Circular dated October 13, 2019 regarding regulatory controls for microfinance

Cairo: October 13, 2019

Dear Mr. Chairman of the Board of Directors,

Greetings,

With reference to the circular letter issued on May 23, 2017, which added microfinance granted directly to individuals, companies, and establishments, or through associations, charitable institutions, and microfinance companies, to the mandatory 20% ratio, and which included the guiding standards that banks may rely on when preparing credit studies for granting financing to the aforementioned entities, the Board of Directors of the Central Bank of Egypt, in its session held on October 9, 2019, approved the following decision in order to add some controls to tighten supervision over financing granted by banks to associations, charitable institutions, and microfinance companies:

"Banks must adhere to the following when granting credit facilities to companies/associations and charitable institutions licensed to conduct microfinance activities:

1. Banks must submit monthly reports on the credit limits (authorized/used) granted to the aforementioned companies/associations for microfinance purposes to the Egyptian Credit Bureau (Score-I), while continuing to adhere to what is reported to the General Administration of Credit Risk Aggregation at the Central Bank of Egypt.

2. Banks must obtain a commitment from those companies/associations to verify clients through the Egyptian Credit Bureau before granting financing, to ensure that the number of loans granted to a single client does not exceed three loans from three institutions.

3. Banks must not include the credit portfolios of microfinance companies/associations within the mandatory 20% ratio mentioned above.

4. Banks must obtain a letter from the Financial Regulatory Authority stating the following:
   The sound performance of microfinance companies/associations, as well as their compliance with the standards and rules of conducting the activity defined by the Authority, and the absence of any existing violations on their part as of this date.

5. Microfinance companies/associations must report to the Egyptian Credit Bureau (Score-I) all their clients and their credit behavior, according to the contract concluded between those institutions and the Egyptian Credit Bureau, in addition to reviewing the credit data contained in the Egyptian Credit Bureau's report to analyze and evaluate the client's repayment behavior.

6. The financial leverage of the microfinance company/association must not exceed ten times.

7. Microfinance companies/associations must adhere to the maximum limit granted for microfinance, pursuant to Law No. 141 of 2014 concerning the regulation of microfinance activities and its amendments.

In the event that a violation of the provisions of the aforementioned law or the rules of conducting the activity by the company/association is proven, banks are obligated not to increase the volume of granted financing or grant new financing until the violations are corrected within the time period specified by the Financial Regulatory Authority for correction."