposed tax treatment for this category of funds, which includes exempting funds that distribute 70% of their revenues from taxes, pointing to the existence of current studies by the Ministry of Finance to discuss the tax status of funds, especially charitable ones.