FRA Registration of Microfinance Co

On 23 September 2018, the Financial Regulatory Authority (“FRA”) issued decision No. 142 of 2018 (the “Decision”)[1] with rules on the registration, relocation, and closure of microfinance companies branches. The Decision prohibits microfinance companies from undertaking their activity from a location other than the company’s headquarters without obtaining an approval and registering the branch with the FRA in a register that is created for this purpose. The Head of the FRA issues decisions for the registration, relocation, or closure of a branch and the FRA decides based on market needs and geographical distribution. FRA approval is required for the change of a branch activity, its relocation or closure, and for the replacement of senior personnel. Companies with existing microfinance licenses have six months to comply with the new rules. A committee formed at the FRA is to conduct site visits to ensure that the branch has the necessary administrative and technological infrastructure in place. Said committee is to issue its report within two weeks from submitting a request of registration and to issue its approval within a week from the company’s fulfilment of all requirements. Branches that are solely to undertake marketing activities could only undergo a desk search rather than a site inspection.

Administrative Structure and Policies

The Decision defines two types of branches for microfinance companies: Companies must create regional credit locations in their administrative structure to monitor their network of finance branches in terms of risk and finance decision making in accordance to company credit policy. Each regional credit location is to supervise 20 branches at most while taking into account concentration risk within each region’s portfolio, and in relation to the company’s total portfolio. In addition, the company must put in place internal supervision policies to monitor its registered branches, and must ensure that branch personnel follow these policies as well as activity related regulations.

Branch Registration

To register a branch an application must be submitted to the FRA that is signed by the chairman of the board of directors, or the managing partner. In addition to payment of a registration fee, and the submission of branch-related documents, no disciplinary measures or penalties for violation of the Microfinance Law must have occurred, unless they have been rectified and three months have passed since rectification. The company must also be diligent in submitting its reports and financial statements to the FRA in order to register a branch, and must present its annual investment plan showing future growth projections. The investment plan must clarify targeted market share, geographical locations, products and related acceptable risk levels, the number of branches projected for the year and their economic viability. The branch must be separate (independent) from the headquarters  and it must be in a geographical location that has high need for microfinance services due to the scarcity of provided services within it. An operational plan for the branch must also be submitted, as well as an evaluation of financing branches already in operation in the same geographical location.

Personnel Requirements

Employees holding senior positions in relation to branches, such as risk directors for regional credit locations, and finance branch managers, must satisfy certain requirements. A risk director for regional credit locations must have prior experience of at least six years in in financing, credit, or risk activities within banking or non-banking financial sectors and must have filled a management position in a financing institution or company. Finance branch managers must have had a similar experience for four years at least, and marketing branch managers must have at least two-years of experience in microfinance. Finance branch managers and risk directors must also fulfil reputation, qualification, and no-conviction requirements, and must perform their duties on a fulltime basis. Close relatives of employees in these senior positions cannot be company clients. FRA must be notified in the event that a branch manager is replaced and the above conditions and documentation must be satisfied in relation to the new manager. A sufficient number of professional personnel with appropriate qualifications must be appointed at the branch level. They must have at least one year of prior experience in banking, or financial activities. They must also satisfy reputation, qualification, and no-conviction requirements and work on a fulltime basis. In case a company wants to change a branch activity, relocate a branch, or close one, it must satisfy the requirements pertinent to each of these such as providing serious reasons as to relocation.

Fees

[1] FRA Board of Directors Decision No. 142/2018 on the registration of branches for microfinance companies, Egyptian Gazette, Issue No. 213 (cont.), 23 September 2018.