Regulatory Alerts2021-02-22
A circular dated February 22, 2021 regarding stimulating banks to contribute to the capital of targeted investment funds to invest in small and medium-sized companies.
The Central Bank of Egypt (CBE) has recently proposed some guidelines for the establishment of retail deposit-taking microfinance institutions (MDIs). These guidelines aim to regulate and control the activities of these MDIs, ensuring their stability, while promoting financial inclusion. The new guidelines propose that a bank wishing to establish an MDI should not hold more than 10% of its total capital in the form of investments in any single MFI or finance company. This amount should also not exceed 50% of the aggregate of the capital of these entities combined. Additionally, the MFI activities must be included within the bank's overall risk-weighted assets. To ensure that a bank's investment does not jeopardize its core capital ratios or ICAAP requirements, it should maintain an internal minimum capital adequacy ratio that is higher than the specified minimum. The MDI establishment process must also receive authorization from the Financial Regulatory Authority (FRA) and be subject to their supervision. The guidelines also stipulate a four-year exit clause for banks establishing MDIs, allowing them to withdraw from these activities within this time frame if they fail to generate profits for three consecutive years. Finally, the proposed guidelines aim to amend some instructions issued on May 2019 regarding the weighting factor with no reference made before this date. The proposed changes should take effect from their given date and remain in force for all subsequent instructions.