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Licensing Requirements for Micro-Fi

Licensing Requirements for Micro-Finance Associations and Foundations
In a continuation of recent efforts to develop a comprehensive legislative framework for the regulation of micro-finance activities, the month of June 2015 saw the enactment of several decisions by the Egyptian Financial Supervisory Authority ("EFSA"). In three related decisions, EFSA detailed 1) requirements for licensing civil associations and foundations to engage in micro-financing; 2) cost of licensing applications; and 3) rules for the preparation of financial statements by these associations and foundations.
Background
As stated in the May 2015 Issue of the Egypt Legal Update, recent micro-finance related legislative developments commenced with the enactment of a long-awaited Micro-finance Law in mid-November 2014.[1] Prior to the enactment of this Law, this vital sector was left without a clear legislative structure. Practically, entities engaging in micro-financing were divided into a) micro-financing companies, and b) micro-financing civil associations and foundations, established under the Civil Associations and Foundations Law (Law 84/2002, commonly referred to as the NGO Law). The latter category is responsible for a significantly larger share of the country’s micro-financing activities. In addition to these two entities, micro-finance is also carried out by banks and by the Ministry of Social Solidarity. Both, however, are not regulated by EFSA and are not addressed by the November Micro-Finance Law. While the Law introduced a number of welcome changes and clarified several issues, it failed to introduce a unified structure for the regulation of these two types of lenders (companies on the one hand and associations and foundations on the other).

The decision provides a definition of “micro-finance” as all financing for economic, productive, service or trade purposes, as long as the recipient of such financing participates through effort or financing, and as long as such financing does not exceed EGP 100,000.
Created under the NGO Law, civil associations and foundations engaging in micro-financing are generally regulated by the Ministry of Social Solidarity. On the other hand, the November 2014 Micro-finance Law named EFSA, generally responsible for supervising and regulating non-banking financial markets and activities, as the authority solely responsible for licensing, supervising and regulating micro-finance activity. To deal with this duality, the Law entrusted EFSA with creating a special regulatory unit (the “Unit”) to supervise micro-finance related activities of associations and foundations. The Micro-finance Law mandated this regulatory Unit to license and set the licensing requirements for associations seeking to perform micro-finance activities and to follow up on their performance. As noted before, this dual supervision system may create confusion, especially since while nominally under the administrative authority of EFSA, the special regulatory unit for associations and foundations is composed of representatives of relevant ministries and authorities, which may give rise to institutional confusion. More importantly, it might make it unclear for the associations and foundations as to which regulator they are supposed to deal with. The three recent decisions alluded to above are a case in point. For instance, the decision stipulating requirements for licensing associations and foundations to engage in micro-financing was issued by the special regulatory Unit. The decision stipulating the cost of licensing applications (clearly a related matter) was issued by EFSA’s board directly. Similarly, the rules related to the preparation of financial statements by these associations and foundations were issued by EFSA directly.
Licensing Requirements
Of the three recent decisions, the most important one appears to relate to conditions and requirements of licensing civil associations and foundations to carry out micro-financing activities.[2] In January 2015, EFSA had issued a similar decision regulating the licensing requirements for micro-finance companies.[3] By the end of January, the Board of Trustees of EFSA’s special unit regulating associations and foundations had issued a decision detailing temporary licensing procedures among other things.[4] In this sense, the most recent decision relating to associations and foundations completes the permanent licensing requirements for all lenders. Similar to other recent decisions dealing with the same subject, the decision provides a definition of “micro-finance” as all financing for economic, productive, service or trade purposes, given that the recipient of such financing participates through effort or financing, and that such financing does not exceed 100’000 EGP. The decision details general requirements for all civil associations and foundations wishing to engage in micro-financing activities, such as being registered under the NGO Law with the Ministry of Social Solidarity, and having as one of its declared purposes either financing, economic development or provision of loans. The decision goes on to distinguish between two types of associations and foundations, those who have a temporary license and those who do not. For those who already have a temporary license, obtaining a permanent license depends on adjusting certain aspects in order to make sure that they are in line with the requirements of the Micro-Finance Law. It is worth noting that nearly all requirements stipulated were already mentioned in the Unit’s previous decision detailing “Rules and Standards for Micro-finance Activities by Associations and Foundations”, which was discussed at length in the May Issue of the Egypt Legal Update. As for associations and foundations that do not possess a temporary license, the recent decision requires them to comply with the Rules and Standards, as well as provide a list of documents and declarations including a pledge to join the Egyptian Federation of Micro-Finance. The decision also provides that EFSA may extend the deadline for fulfilling the conditions stipulated in the Rules and Standards decision for a period of three months.
Conclusion
This decision represents one more legislative development in the intricate web of legislation related to the regulation of Micro-finance in Egypt, which have been released in the wake of the adoption of the new Micro-finance Law in November 2014. With this decision, the licensing requirements are now complete for the two types of micro-financiers regulated by EFSA under the Micro-finance Law (companies and associations and foundations). One hindrance remains having EFSA’s special Unit rather than EFSA itself in charge of regulation of specific issues related to micro-financing through associations and foundations. Having multiple regulators dealing with similar activities may cause unnecessary confusion.   [1] Presidential Decree No. 141/2014, Official Gazette, Issue No. 46 (cont.), 13 November 2014 [2] EFSA Board of Trustees of the Micro-finance Activity Supervision Unit's Decision No. 1/2015 on the Licensing Requirements for Civil Associations and Foundations, Egyptian Gazette, Issue No. 137, 15 June 2015. [3] EFSA Board of Directors' Decision No. 172/2014 on the Licensing Requirements for Micro-finance Companies, Egyptian Gazette, Issue No. 10, 10 January 2015. [4] EFSA Board of Trustees of the Unit for the Supervision of Micro-finance Activities of NGOs and Civil Associations' Decision No.1 /2014, Egyptian Gazette, Issue No. 20, 27 January 2015.
In a continuation of recent efforts to develop a comprehensive legislative framework for the regulation of micro-finance activities, the month of June 2015 saw the enactment of several decisions by the Egyptian Financial Supervisory Authority ("EFSA"). In three related decisions, EFSA detailed 1) requirements for licensing civil associations and foundations to engage in micro-financing; 2) cost of licensing applications; and 3) rules for the preparation of financial statements by these associations and foundations.
Background
As stated in the May 2015 Issue of the Egypt Legal Update, recent micro-finance related legislative developments commenced with the enactment of a long-awaited Micro-finance Law in mid-November 2014.[1] Prior to the enactment of this Law, this vital sector was left without a clear legislative structure. Practically, entities engaging in micro-financing were divided into a) micro-financing companies, and b) micro-financing civil associations and foundations, established under the Civil Associations and Foundations Law (Law 84/2002, commonly referred to as the NGO Law). The latter category is responsible for a significantly larger share of the country’s micro-financing activities. In addition to these two entities, micro-finance is also carried out by banks and by the Ministry of Social Solidarity. Both, however, are not regulated by EFSA and are not addressed by the November Micro-Finance Law. While the Law introduced a number of welcome changes and clarified several issues, it failed to introduce a unified structure for the regulation of these two types of lenders (companies on the one hand and associations and foundations on the other).

The decision provides a definition of “micro-finance” as all financing for economic, productive, service or trade purposes, as long as the recipient of such financing participates through effort or financing, and as long as such financing does not exceed EGP 100,000.
Created under the NGO Law, civil associations and foundations engaging in micro-financing are generally regulated by the Ministry of Social Solidarity. On the other hand, the November 2014 Micro-finance Law named EFSA, generally responsible for supervising and regulating non-banking financial markets and activities, as the authority solely responsible for licensing, supervising and regulating micro-finance activity. To deal with this duality, the Law entrusted EFSA with creating a special regulatory unit (the “Unit”) to supervise micro-finance related activities of associations and foundations. The Micro-finance Law mandated this regulatory Unit to license and set the licensing requirements for associations seeking to perform micro-finance activities and to follow up on their performance. As noted before, this dual supervision system may create confusion, especially since while nominally under the administrative authority of EFSA, the special regulatory unit for associations and foundations is composed of representatives of relevant ministries and authorities, which may give rise to institutional confusion. More importantly, it might make it unclear for the associations and foundations as to which regulator they are supposed to deal with. The three recent decisions alluded to above are a case in point. For instance, the decision stipulating requirements for licensing associations and foundations to engage in micro-financing was issued by the special regulatory Unit. The decision stipulating the cost of licensing applications (clearly a related matter) was issued by EFSA’s board directly. Similarly, the rules related to the preparation of financial statements by these associations and foundations were issued by EFSA directly.
Licensing Requirements
Of the three recent decisions, the most important one appears to relate to conditions and requirements of licensing civil associations and foundations to carry out micro-financing activities.[2] In January 2015, EFSA had issued a similar decision regulating the licensing requirements for micro-finance companies.[3] By the end of January, the Board of Trustees of EFSA’s special unit regulating associations and foundations had issued a decision detailing temporary licensing procedures among other things.[4] In this sense, the most recent decision relating to associations and foundations completes the permanent licensing requirements for all lenders. Similar to other recent decisions dealing with the same subject, the decision provides a definition of “micro-finance” as all financing for economic, productive, service or trade purposes, given that the recipient of such financing participates through effort or financing, and that such financing does not exceed 100’000 EGP. The decision details general requirements for all civil associations and foundations wishing to engage in micro-financing activities, such as being registered under the NGO Law with the Ministry of Social Solidarity, and having as one of its declared purposes either financing, economic development or provision of loans. The decision goes on to distinguish between two types of associations and foundations, those who have a temporary license and those who do not. For those who already have a temporary license, obtaining a permanent license depends on adjusting certain aspects in order to make sure that they are in line with the requirements of the Micro-Finance Law. It is worth noting that nearly all requirements stipulated were already mentioned in the Unit’s previous decision detailing “Rules and Standards for Micro-finance Activities by Associations and Foundations”, which was discussed at length in the May Issue of the Egypt Legal Update. As for associations and foundations that do not possess a temporary license, the recent decision requires them to comply with the Rules and Standards, as well as provide a list of documents and declarations including a pledge to join the Egyptian Federation of Micro-Finance. The decision also provides that EFSA may extend the deadline for fulfilling the conditions stipulated in the Rules and Standards decision for a period of three months.
Conclusion
This decision represents one more legislative development in the intricate web of legislation related to the regulation of Micro-finance in Egypt, which have been released in the wake of the adoption of the new Micro-finance Law in November 2014. With this decision, the licensing requirements are now complete for the two types of micro-financiers regulated by EFSA under the Micro-finance Law (companies and associations and foundations). One hindrance remains having EFSA’s special Unit rather than EFSA itself in charge of regulation of specific issues related to micro-financing through associations and foundations. Having multiple regulators dealing with similar activities may cause unnecessary confusion.   [1] Presidential Decree No. 141/2014, Official Gazette, Issue No. 46 (cont.), 13 November 2014 [2] EFSA Board of Trustees of the Micro-finance Activity Supervision Unit's Decision No. 1/2015 on the Licensing Requirements for Civil Associations and Foundations, Egyptian Gazette, Issue No. 137, 15 June 2015. [3] EFSA Board of Directors' Decision No. 172/2014 on the Licensing Requirements for Micro-finance Companies, Egyptian Gazette, Issue No. 10, 10 January 2015. [4] EFSA Board of Trustees of the Unit for the Supervision of Micro-finance Activities of NGOs and Civil Associations' Decision No.1 /2014, Egyptian Gazette, Issue No. 20, 27 January 2015.