CBE Raises Amount Allocated for Ban

On 8 October 2017, the Central Bank of Egypt (“CBE”) issued a circular amending the 2014 CBE Mortgage Finance Initiative by raising the amount allocated for bank mortgage-finance activities in favour of low- and middle-income individuals from EGP 10 billion, to EGP 20 billion (the “Circular”). Furthermore, the circular exempted injured military and police personnel, and the families of martyrs in either service, from adhering to the maximum income threshold when applying for residential units through the Ministry of Housing’s Social Housing Program.

Background

Mortgage finance is regulated under Law No. 148 of 2001 (the “Mortgage Finance Law”), which provides the overall legal and institutional framework for mortgage finance activities in Egypt. Being part of the non-banking financial market, most mortgage-finance activities fall within the purview of the Egyptian Financial Supervisory Authority (“EFSA”). EFSA is, accordingly, the main entity responsible for regulating mortgage finance activities carried out by mortgage finance companies and other market actors. However, the Mortgage Finance Law also allows licensed banks to engage in mortgage finance activities, in which case they are governed by a separate set of regulations issued by the CBE. In parallel to the government’s efforts, the CBE has in recent years embarked on its own mission to facilitate access to the mortgage finance market. In this context, the CBE launched in February 2014 a Mortgage Finance Initiative for Low and Middle-Income Individuals (the “Initiative”).[1] The seven-point Initiative involved allocating EGP 10 billion for mortgage finance activities in favour of low- and middle-income individuals for a period of 20 years. Under the Initiative banks are to lend the allocated amount to targeted beneficiaries primarily for the purchasing of housing units, against reduced interest rates ranging from 5% to 10.5% per annum, based on whether an individual falls under the threshold for lower, middle, or above-middle income. The CBE Initiative thus identifies the conditions on which banks offer mortgage finance and it specifies the characteristics of the clients intended to benefit from this initiative. It also allows banks to direct their funds to mortgage finance companies under certain conditions. Various amendments to the original 2014 CBE Initiative over the years have addressed these conditions. The last of these amendments was a circular issued on 22 June 2017[2] raising the thresholds for incomes that fall within the low to above-middle income categories, and increasing the maximum price of units that can be offered under this scheme, in parallel with threshold increases applied by the Mortgage Finance Fund, under the auspices of the Ministry of Housing, in attempts to address the effects of inflation.

The Circular

In its meeting held on 4 October 2017, the Board of Directors of the Central Bank of Egypt issued the current Circular[3] in reference to the CBE’s 2014 Mortgage Finance Initiative for Low and Middle-Income Individuals. The Circular refers to the success of the Initiative presumably in reference to an earlier announcement by CBE Deputy Governor in which he revealed the offering of banks of near EGP 8.5 billion in financing under the CBE’s Initiative. The Circular also refers to the Mortgage Finance Fund’s making available of units under the State’s Social Housing Program to injured personnel and the families of martyrs in the military and police services, while exempting applications made by those individuals from fulfilling the maximum income condition. This has necessitated the coordination with banks that offer mortgage finance under the 2014 Initiative, so that they can start to apply the exemption in relation to files referred to them from the Mortgage Finance Fund.   [1] CBE’s Circular dated 19 February 2014 on Mortgage Finance Initiative to Low- and Middle-Income individuals, Available through this link (Arabic). [2] CBE’s Circular dated 22 June 2017 amending the Mortgage Finance Initiative to Low- and Middle-Income Individuals, Available through this link (Arabic). ^[3] CBE’s Circular dated 8 October 2017 raising the amount allocated mortgage-finance initiative and exempting injured military and police personnel, and the families of martyrs in either service, from adhering to the maximum income threshold, Available through this link (Arabic).