Financial Regulatory Authority

FINANCIAL REGULATORY AUTHORITY

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Chairman of the Authority

Circular Letter No. (1) for the Year 2022

Date: 5/12/2022

Regarding Financing Grant Considerations and the Application of the Early Repayment Option

for Default Risk Interface

In light of the Financial Regulatory Authority's role in supervising and regulating non-banking financial activities under Law No. 10 of 2009 concerning the regulation of non-banking financial markets and instruments, maintaining a balance of rights for market participants, providing means and systems, issuing rules ensuring the efficiency of these markets and transparency of activities conducted therein, and taking necessary measures to limit manipulation and fraud in those markets.

Licensed companies, associations, and civil institutions authorized to concurrently conduct microfinance and small/medium enterprise financing activities under the Authority's supervision are subject to the following:

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First: Considerations for Studying Financing Grant Requests

(A) Renewal of financing granted to a client shall not occur unless full repayment of the existing financing is verified, and no amounts due against the existing financing may be paid from the new financing.

(B) The financing entity may provide new financing to its existing clients concurrently with the existing financing, provided that it is of the same type of financing granted to the client (current financing / investment financing) and in the same funded activity, through a new independent financing based on one of its existing approved products endorsed by the Authority, which meets the nature of the new financing requirement in terms of purposes and conditions. After fully verifying the temporary continuity of the activity and the client's repayment capacity for financial obligations post-grant, and subject to the following: if the total financing value obtained by the client from the financing entity across all its financing products for a single project exceeds the maximum limit stipulated in Law No. 141 of 2014 and its amendments, as well as the activity regulation rules concerning micro-enterprises, with due consideration for verifying the proper use of the new financing type.

(C) The granting of any financing products under any name targeting supplementary or top-up financing 1 (Top-up loan) for the same type of account from the financing granted to the client is prohibited. Financing entities with an existing portfolio in this regard are obligated to exclude amounts already repaid from the existing balance, on a first-in-first-out basis according to clients' repayment signatures, and submit a monthly circular statement of existing balances by the end of each month (quantity and value) according to the form prepared by the Authority for this purpose, with a deadline of the fifth day of each month until full repayment.

(D) Emphasis is placed on observing the following considerations when granting any financing to a client under all circumstances:

• Assessing the client's status with other entities (if any) based on the latest available date at the credit information bureau, presenting verification of the client's sound credit status, particularly the result of their digital assessment, and ensuring that the intended financing will not be used to repay any of those debts.

• Ensuring that the granted financing is not used to split or break down existing liabilities of the client, meaning the client maintains regularity in installments whether with the financing entity or others.

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1 It refers to any new financing granted to a client before the completion of the original repayment period for the same type of existing financing, enabling the client to fully or partially replace amounts previously repaid in the existing financing account through a new financing granted under any name, whether with the same or different repaid value.

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Second: Considerations for Applying the Early Repayment Option by the Client

(A) Written disclosure to the client in the early repayment request form regarding the financing cost difference that will be borne by the client upon exercising the early repayment right for any amount of the existing financing value against the original financing cost, and the client's signature confirming agreement prior to finalizing the early repayment request, with its retention in the client's file.

(B) The financing entity must verify that early repayment of the existing financing is completed from the client's own resources.

(C) When a client's early repayment of existing financing coincides with obtaining another new financing from the financing entity after repayment, it is considered that the client bears a higher burden of new financing cost than the current financing cost. The new financing cost burden on the client shall be calculated based on (early repayment fee, financing cost rate, and administrative expense rate) approved in the financing entity's responsible pricing policy according to the new product intended for the client.

The financing entity must fulfill its necessary role in informing the client thereof, ensuring that financing burdens do not increase for clients, with the client's signature confirming agreement in this case to complete early repayment, and its retention in the client's file.

(D) The financing entity is prohibited from providing financing to related parties 2 of the client concurrently with completing the early repayment request.

All of this is within the regulatory controls of Articles No. 25 and 20 of the Authority's Board of Directors Resolution No. 31 of 2015 concerning rules and standards for the practice of associations and civil institutions in microfinance activities, and Articles No. 25 and 20 of the Authority's Board of Directors Resolution No. 173 of 2014 concerning rules and standards for the practice of companies in microfinance activities.

The Board of Directors, and the actual officer responsible for financing management at the financing entity, are obligated to take all necessary measures to comply with applying the provisions of this Circular Letter across all financing service delivery channels, and to promptly notify the Authority of any findings or discrepancies with its provisions, bearing responsibility for non-compliance.

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Chairman of the Board of Directors
Financial Regulatory Authority
Dr. Mohamed Fared Saleh

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Related parties of the client include: Father and Mother / Husband or Wife / Children / Siblings and their spouses.

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Smart Village, Building 136, Giza, Egypt
Postal Code: 110
Telephone: +202 35345350
Fax: +202 35370066
WWW.FRA.GOV.EG

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ARAB REPUBLIC OF EGYPT
FINANCIAL REGULATORY AUTHORITY
Building Bridges not Walls

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47.76
1/8/043

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ARAB REPUBLIC OF EGYPT
FINANCIAL REGULATORY AUTHORITY
Building Bridges not Walls

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Smart Village, Building 136, Giza, Egypt
Postal Code: 110
Telephone: +202 35345350
Fax: +202 35370066
WWW.FRA.GOV.EG