On 16 March 2020, Law No. 18 of 2020, which governs consumer finance activities, was issued and entered into force on 18 March 2020 (the "Consumer Finance Law").
The Consumer Finance Law defines consumer finance as any activity with the objective of extending credit, on a habitual basis, to buy goods and services for consumption purposes ("Consumer Finance"). It includes credits extended via commercial payment cards or any other payment method approved by the CBE. However, financing with a tenor of fewer than six months (or such longer period as determined by FRA) will not be considered Consumer Finance. Also, consumer financings extended by banks registered with the Central Bank of Egypt (CBE) are not governed by the Consumer Finance Law.
Consumer Finance in Egypt: Now under the control of the Financial Regulatory Authority
Under the Consumer Finance Law, creditors in respect of finance extended to consumers to buy goods or services are divided into two main categories
- Consumer Finance Companies; and
- Consumer Finance Providers.
"Consumer Finance Companies" are companies licensed to offer consumer finance, which includes extending credit via commercial payment cards or any other payment method approved by the CBE, in connection with a contractual arrangement with a network of suppliers of goods or providers of services. By contrast, “Consumer Finance Providers” are companies that are themselves producers or distributors of goods or services and which perform consumer finance activities to facilitate providing such supplies to consumers.
Consumer Finance Companies and Consumer Finance Providers are supervised by the Financial Regulatory Authority (FRA). Goods and/or services falling under the scope of Consumer Finance activities for Consumer Finance Companies include vehicles, durable goods (including electronic devices), educational services, medical services, travel and tourism services; and any other goods or services approved by the FRA. Consumer Finance Providers are limited to vehicles and durable goods
What it means for you
It should be noted that, in order to be able to perform Consumer Finance activities, a company must be licensed by the FRA. The FRA issued on March 22, 2020, its Decree No. 56 for 2020 with regulations for Consumer Finance activities and to enable obtaining such license.
Failure to obtain a license may expose the company, and the individual responsible for the company's administration, to a fine of not less than EGP 200,000 and up to EGP 1,000,000 and, potentially, also imprisonment. It is worth noting that the same penalty applies to breach of secrecy obligations.
The Consumer Finance Law provides a grace period of six months (to end on 18 September 2020) during which any party performing any of the Consumer Finance activities mentioned above must rectify its position to comply with the Consumer Finance Law.
The Consumer Finance Law additionally allows Consumer Finance Companies and Consumer Finance Providers to secure the financings under a consumer finance agreement by virtue of a Moveable Collateral Registry.
Consumer Finance Companies and Consumer Finance Providers must abide by the confidentiality, advertisement and marketing requirements as laid out by the FRA. Also, they are required to make certain disclosures to the FRA, in particular, disclosure with respect to the calculation of interest.
Actions to take
To obtain the FRA license to conduct Consumer Finance activities, the following key actions (among others) should be satisfied before the lapse of the grace period ending on 18 September 2020:
ensure they are in the appropriate corporate form (i.e. joint-stock company for Consumer Finance Companies, joint-stock company, limited liability company or partnership by shares for Consumer Finance Providers);
ensure they have the appropriate shareholding structure (i.e. at least 50% held by juristic persons, 25% of which should be financial institutions for Consumer Finance Companies);
ensure they have the IT infrastructure required for such activity by the FRA;
ensure the board of directors meets the expertise requirements required by the FRA;
meet the issued capital requirements of not less than EGP 10,000,000 for Consumer Finance Companies; allocation of not less than EGP 10,000,000 for Consumer Finance activities for Consumer Finance Providers);
contractual arrangement with clients to be in accordance with the form prepared by the FRA and comply with the relevant requirements; and
comply with the financial standards imposed by the FRA.