Conditions and Requirements to License Mortgage Finance and Re-finance
Recently, there has been a significant increase in interest in the mortgage financing sector, which is embodied in the recent issuance of legislations related to this sector. The legislative developments, which are part of an attempt to further develop the field and encourage businesses to enter it include: Amendment of the Mortgage Finance Law by Presidential Decree No. 55 for the Year 2014;[1] amendment of the Executive Regulations[2] by Decree No. 1[3] and 2[4] for the Year 2015; and finally the latest decision by the Egyptian Financial Supervisory Authority (“EFSA”)[5] dealing with the conditions and requirements to license mortgage financing and mortgage re-finance.
License Terms
EFSA’s decision deals with the conditions and requirements to license the practicing of mortgage financing and mortgage re-finance. This decision comes after the issuance of the Executive Regulations amendment to the Mortgage Finance Law, which had addressed several of the provisions that the latest decision deals with. Nonetheless, the recent decision was drafted in a manner that was more organized than the Executive Regulations, distinguishing between companies that practice mortgage financing and companies that practice mortgage refinancing.
The Mortgage Finance Law has defined ‘mortgage finance’ as financing any of the following practices:
- Financing the purchasing, construction, renovation or improvement of real estate for the purpose of housing, administrative units, service installations and buildings allocated for trade purposes;
- Financing the usufruct of real estate;
- Financing the purchasing of real estate with the systems of musharaka and muraba’ha (Islamic methods of financing); and
- Mortgage re-financing, defined as the refinancing of entities that practice mortgage finance.
In terms of companies that practice mortgage finance, EFSA’s recent decision –in line with the latest amendments to the Executive Regulations-, stipulated that such entity must take the form of a joint-stock company, that its issued capital cannot be less than 50 million EGP and that, at the time of establishment, not less than a quarter of the capital must be paid-up, with the rest to be paid no more than a year from the date the company was registered in the commercial register.
Similarly, EFSA’s decision, in line with the amended Executive Regulations, stipulates that companies that practice mortgage refinancing must take the form of a joint-stock company, that the issued capital cannot be less than 250 million Egyptian Pounds and that half of it must be paid up at establishment, with the rest to be paid within 3 years from the date the company was registered in the commercial register.
The decision also specified that contributions by legal persons should not be less than 51% of the capital of mortgage finance companies and 75% for mortgage refinance companies. Contributions by financial institutions (i.e. companies and entities regulated by the Central Bank of Egypt or EFSA, and entities that are under the control of similar foreign regulators) should not be less than 50% of the capital. While this article existed in the latest amendments to the Executive Regulation, it was unclear and did not mention the specific percentage for mortgage finance companies, only specifying such percentages for mortgage refinance companies.
| Similarly, EFSA’s decision, in line with the amended Executive Regulations, stipulates that mortgage refinance companies must take the form of a joint-stock company; that their issued capital cannot be less than 250 million EGP; and that half of it must be paid up at establishment. |
The decision states the conditions that must be met in order for mortgage finance and mortgage refinance companies to obtain a license. Some of these conditions include: having a full time and experienced managing director; good conduct and reputation of members of the board of directors; having two independent members on the board of directors (with the decision providing a definition of an “independent board member”), and other logical and natural terms and conditions that all companies have to abide by.
It is worth mentioning that the decision specified that the chief executive officer or the managing director should have no less than 15 years of experience in the fields of banking or financing, that they should also have a suitable university degree and should be committed to the company full-time. Lastly, the decision specified all procedures necessary to obtain a license starting from applying for a license until the issuance of the decision by EFSA, which gives the company the license to operate. The decision specified all documents required by the authority, however it did not mention the companies’ responsibilities after obtaining a license, nor did it specify the duration of the license.
Conclusion
The interest in mortgage-financing and the development of its legislative structure is a prominent step towards developing new investment opportunities. It is to be noted that the last decision in fact repeats many of the provisions that were previously stipulated in the latest amendment to the Executive Regulations, with the exception of the particular article pertaining to the definition of the independent board member and a few clarifications, additions and logical amendments.
Of particular interest is that the decision did not specify the fees necessary to obtain a license despite the fact that it has discussed all conditions and procedures pertaining to obtaining such license. The latest amendment to the Executive Regulations had specified these fees to be 10,000 EGP. The decision was thus supposed to include these fees so that it could be inclusive of all procedures needed to obtain a license for these kinds of companies.
On a positive note, the decision specified the period of time given to EFSA to make a decision about whether or not it would issue a license at 3 weeks from when the application is made. This is a reasonable timeframe, which EFSA should respect in order to cut down on procedures.
[1] Presidential Decree-Law No. 55/2014 amending certain provisions of the Mortgage Finance Law, Official Gazette, Issue No. 26 (bis) (h), 2 July 2014
[2] Council of Ministers' Decree No. 1/2001 enacting the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 282 (cont.), 9 December 2001.
[3] Council of Ministers' Decree No. 1/2015 amending certain provisions of the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 8 (bis) (d), 23 February 2015.
[4] Council of Ministers' Decree No. 2/2015 amending certain provisions of the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 13 (bis) (b), 1 April 2015.
[5] EFSA Board of Directors' Decision No. 64/2015 on the terms and conditions that must be met in order for a mortgage finance or mortgage refinance license to be obtained, Official Gazette, Issue No. 144, 23 June 2015.
Recently, there has been a significant increase in interest in the mortgage financing sector, which is embodied in the recent issuance of legislations related to this sector. The legislative developments, which are part of an attempt to further develop the field and encourage businesses to enter it include: Amendment of the Mortgage Finance Law by Presidential Decree No. 55 for the Year 2014;[1] amendment of the Executive Regulations[2] by Decree No. 1[3] and 2[4] for the Year 2015; and finally the latest decision by the Egyptian Financial Supervisory Authority (“EFSA”)[5] dealing with the conditions and requirements to license mortgage financing and mortgage re-finance.
License Terms
EFSA’s decision deals with the conditions and requirements to license the practicing of mortgage financing and mortgage re-finance. This decision comes after the issuance of the Executive Regulations amendment to the Mortgage Finance Law, which had addressed several of the provisions that the latest decision deals with. Nonetheless, the recent decision was drafted in a manner that was more organized than the Executive Regulations, distinguishing between companies that practice mortgage financing and companies that practice mortgage refinancing.
The Mortgage Finance Law has defined ‘mortgage finance’ as financing any of the following practices:
- Financing the purchasing, construction, renovation or improvement of real estate for the purpose of housing, administrative units, service installations and buildings allocated for trade purposes;
- Financing the usufruct of real estate;
- Financing the purchasing of real estate with the systems of musharaka and muraba’ha (Islamic methods of financing); and
- Mortgage re-financing, defined as the refinancing of entities that practice mortgage finance.
In terms of companies that practice mortgage finance, EFSA’s recent decision –in line with the latest amendments to the Executive Regulations-, stipulated that such entity must take the form of a joint-stock company, that its issued capital cannot be less than 50 million EGP and that, at the time of establishment, not less than a quarter of the capital must be paid-up, with the rest to be paid no more than a year from the date the company was registered in the commercial register.
Similarly, EFSA’s decision, in line with the amended Executive Regulations, stipulates that companies that practice mortgage refinancing must take the form of a joint-stock company, that the issued capital cannot be less than 250 million Egyptian Pounds and that half of it must be paid up at establishment, with the rest to be paid within 3 years from the date the company was registered in the commercial register.
The decision also specified that contributions by legal persons should not be less than 51% of the capital of mortgage finance companies and 75% for mortgage refinance companies. Contributions by financial institutions (i.e. companies and entities regulated by the Central Bank of Egypt or EFSA, and entities that are under the control of similar foreign regulators) should not be less than 50% of the capital. While this article existed in the latest amendments to the Executive Regulation, it was unclear and did not mention the specific percentage for mortgage finance companies, only specifying such percentages for mortgage refinance companies.
| Similarly, EFSA’s decision, in line with the amended Executive Regulations, stipulates that mortgage refinance companies must take the form of a joint-stock company; that their issued capital cannot be less than 250 million EGP; and that half of it must be paid up at establishment. |
The decision states the conditions that must be met in order for mortgage finance and mortgage refinance companies to obtain a license. Some of these conditions include: having a full time and experienced managing director; good conduct and reputation of members of the board of directors; having two independent members on the board of directors (with the decision providing a definition of an “independent board member”), and other logical and natural terms and conditions that all companies have to abide by.
It is worth mentioning that the decision specified that the chief executive officer or the managing director should have no less than 15 years of experience in the fields of banking or financing, that they should also have a suitable university degree and should be committed to the company full-time. Lastly, the decision specified all procedures necessary to obtain a license starting from applying for a license until the issuance of the decision by EFSA, which gives the company the license to operate. The decision specified all documents required by the authority, however it did not mention the companies’ responsibilities after obtaining a license, nor did it specify the duration of the license.
Conclusion
The interest in mortgage-financing and the development of its legislative structure is a prominent step towards developing new investment opportunities. It is to be noted that the last decision in fact repeats many of the provisions that were previously stipulated in the latest amendment to the Executive Regulations, with the exception of the particular article pertaining to the definition of the independent board member and a few clarifications, additions and logical amendments.
Of particular interest is that the decision did not specify the fees necessary to obtain a license despite the fact that it has discussed all conditions and procedures pertaining to obtaining such license. The latest amendment to the Executive Regulations had specified these fees to be 10,000 EGP. The decision was thus supposed to include these fees so that it could be inclusive of all procedures needed to obtain a license for these kinds of companies.
On a positive note, the decision specified the period of time given to EFSA to make a decision about whether or not it would issue a license at 3 weeks from when the application is made. This is a reasonable timeframe, which EFSA should respect in order to cut down on procedures.
[1] Presidential Decree-Law No. 55/2014 amending certain provisions of the Mortgage Finance Law, Official Gazette, Issue No. 26 (bis) (h), 2 July 2014
[2] Council of Ministers' Decree No. 1/2001 enacting the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 282 (cont.), 9 December 2001.
[3] Council of Ministers' Decree No. 1/2015 amending certain provisions of the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 8 (bis) (d), 23 February 2015.
[4] Council of Ministers' Decree No. 2/2015 amending certain provisions of the Executive Regulation for the Mortgage Finance Law, Official Gazette, Issue No. 13 (bis) (b), 1 April 2015.
[5] EFSA Board of Directors' Decision No. 64/2015 on the terms and conditions that must be met in order for a mortgage finance or mortgage refinance license to be obtained, Official Gazette, Issue No. 144, 23 June 2015.