MICROFINANCE PAPER WRAP-UP: Regulation and Supervision of Microfinance in Egypt by Magdy Moussa

Written by Magdy Moussa, Senior Microfinance Advisor at PlaNet Finance for the Middle East and North African Region; published in January 2007 by the Consultative Group to Assist the Poor’s (CGAP) Microfinance Regulation and Supervision Resource Center; number 21 of The Essays on Regulation and Supervision series, 17 pages, available at:
http://www.microfinancegateway.org/gm/document1.9.27739/37060_file_Egypt_Moussa_Final_.pdf

Magdy Moussa, author of Regulation and Supervision of Microfinance in Egypt, draws attention to two laws applicable to the Egyptian microfinance sector, discussing his proposed amendments to improve the regulatory framework for microfinance institutions (MFIs) in Egypt. The first law is Law No. 141 of 2004, defining the rights and duties of the Egyptian Social Fund for Development (SFD) as a monitoring body. The second law is Law No. 84 of 2002, defining the rights and duties of the Ministry of Social Solidarity (MSS) as a supervisory body over non-governmental organization (NGO)-MFIs [1].

The SFD was established in 1991. Mainly funded by the World Bank, the SFD operates under the umbrella of the United Nations Development Program (UNDP) [2]. The SFD is intended to assist low income groups which are most affected by the economic reform measures in Egypt. During the year 2000, the Community Development Program (CDP) under the SFD finalized 45 projects with both governmental organizations and NGOs with a total budget of approximately USD 10.3 million, of which 61.3% were allocated for loans and microcredit schemes, while the remaining 39.7% were committed to social services [2].

Under The Small Enterprise Development Law No. 141 of 2004 (SME Law), the SFD is responsible for “fostering the development of small enterprises with planning, coordination and promotion for their dissemination on a wide scale, assistance in obtaining their needs including finance and services, etc.” [3]. The author proposes three duties that the SFD should be able to carry out under this law.

First, they should be able to obtain information such as an MFI’s lending portfolio and financial performance. Second, they should develop binding rules for obtaining information from these MFIs, either directly or through a self-regulatory organization and the Egyptian Microfinance Network (EMFN). Third, they should coordinate between the various financing and donor agencies in the microfinance sector to avoid controversies, duplications, and waste of resources.

A second body overseeing the microfinance sector in Egypt is Law No. 84 of 2002. Under this law, the MSS is the official governing body for NGOs. NGOs are required to register with the MSS before providing services, and must submit annual audited financial statements to the Ministry. The author asserts that Law No. 84 should be amended in a few ways.

First, MFIs should be acknowledged as a distinctive type of NGO, and accorded their own standards and regulations separate from other types of NGOs. Second, MFIs should be allowed to access information from, and provide client credit data to, the private-sector credit bureau for those organizations extending loans larger than USD 5,500. Third, MFIs should be exempt from certain current requirements governing NGOs with respect to their accounting and auditing. Fourth, they should be granted the right to receive funds and charge market-rate interest [1].

By: Diya Chopra, Research Associate

Bibliography:

[1] Microfinance Gateway

http://www.microfinancegateway.org/gm/document1.9.27739/37060_file_Egypt_Moussa_Final_.pdf

[2] Social Fund for Development Egypt

http://www.sfdegypt.org/annual_part2.html

[3] Microfinance Regulation Center

http://www.microfinanceregulationcenter.org/resource_centers/reg_sup/basics#2