Financial Market in Egypt

financial market in Egypt finacial market

banking sector

capital market

Mortgage Finance Sector.

non banking sector

insurance

factroing sector

micro finance industry

leasing

 Introduction  Banking sector in Egypt  Non banking sector( a. insurance b. ,leasing c. capital market, d. factoring and e. micro finance industry f. Mortgage finance sector  References

Introduction Financial system is essential for economic growth as it mobilizes and allocates savings, support trade, helps in diversification and hedging of risk, and by allowing easier access to investment opportunities it affects accumulation of capital and growth. A competitive and efficient financial sector is a prerequisite for economic development and growth especially in developing countries Financial institutions like banks , life insurance companies, brokerage firms, investment firms, and so forth are all part of the financial sector. Consumers interact directly with the financial sector every time they apply for a credit card, deposit a paycheck in a bank, or take out a home loan, and these actions occur on a much larger scale between institutions and companies. With respect to Egypt, The Egyptian financial system is divided into two main sectors; the first sector is the banking sector which includes all banks operating in the Egyptian market, while the second sector is the non-banking financial sector, which includes all activities of the capital market (security market) in addition to insurance activities, real estate financing activities, leasing and securitization

First banking sector The Egyptian banking sector is the nexus of its financial system. The link between Development and economic growth is unique. Economic growth can not be achieved without banking sector Investment , which in turn can not be realized without the mobilization of savings. Therefore, a sound banking sector is essential for carrying out government economic policies to achieve low inflation, high employment and sustainable growth. The Egyptian banking sector expanded markedly in the mid-1970s spurred by the country’s so-called open door policy. .This policy aimed at outward-looking growth with an active role for the private sector to Promote economic performance. To serve the new policy, a banking law was enacted in 1975 (Law 120/1975) defining the nature and mode of operations for all banks. It identified three types of banks: (i) Commercial banks, which usually accept deposits and provide finance for a wide variety of transactions . . (ii) Business and investment banks, which carry out medium- and long-term operations such as the promotion of new businesses and financing of fixed asset investments. They may also accept deposits and finance foreign-trade operations. (iii) Specialized banks, which carry out operations serving a specific type of economic activity. They may accept demand deposits. Banks operating in Egypt can also be classified as public sector, private & joint venture, or foreign according to ownership. All specialized banks are state owned and are assigned the task of providing long term finance for real estate, agricultural and industrial development. They mainly cater to the needs of the private sector And depend in their fund raising on borrowing from financial institutions. There are also four public sector.

Commercial banks and whose volume of business constitutes a significant share in total bank transactions. Private & joint venture as well as foreign banks (operating through branches) are private sector institutions Established under investment law. Foreign banks are all registered as business and investment banks as their Envisaged role is principally to raise long-term funds on the international financial markets and to promote investment. In addition, there are banks which are established under special laws and which are not registered with the Central Bank of Egypt (CBE). Appendix I shows structure of the Egyptian banking system and balance-sheet size of banks. As can be seen, commercial banks account for the bulk of banking operations. The four public sector commercial banks are the largest operating banks in Egypt in terms of balance-sheet size, accounting for nearly 50 percent of total bank assets. They have a significant market share in retail and corporate banking services through large branch networks and close relationship with state-owned companies. They are also major participants in the equity capital of most joint-venture banks. The private banks play a less dominant role in the market for loanable funds and focus on trade-related financial services to the private business sector. They have showed a preference to finance working capital and trade activities whose transactions normally require short term credit and result in quicker and more secure returns. In practice, the portfolio behavior of the private commercial banks and of the business and investment banks are virtually the same. The banking industry is therefore concentrated and segmented, and this has a stifling effect on competition. The private banks are seeking ways, however, to further diversify their loan portfolio and assets as opposed to focusing on trade finance. They have recently reassessed their financial services and widened their retail

base with a view to meet their clients’ demand for personal loans, mortgages, insurance products, individual retirement plans, and credit cards. Regulatory barriers to entry also weaken competition in the banking industry. The CBE is apparently reluctant to license new domestic banks as it regards the number of existing ones large enough for establishing a competitive market. The CBE’s reluctance to issue new licenses is reflected in the high entry costs, which are excessive by international standards. The minimum authorized capital for new banks is set at £E 100 million, of which £E 50 million has to be fully paid up (£E denotes Egyptian pound; theses figures are equivalent to about US$ 30 million and US$ 15 million, respectively). For branches of foreign banks, however, the minimum authorized capital is set at US$ 15 million or the equivalent in other major currencies. It is also alleged that the CBE does not particularly favor an expansion of the private banks’ branch network in locations already dominated by the public sector banks in the major cities. While there appear no restrictions on branching in locations which are deprived of adequate banking services such as the new communities and the provinces, the public sector banks continue to maintain a large market share. In particular, since the opening of branches is influenced by the expected level of business activity, which is normally higher in the city, branches of the private banks are considerably outnumbered by branches of the public sector banks. At end-December 1999, the private banks had 481 branches nationwide compared to 918 branches for the public sector commercial banks. Recently, in an attempt to reduce market concentration and enhance competition, the authorities have

implemented a bank privatization program. The public sector banks are mandated to divest their shares in the joint-venture banks with a maximum ownership of 20 percent. By end-June 2000, the public banks’ ownership was above 20 percent in eight (out of twenty three) joint-venture banks whose privatization was planned to be complete by the end of the same year. The authorities also plan to privatize the four public sector commercial banks. The necessary legislation for the privatization of these banks was passed by the parliament in 1998, but none was offered for sale as yet. The public commercial banks are unlikely to be privatized in the current period until broader financial sector restructuring is undertaken, including the strengthening of bank supervision. This reflects the authorities’ preference for selling public banks after improving their financial viability to ensure maximum participation by quality investors and the highest possible price.

Structure of Egyptian Banking System Density and Banking

End of June

Total Number of Banks Operating in Egypt

2005 2006 2007 2008

52 43 41 40

Total Number of Banking density Branches 2841 2944 3056 3297

24.8 24.5 24.2 22.9

2009 2010 2011 2012

39 39 39 39

3443 3502 3573 3610

SWOT Analysis: (2005) Strengths: • The private banking system is competitive. • Improvement in market conditions and exchange rate stability in 2004. • The new Banking Law includes excellent steps to reform the banking system. • Market entry is possible through acquisition of existing banks. • The cost of exiting includes the normal liquidation costs, and compensation for employees with no penalties.

Weaknesses: • Low level of deposits per capita. • Mismatching, i.e. long-term lending versus shortterm funding. • Commissions and banking fees are high. • Heavy reliance on inter-bank. • Over-regulation and overly centralized and controlled regulatory decision-making. • The salary level is relatively low, which deters the talented employees needed to improve and upgrade the industry.

22.3 22.3 22.5 22.7

• Egypt’s population is concentrated in Cairo and Alexandria, thus the cost of developing a branch network is relatively low. • Egypt’s removal from the FATF’s moneylaundering blacklist

• Bureaucratic barriers to entry constrain innovation and development. • Public sector domination leads to price distortions and misallocation of resources. • Lack of instruments for hedging compared to the world market, since many treasury products and derivatives are prohibited by the CBE.

Opportunities: • Innovation and development as the Egyptian banking system is still relatively underdeveloped, e.g., a wide range of products and service, including products aimed at SMEs, retail banking, investment banking and project finance. • Innovations in Retail banking. • Presence of expansion opportunities for local banks in potential regional markets such as Sudan and Libya. • Establish regional banks to finance the activity of multinational corporations in the region. • Increase the currently modest level of Arab banking assets. • A stronger capital base from M&As would allow for an increase in banking assets.

Threats: • Market entry through new license is closed, which is also an obstacle to foreign acquisition of the local ventures due to overvaluations. • Continuation of bureaucratic delays will hinder private sector investment. • Continued public sector domination will hamper reforms. • Local banks are required to manage “old problems” and compete in higher growth areas simultaneously. • Tax amounts are highly contested between banks and the Tax Authority and could be a major problem as a potential unclear liability for any acquisition. • Political unrest and economic instability. • Expected Banking crisis due to unplanned Privatization

Second non banking sector The Egyptian non-banking financial sector composed of at least six components which are:  The Capital Market.  Insurance Sector.  Leasing Sector.  Microfinance Industry.  Factoring Sector.  Mortgage Finance Sector.

The capital market HISTORY The Egyptian Exchange was formerly known as the Cairo and Alexandria Stock Exchange (CASE). In 2009, the CASE 30 Index (made up of the 30 largest companies being traded) changed its name to the EGX 30 Index.[ In 2011 the EGX 20 Index, composed of the twenty most active and liquid stocks on the Egyptian Exchange, was launched.[1] The Alexandria Stock Exchange was officially established in 1883, with Cairo following in 1903. Both exchanges were very active in the 1940s, and the combined Egyptian Stock Exchange ranked fifth in the world. The central planning and socialist policies adopted in the mid-1950s led to the exchange becoming dormant between 1961 and 1992. In the 1990s, the Egyptian government's restructuring and economic reform programme resulted in the revival of the Egyptian stock market, and a major change in the organization of the Cairo and Alexandria stock exchanges took place in January 1997 with the election of a new board of directors and the establishment of a number of board committees. Sherif Raafat, former chairman of the board of directors, sought to modernize the exchange by:

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Creating a coherent organization structure with a clear division of authority and responsibilities; Deciding to install a new state-of-the-art trading, clearing and settling system conforming to international standards (in May 1998 a contract was signed with EFA Software Ltd., a Canadian company, to this end); Developing new membership and trading rules, as well as arbitration and dispute resolution procedures; Planning the improvement of the clearing, settlement and payment systems.

By the end of November 1998, there were 833 listed companies on the Egyptian Stock Exchange with a market capitalization of approximately L.E. 71.3 billion (up from 627 companies listed in 1991 with a market capitalization of L.E. 8.8 billion).

Trading Procedures at EGX How transactions or trades are carried out on EGX?

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Before investors can trade listed or un-listed securities on the Egyptian Exchange (EGX), investors must open a trading account with one of the licensed members or brokerage firms by the Capital Market Authority. Investors can only buy or sell shares through licensed member firms. All investors must open accounts with custodians, which are mainly banks and few member firms, in order that EGX can check on line their outstanding balances prior to any sale transactions.

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All members trading in listed or unlisted securities (stocks, bonds, close-ended mutual funds) on EGX must trade via EGX Trading System (CTS).

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Members must record their customers’ orders immediately after receiving them. Recording includes the details of the order: order number, security name, client account number, quantity and exact time that the order was received etc.

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Members must ensure that the securities being sold are available before execution of the orders and if members are buying securities, they must ensure that the necessary funds are available before the execution of the trade.

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Trading starts with an order given by a client or customer to the member firm to buy (or sell) a specified number of shares of a given company at a specified price.

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This order will be queued into EGX electronic trading system terminal either at EGX trading floor or the members’ premises. The order is then sent through the trading system to EGX central computers. An order confirmation is immediately routed back to the member firm.

The Cycle of Any Transaction

Client want to buy or sell a stock or bond

Consult and contact the brokerage firm

Formulate order,specify price,quantity and type of security to be purchased or sold

The brokerage firm contacts their floor broker, and give him the buy/sell order At Time T

Order is processed through the stock exchange At Time T

Misr For Clearing, Depository And Central Registry handles the Clearing, Settlement of the shares or bonds At Time T, T+1, T+2

Brokerage firm receives the transcripts of ownership or the physical shares themselves

Brokerage firm gives the bookkeeper of the client the physical shares or the transcripts of ownership

The factors used to determine the queuing and matching priority of orders are as follows:

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Price, the order with the best price has the highest queue priority.

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Special Term, orders with the least trading restrictions will be given priority over orders with greater restrictions.

Cross, the lowest priority is given for matching an order of the same buyer and seller broker. Time, at a single price level, time of entry of an order governs its priority on a First in First Out (FIFO) basis.

Order Confirmation Direct Order Entry Orders received from clients are entered directly into the member’s trading workstation by the respective broker. The orders are checked to make sure that they do not exceed the client, broker and brokerage firm trading limits. It will only be accepted if they are within the limits set by the respective companies in the trading system. Order Confirmation

Once the orders are accepted by the trading system, they will automatically be time-stamped by the system and confirmed as accepted via an order status on the remote screen on the respective member workstation. The member can also choose to have the order confirmation printed out on a printer. Order Queue Simultaneously, these orders will get into the order queue waiting to be matched.

Trading Hours EGX Daily Trading Hours Open Time

Close time

Official Trading Session

10:30 AM

02:30 PM

Bonds Market (Primary Dealers)

10:30 AM

02:30 PM

NILEX (SMEs Market)

10:30 AM

11:30 AM

Deals Market

09:45 AM

11:15 AM

Orders Market*

12:30 PM

01:00 PM

Listed Securities Market (Main Market)

Over-the-Counter Market

*Trading takes place on Monday & Wednesday only

Clearing and Settlement Procedures The Clearing and Settlement System in Egypt is based upon Delivery versus Payment, whereby MCDR acts as the Clearing House between the buying and selling member firms, regarding their paper and funds settlement as follows:

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T+0 for securities traded by the Intra-day Trading System T+1 for government bonds that are traded through Primary Dealers System T+2 for all other securities

Buy Transactions or Trades

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EGX provides each member firm with its buy transactions at the end of trade day.

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MCDR sends sell transactions details to the custodians end of trade day.

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The clearing members would add additional funds in their accounts at the clearing banks to be able to pay for buy transactions, taking into account the sell transactions that the member has done which would funds to his accounts.

EGX transmits the buy transactions of each member firm to MCDR through the electronic link between both entities. Each custodian verifies and allocates the bought transactions to each client’s account according to the previous received orders from the client. This process should be done at least a day before SD.

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The clearing banks would then send through an electronic file to MCDR the updated cash accounts of member firms.

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MCDR then updates the member firms accounts with the updated information received from the clearing banks.

Sell Transactions or Trades

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The selling member sends the sell order electronically to the custodian to ensure that the client has securities to sell prior to inputting a sell order on EGX trading system.

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The custodian informs the selling member whether there are sufficient securities for the clients to sell or not. Afterwards, the custodian blocks the clients’ securities that are going to be sold through the selling member.

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EGX provides each member firm with its sell transactions at the end of trade day.

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MCDR sends sell transactions details to the custodians end of trade day.

EGX transmits the sell transactions of each member firm to MCDR through the electronic link between both entities. The custodian would check the sell transactions with the already blocked securities for the selling member and then send electronically those shares in the accounts of the selling member at least a day before settlement date.

Settlement Procedures at MCDR on Settlement Day

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MCDR ensures that the cash account of member firms at the clearing bank has sufficient funds, plus the proceeds from selling transactions, to meet their buying transactions.

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MCDR conducts clearing and settlement among its member firms as follows: o Transfer the securities traded from the account of selling member via selling custodian to the account of buying members via the buying custodian. o Reduce the account of the buying member by an amount equal to the value traded of securities and add the same amount to the account of the selling member. o Provide an electronic detailed account of each member firm to the clearing banks stating whether the member is a net creditor or debtor. o The clearing banks would then update the records of clearing members with the data received from MCDR i.e. add monies to credit clearing members and subtract monies from debit clearing members. o The clearing banks would provide a detailed document to clearing members including all transactions that was settled on their behalf as a buying member and all transactions that was settled on their behalf as a selling member. o The clearing banks would provide a detailed document to selling custodians including the transactions that were conducted on behalf of their clients reducing their sold securities. o The clearing banks would provide a detailed document to buying custodians including the transactions that were conducted on behalf of their clients increasing their bought securities.

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After member firms receive the settlement documents from MCDR, they must inform their clients whether their buy or sell transactions was settled.

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The selling custodian, after receiving the settlement documents from MCDR, must send an account statement to their clients showing the settlement of the sale transactions.

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The buying custodian, after receiving the settlement documents from MCDR, must send an account statement to their clients showing the settlement of the buy transactions. T= trade day SD = settlement day MCDR = Misr for Central Clearing, Depository and Registry

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Restricted companies :220 Stock Exchange:1 Brokerage firms:148 Brokerage firms :18 Companies to promote and cover the IPO:42 Portfolio managers:62 Dealing, brokerage firms and bond brokerage:2 Major traders:15

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Investment fund managers:36 Investment Funds:87 Venture capital funds:1 The dissemination of information:6 Deposit:1 Custodian :41 credit rating:2 Nilex:10

ISNURANCE SECTOR

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount of money to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated. TYPES OF INSURANCE there are four main types of insurance in Egypt:

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Vehicle Insurance Personnel Public Liability Building and content insurance

VEHICLE INSURANCE By law, all vehicles in Egypt must be insured to a third party liability level. There are two predominant policies to choose from: third party and comprehensive insurance. If a claim is made against you for personal injuries and legal costs, then third party injury insurance is required. Comprehensive vehicle insurance in Egypt covers damages caused to your own car by you, as well as injury, property damage, fire and theft.

PERSONNEL INSURANCE This type of insurance in Egypt covers you and your employees in the event of sickness, accident or illness.

An employer must provide accident or sickness cover for their employees. However, self-employed people are not covered by employee compensation, and therefore need to cover themselves through a private insurer. There are various types of insurance available, such as income protection, trauma, life and disability.

PUBLIC LIABILITY INSURANCE This is a compulsory form of cover in Egypt, and protects from claims by third parties against negligence, death, injury, loss and damage of property, and economic or financial loss.

BUILDING AND CONTENTS INSURANCE This insurance covers your property in Egypt, and its contents and/or stock against fire, water and other damages such as earthquakes, lightning, storms, explosions, burglary and theft.

PERSONAL INSURANCE There are a handful of insurances in Egypt that are tailored to meet your day-to-day needs and cover you in the event of damage or injury to yourself or other persons, as well as assets and property.

HOME INSURANCE Home Insurance in Egypt covers the contents of your home in the event of fire, water damage, theft and vandalism. The cost of home insurance generally depends on what it would cost to replace your home and exactly which additional contents you have insured alongside it. In this instance, home insurance is particular to each case, as opposed to universal.

HEALTH INSURANCE It is strongly advised that you take out sufficient private health insurance in Egypt. Serious health problems may require air evacuation to a country with more state-of-the-art medical facilities. The Egyptian government announced its plans to establish fifty new state hospitals in Egypt, using both local and foreign private sector financing. The project is scheduled to be completed before the implementation of a new public health insurance system in 2010.

CAR INSURANCE You cannot drive without, at least, third-party car insurance in Egypt - it's the law. You and any injured persons will be covered for damages, fire, accidents and theft. Car insurance is based on the following criteria: type of car, location, marital status, sex and age. If you are a novice driver, drive a big, powerful car, or have a history of reckless driving, expect to pay more for your insurance.

LIFE INSURANCE Life insurance isn't just something to think about when you reach old age. In fact, the earlier you take it out, the better deal you get. Insurers are more likely to give a better deal to someone who is young and healthy than old and ill. Even if you have no family or dependents to worry about, there are still very good reasons for you to invest in life insurance. Life insurance isn't really a country-specific affair, like health or vehicle cover is. It is tailored to your individual circumstances and needs

the total no of companies is 30 companies ( some are with Egyptian Capital, some are with Foreign and some with Common Capital ).

Leasing finance sector

1. Introduction: In the year 1995, the Egyptian government has realized the increasing importance of new financing tools like financial leasing that plays an effective role in the economies of many developing countries as it provides funds for different companies and SMEs in these countries. Thus, the government has put a legal framework for financial leasing activities represented in Law 95 for the year 1995 to organize working with it; however, this tool could not meet expectations as an investment motivating instrument with limited financial products and weak support to different industrial sectors. This paper proposes answers for vital questions concerning that sector like: Why is leasing important? What is the legal structure organizing it? How much effective is it and whether it has a good potential for the future or not? The answer of such questions may draw the trend of this field and obstacles it will possibly face in its way to be a leading financial tool.

2. Definition: Financial leasing is the process in which a lessor is funding the purchase of a fixed asset upon the request of the lessee (tenant) who leases it for periodical payments. Through out this period, the lessor would retain the ownership of the asset till the ending time of the contract when the lessee would have 3 options: buying the asset, giving it back to the lessor or renewing the lease while the lessor would be obliged to cover maintenance costs and the lessor can regain the leased asset if the lessee could not pay the required payments.

SWOT analysis of financial leasing in Egypt:

Strengths - Leasing would be more convenient for the SMEs that form a big portion of the economy and have a great potential for the future as it requires more relaxed conditions than banks for needed collaterals and financial records. - It doesn’t require a large amount of money; it is also helpful for rapidly growing companies that increase its investments in more than one field. - The value of the lease is considered as a part of the firm's financial expenses which would decrease the taxes due. - Better liquidity, since holder does not need to put up a large amount of money for purchase. - Low competition and risk because the lender keeps the ownership of the leased asset.

Weaknesses - The absence of the Egyptian Leasing Companies Association. - Lack of awareness about financial leasing as an alternative financing tool. - Offering fixed rate payments taking the risk of lower interest rates in the future. - Lenient licensing for companies having no experience in financial leasing and unsuitable required capital for establishing such companies that should be raised. - Inability to practice operating leasing. - Unclear feedback on accounting standards concerning the leasing law by which leasing installments are tax free. - Inability of entities working in that field to provide long term loans that would help this industry due to the lack of long term fund sources in the Egyptian market. - Problems concerning the process of regaining the leased asset if the lessee failed to repay the lease.

Opportunities - Proposed amendments of the low that shall permit financial leasing companies to practice operational and consumption leasing. - The increasing number of the SMEs projects in Egypt.

Threats - Unclear laws in some cases like the argument about the ineligibility of capital goods operating under the leasing system to get the tax deduction stated for such goods. - Low market share may affect the trust of investors in that sector. - The unplanned rush to invest in that sector with poor preparation of people working in that field.

Microfinance:

Microfinance refers to the various financial services and products targeting the low and limited-income segments of the population. Microfinance includes credit, insurance, saving and remittance tailored to the needs of these segments. The experience of developing countries around the world proved that the low and limited-income people are credit worthy and their repayment rates exceed 95-98 percent. A Microfinance Company may extend credit directly to individuals, households, entrepreneurs, and companies using the company's own resources and the loans received, or indirectly as an agent for civil Society ,organizations, donors and financial institutions. A Microfinance Company may extend other related financial services and/or products, directly or indirectly as an agent to other financial institutions, provided the provision of such services complies with applicable law(s), as evidenced by prior approval by the EFSA. The Microfinance Company shall provide the EFSA with a detailed description of the proposed services Which fall within the range of financial services supervised by the EFSA, which shall approve or reject? within thirty (30) days after the receipt of such description.

Size of the Microfinance Industry in Egypt: By the end of 2009, the total number of active borrowers exceeded 1.4 million – of which 50 percent are women – and the total outstanding portfolio reached approximately EGP 2.2 billion. The largest percentage of active borrowers is found in Upper Egypt Governorates (43 percent) and Lower Egypt Governorates (36 percent). More than 70 percent of the active borrowers operate businesses in the trade sector versus 20 percent in the service sector. More than 400 institutions in Egypt offer microcredit programs, including four banks and more than 396 NGOs. In spite of this

large number of institutions, the market studies indicate a supply gap estimated at 90 percent. Seven institutions own approximately 65 percent of the currently served borrowers , namely Assiut Businessmen Association, Lead Foundation, Alexandria Businessmen Association, the Egyptian Small Enterprise Development Association, Dakahleya Businessmen Association for Community Development, Banque du Caire , and Al Tadamun. The remaining NGOs (more than 395 NGOs) and banks (three banks and two companies) own market shares of 25 percent and ten percent respectively. There are two prevailing lending mechanisms in the Egyptian microfinance industry: group lending and individual lending. In group lending, a group of 3-5 borrowers receive a loan that is equally divided among themselves and they guarantee each other in repaying the loan. The loan size ranges between 50 and 1,500 EGP per member repaid on weekly or biweekly installments during a period of ten to forty weeks. The loan is used to finance income generating activities mostly in the informal sector. In individual lending, the owner of a small or microenterprise operating for more than a year receives a loan ranging between 500 and 25,000 EGP (maximum loan size reaches 100,000EGP in some organizations) to finance his/her business – provided s/he has a personal guarantor. The loan is repaid over a period of four months to two years through monthly installments. In order to develop this activity, EFSA launched in October 2010 a set of controls, standards and principles for discussion and consultation among the relevant parties that helps for further awareness of this important activity. These proposed standards with their current form don’t represent a legal tool but a draft framework & code of ethics for microfinance companies.

Finance leasing is one of the instruments of finance. It plays a significant role in the finance of investments, especially as related to SMEs intending to purchase equipment, machinery, or other inputs for industrial activities. Payments are made over a period of several years to cut down on the investment cost of starting up a business. Under this system, the user (lessee) is assigned the right to use a certain asset owned by the lessor under a contractual agreement whereby one of the parties has the right to use an asset owned by the other party against periodic payments for a specific period of time. At expiration of such period, the lessee may purchase the asset from the lessor.

Advantages of financial leasing

The business of financial leasing has several advantages, the most important of which are as follows:

• Enable companies to acquire capital assets needed for their businesses without the need to freeze a large portion of their money if they purchase them. This system finances 100% of the price of the asset, which provides a bigger liquidity that can be used in other activities, especially financing working capital cycle.

• Provide companies with the option to own the asset

• Protect the lessee from depreciation as a result of technological advances; facilitate rehabilitation; keep up with technological advancement, thus increasing competitiveness of products; and protect the lessee from rise in the costs of finance as the interest, which is the return of the company, is calculated at a fixed rate throughout the contract.

Required in the company which will exercise the factoring activity as follows:

• take the form of a joint stock company.

• that the sole purpose of factoring activity.

• to be among the shareholders in which a financial institution.

• a minimum paid-up capital of ten million Egyptian pounds, or the equivalent in foreign currencies.

• be a managing director or director in charge of the company experienced financial or banking, commercial or insurance and not less than one experience in any of these areas for ten years subsequent to receiving a qualification higher manner, may not be the company's activity only after verification of this condition and to notify body.

Is required to direct the activity of factoring as follows:

• that the company proceed with activity within the framework of rules and standards established by the Board of Directors in accordance with the accepted standards within the limits of the laws and regulations in force and notified to the Commission.

• that the company stuck to the books that prove the details of operations and the nature of the activity subject of the contract value and credit for the way and support repayment of outstanding balances.

• The company gets once established on the membership of a group of international factoring companies that regulate the practice of Factoring International and which ones Group of Companies Factoring International (Factoring Chain International FCI) and the International Group of factoring companies (International Factoring Group IFG) with respect to factoring companies that engaged in factoring international .

• The company shall take appropriate measures to exercise their activities in foreign markets where there are no international factoring services.

Mortgage finance is governed in Egypt by Law No. 140 which was issued in August, 2001 (the Law). According to the Law, mortgage finance is interpreted as a method for financing the purchase, construction, restoration and/or

development of houses, administrative units, service foundations and any buildings designated for practicing trade. The EFSA is assigned to supervise mortgage finance activities in which the following main market players are involved:

• Mortgage finance companies.

• The Egyptian Mortgage Refinance Company (EMRC).

• Securitization authorities.

• Mortgage finance intermediaries.

• Mortgage finance appraisers.

• Mortgage finance agents

• Auditors

• The credit bureaus and insurance companies, which act as parties complementing the mortgage finance process.

EFSA Role in Mortgage Finance

EFSA is authorized to supervise the mortgage finance affairs, set the controls ensuring market efficiency, follow up, control and development, and undertake all the measures that maintain the rights of all market dealers. The EFSA is specifically assigned to:

• Make the general policies required for directing mortgage finance activities,

• Grant licenses to the mortgage finance companies for practicing activities.

• Decide upon all applications submitted by companies regarding mergers, suspension of activities and/or total or partial liquidation of assets.

• Keep and maintain schedules and registries for listing real estate appraisers, mortgage finance intermediaries and real estate agents, granting them licenses, supervising their activities; and for listing the related auditors.

• Set the Financial Reporting Standards (FRS) for companies.

• Control and supervise the companies and impose administrative penalties on violators.

• Undertake anti-money laundering procedures.

• Protect investors and dealers operating in the mortgage finance market.

Mortgage Finance for Low-Income Families

For the purpose of easily providing affordable housing to low-income families, a mortgage finance subsidy and guarantee fund was established by virtue of Presidential Decree No. 4 for 2003; and is now under the EFSA control. The term "low-

income" refers to any person whose total monthly income does not exceed LE 17500 and to any family whose total monthly income is no more than LE 2,500. The fund is assigned to finance residential units at a maximum level of finance of LE 95,000 per unit.

The Egyptian Mortgage Refinance Company (EMRC)

EMRC was established in June 2006, with a capital of 212 Million Egyptian Pound and with the objective of providing longterm finance to the mortgage finance companies and the banks operating in this field of service. Finance is collateralized by the real estate portfolios of companies and banks and is granted according to specific rules and controls. In this respect, EMRC resolved to issue bonds duly collateralized by real estate loan portfolios, which help enhance the bond market and provide long-term finance resources.

Developing the Mortgage Finance Activity

Since July 2004, the Government policies has been aiming to develop and reform the financial sector, organize markets, develop the markets' organizational and legislative structure, support the regulatory frameworks, enhance the capital structure of financial institutions, protecting dealers' rights. The reform program for non-banking financial services sector consisted of two main phases; the first phase for (2005-2008) and the second phase for (2009-2012). The first phase has been aiming to establish the financial institutions, ensure their integrity and develop pertinent strict controls ensuring due efficiency, stability and liquidity of the financial sector. With respect to the mortgage finance market, this phase has also been aiming to raise the market efficiency level by adopting the following targets:

First: Development of the Legislative Framework Regulating Mortgage Finance

• Amending the Executive Regulations of Mortgage Finance Law No. 148 for 2001, which was issued by virtue of Premier's Decree No 465/2005; these regulations provided various facilities to market dealers, particularly in respect of the means for proving the investor's revenue and specifying the investors entitled to benefit from the "mortgage finance subsidy and guarantee fund", and in regard to the approval standards pertinent to the mortgage finance intermediaries and appraisers.

• Adding a new chapter to the Executive Regulations of Capital Market Law No 95 for 1992, allowing for conducting securitization activities so as to activate the secondary market.

• Amending a number of provisions of CBE Law No. 88 for 2003, to regulate the scope of exchanging information and data pertinent to clients' debts and credit facilities. Such amendment covers the mortgage finance and financial leasing companies, and allows for incorporation of companies rendering credit reporting and credit rating services.

Second: Development of the Institutional Framework and Regulatory Controls to Protect Market Dealers' Rights and Enhance Transparency

• Developing the regulations and controls whereby licenses are granted to companies for practicing mortgage finance and to the competent mortgage finance experts, such as intermediaries, agents and appraisers.

• Developing the standard forms of mortgage finance terms and agreements, to facilitate securitization dealings.

• Setting the general rules and controls that regulate market dealings in accordance with the highest international practices and pursuant to the recommendations given by Basel-2 Conference.

• Unifying all the procedures used for calculating the schedules of debt amortization and finance installments.

• Issuing mortgage refinance controls and setting the regulatory framework required for the Real Estate Investment Trusts (REITs)

• Issuing controls regarding the acquisition of shares in the licensed mortgage finance companies.

• Developing regulatory controls over mortgage finance companies, with respect to anti-money laundering and antiterrorism funding.

• Facilitating the real estate foreclosure procedures and reducing the period of time required to do so.

• Issuing regulatory controls with respect to granting mortgage finance in foreign currencies.

• Providing insurance coverage against the risks of death and paralysis, as required for enhancing the mortgage finance market.

Third: Development of Real Estate Registration System (Registry of Deeds) and Removing the Pertinent Obstacles

• Reducing the real estate registration charges to be LE 2000 at maximum, by virtue of Minister of Justice Decree No. 5424 for 2006.

• Facilitating the real estate registration procedures applied to the new urban communities. In this respect, a protocol was signed with the New Urban Communities Authority, allowing for transformation of the "allocation letters" into "recordable legal documents" and permitting partial registration of projects. .

• Exempting the mortgage finance contracts from the proportional stamp tax.

Fourth Development of the Secondary Market

• Incorporation of the EMRC in June 2006, with the objective of providing long-term finance to the mortgage finance companies and the banks operating in this field of service. EMRC grants finance duly collateralized by real estate portfolios, thus reducing the credit risks and the interest rates imposed on the loans granted to clients. This is in addition to initiating securitization dealings.

Fifth: Providing More Housing Opportunities by Expanding the Mortgage Finance Beneficiaries Base

• Enhancing the role of mortgage finance subsidy and guarantee fund, and developing the pertinent mechanisms.

• Expanding the beneficiaries' base of fund subsidies by raising the maximum limit of monthly income of subsidy-entitled clients to LE 1750 per month for singles and LE 2500 per month for families, by virtue of Premier's Decree No 1846 for 2008.

• Raising the value of fund's subsidy to LE 15,000 in stead of LE 10,000, and further raising the maximum price of subsidized residential unit to LE 95,000.

• Cooperating with the Private Sector to provide residential units to low-income families. In this respect, various housing

projects were established by the Private Sector and subsidized by the fund.

Sixth: Spreading and Raising Awareness of Mortgage Finance

• Launching various wide-scale awareness campaigns on the TV, radio and news papers.

• Developing an investor guide with the aim of protecting investors and informing them of their rights and obligations.

• Participating in various exhibitions and conferences to describe and introduce the mortgage finance activity to the public.

• Issuing various printed materials and guidelines to raise peoples' awareness of the importance and the procedures or mortgage finance, including an EFSA Mortgage Finance Services Guideline and a leaflet describing the role of the mortgage finance subsidy and guarantee fund.

• Holding various training course for real estate appraisers, in cooperation with a group of authorized trainers.

• Holding the annual Euromoney Conference for Investment and Mortgage Finance which is considered the first specialized conference in this field of services.

Refrences    

http://www.efsa.gov.eg www.alexbank.com/AR_research.aspx http://www.investment.gov.eg www.egx.com.eg/