AM — New FRA regs will force non-bank lenders to give borrowers clarity and tiered pricing

Good morning, friends, and welcome to almost-THURSDAY, as we insist Wednesday is best known.

Particularly interesting to us this morning: For the first time we can remember, the World Bank is zeroing in on fintech and financial inclusion as key drivers of economic growth here in Omm El Donia. Part way through a 45-page report that explains the Bank’s forecast last month that we will grow 5.5% in 2021-2022, the report’s authors say that the pandemic has “fast-tracked important fintech reforms and has driven many businesses to utilize digital technologies … and led to a surge in e-commerce activities.” The report is packed full of examples of how smart government policy and private-sector muscle are changing the way we do business, buy financial services, pay for goods, etc. We have coverage (and a link to the full document) in the news well, below.

HAPPENING TODAY-

Old rent law up for debate in the House: The House of Representatives is set to discuss in a plenary session today a draft law that would, if passed, allow landlords to evict institutions that are to this day effectively “unevictable” under the old rent law.

What’s the issue? The old rent law gives landlords no meaningful power to raise rents or evict tenants (commercial, residential or other), leading to situations where flats and villas ostensibly worth mns are effectively valueless to their owners: Renters of properties that would go for tens of thousands of EGP per month on the open market are protected with rents in the double digits.

SMART POLICY- The bill, if passed, would protect private citizens who rent. But it would also give landlords a pathway to eventually evict government agencies, public and private companies, embassies, clubs, associations and other entities leasing properties under the old rent system. As currently drafted, it would allow eviction proceedings to begin within five years of the law being enacted. Tenants could be forced in the meantime to pay 5x their current rent with a 15% annual rise. The House Housing Committee had signed off on the bill last month.

ALSO up in the House today: Amendments to the Real Estate Registry Act, which are up for further discussion after debate yesterday. We have more on that — and the other bills put to the House yesterday — in our Legislation Watch section, below.

President Abdel Fattah El Sisi has appointed Judge Boulos Fahmy as president of the Supreme Constitutional Court, Hapi Journal reports, citing a presidential decree published in the official gazette yesterday. Fahmy, who is the first Coptic Christian ever to head the court, takes on his new position effective today. He succeeds Said Maree Mohamed Gad, who is retiring.

SIGN OF THE TIMES- The Sisi administration has redrawn Cairo’s borders to include part of the new administrative capital to comply with the constitutional requirement that the seat of government — including the House of Representatives and Senate — be located in Cairo.

THE BIG STORY TODAY-

There’s plenty of business, culture — and, yes, Ukraine-related — news greeting us in the pages of the international press this morning:

Let’s get this out of the way first: While to the untrained eye, French President Macron’s shuttle-diplomacy efforts in Ukraine and Russia didn’t yield much in the way of de-escalation, Putin-whisperers tell Reuters they detect a shift in the Russian president’s tone that suggests he’s leaning more toward negotiation than invasion. Over at the New York Times, the suggestion is that Putin’s official spokesman stabbed Macron in the back while the French leader was in the air on the way to Kyiv. “Statements by Russian leaders appeared to undercut French diplomatic authority, and even credibility. … the Kremlin spokesman … suggested that it was the United States, not France, that had standing” to negotiate an agreement.

Ukraine, meanwhile, would like everyone to get out of its backyard after weeks in the crosshairs of the US-Russia showdown, according to the Wall Street Journal.

MEANWHILE- Not forgetting the latest crypto scandal… Federal agents in the United States have seized more than USD 3.6 bn in allegedly stolen BTC from a New York tech entrepreneur and his wife, who are accused of a massive crypto money laundering scheme, the Financial Times and the Washington Post report. The seizure of the funds is the largest in the history of the US Justice department.

SIGN OF THE TIMES- Italy is dropping its outdoor mask mandate (but keeping an indoor masking requirement) and New York will back away from an indoor mask mandate as more and more countries indicate they’re preparing to learn to “live with the virus” in a manner similar to how we coexist with the seasonal flu. Canadian provinces including Québec, Alberta, Prince Edward Island and Saskatchewan are also slowly phasing out restrictions.

From the geopolitical stage to the big screen: Oscar noms prove the Power of the Dog (+ the streamers). The 2022 Oscar nominations are out, and the full list reads as its own sign of the times, with the nominated films showing the impacts of the pandemic on the film industry — from the shift to streaming platforms (Netflix and Apple did very well) to the bns lost in ticket revenues, even for the award contenders. Netflix’s The Power of the Dog, directed by Jane Campion, leads the nominations with 12 nods, while sci-fi adaptation Dune followed closely with 10 nominations. AppleTV+ nabbed six nods. Three of the “Best Picture” nominations actually failed to “convert critical raves into ticket sales,” Variety notes. The award ceremony takes place on 27 March.

The all-important Best Picture contenders:

• The Power of the Dog
• West Side Story
• Belfast
• Dune
• Licorice Pizza
• King Richard
• CODA
• Don't Look Up
• Drive My Car
• Nightmare Alley.

Some honorary mentions: Denzel Washington broke his own record for most nominated Black actor and Beyonce landed her first Oscar nomination for her song Be Alive, for biopic King Richard. Check out the full list of nominees here.

WATCH THIS SPACE- Attention iSheep business owners: Your phone will soon accept payments, no add-ons required. Apple is rolling out a new feature that will allow retailers to use their iPhones to accept contactless payments through a tap to their phones, the company said in a press release. The “tap to pay” feature will arrive in an upcoming iOS beta so payment apps can integrate it, before launching on iPhone XS and newer models later this year. Payments provider Stripe will be the first to use the feature to allow account holders in the United States to “accept Apple Pay, contactless credit and debit cards, and other digital wallets through a simple tap to their iPhone.” There’s no word on when the feature might come to Egypt or other countries.

MARKET WATCH-

Oil slipped for a second day yesterday as traders weighed ongoing geopolitical tensions and a more positive outlook on the 2015 Iran nuclear agreement talks, Bloomberg reports. The possibility of Iranian oil supply returning to markets after years of sanctions, along with increasing doubts that Russian President Vladimir Putin is seriously planning to invade Ukraine, eased the seven-week rally, with international benchmark Brent crude closing 2% down at just under USD 91 per barrel.

*** It’s Hardhat day — your weekly briefing of all things infrastructure in Egypt: Enterprise’s industry vertical focuses each Wednesday on infrastructure, covering everything from energy, water, transportation, urban development, and social infrastructure such as health and education.

In today’s issue: We’re expecting to see 38 new smart cities pop up across the country under government plans to develop national infrastructure. Spanning over 500k feddans, these “fourth generation” cities are expected to create mns of jobs and house tens of mns of residents. In this week’s Hardhat, we take a closer look at our smart city ambitions — what they will entail, what’s driving them, and how they could transform life in our cities.

The Financial Regulatory Authority (FRA) has set out responsible lending principles for non-bank SME financing products, according to a statement (pdf). The new responsible lending code (pdf) offers guidance on how to act in borrowers’ best interests by making sure they are offered the most affordable and suitable options. The FRA says the framework develops a system that ensures transparency of terms through disclosures that clearly explain pricing plans, with an eye to making it easier for borrowers to compare options.

What do the principles entail? Non-bank lenders are now required to set up a three-tier pricing system for their financing products for low-risk, medium-risk, and high-risk customers. The regulator lays out equations for lenders to determine how to price their products, based on certain factors. The nominal interest rate for loans can be set either as a simple rate that lenders can recalculate on a monthly basis, an annual declining rate, or a fixed interest rate for the full tenor of the loan.

What factors determine the pricing of SME loans? The duration and tenor of the facility, whether it will be used for investment (capital expenditure) or operating expenses, the borrower’s credit history with the lender, whether or not the loan and project being funded are covered by ins., and the borrower’s risk level, according to the new framework. Lenders also need to account for the cost of loan loss provisions, administrative costs, annual inflation rates, and targeted net income margins.

Non-bank lenders have six months to comply with the new principles, which are set to improve market conditions and competition protection, according to the statement.

What’s in it for the lenders? The Central Bank of Egypt (CBE) will ensure that lenders who comply with the framework have access to sufficient liquidity for their operational costs. These lenders will also have access to discounted or without-charge training workshops.

The responsible lending initiative was launched last month by the CBE and the FRA in partnership with the World Bank, and is directed at all SME lenders they regulate. The World Bank has committed funding to train members of the Egyptian Microfinance Federation in best practices, using a curriculum developed by international institutions specialized in responsible finance.

Who stands to benefit from the initiative? More than 3.5 mn owners of micro, small or medium-sized enterprises, with balances worth around EGP 27 bn, according to the FRA.

IN OTHER DEBT NEWS-

Misr Capital, the investment arm of state-owned Banque Misr, is working on sukuk issuances for three EGX-listed companies this year, with the first issuance expected in 2Q2022, CEO Khalil El Bawab told Bloomberg Asharq. El Bawab did not disclose the names of the companies or the size of the issuances.

We’re pretty sure we know who one of these companies is: Misr Capital has been appointed by Palm Hills Developments (PHD) to underwrite and promote its planned EGP 3 bn sukuk sale, which could go through this quarter pending regulatory approval, Ayman Elsawy, Group CFO at Contact Financial Holding, told us last month.

Also in the works: Wadi Degla Developments’s EGP 2 bn sale — which we were expecting last summer — and Amer Group’s EGP 1.1 bn issuance are expected to happen during the first half of the year.

A sukuk “boom” in 2022? El Bawab said that Egypt’s corporate sukuk market will see a “boom” this year, and predicted that more than EGP 10 bn of the Sharia-compliant securities would be offered to investors. By our count, only one EGP 2.5 bn issuance from Contact Financial Holding (formerly Sarwa Capital Holding) took place last year, despite predictions that EGP 20-25 bn in corporate sukuk would be issued.

SEPARATELY- Misr Capital is currently working on issuing securitized bonds worth around EGP 7-8 bn for several companies, with the first of them also penciled in for the second quarter, El Bawab told Asharq, without providing further details.

World Bank says tourism rebound, gas exports driving strong growth in Egypt: The World Bank has laid out the drivers for its January prediction that our economy will grow 5.5% in FY2021-2022, pointing to a recovery in the tourism sector and rising gas exports. “A gradual return of tourists, continued growth in the technology sector, an uptick in gas extractives and expansion in the construction and real estate sectors will all support an expansion of aggregate demand,” World Bank economists wrote in its latest Egypt Economic Monitor.

Pandemic recovery in full swing: “Egypt is expected to revert to its pre-pandemic growth path over the forecast horizon and continue to push ahead with fiscal consolidation,” assuming the covid-19 pandemic continues to abate, the report says. Egypt’s economy delivered 5.6% growth in the year prior to the pandemic but fell to 3.3% in FY2019-2020.

But the government needs to do more. Policymakers will need to continue with structural reforms and attract private investment if it is to maintain the same growth trajectory in the coming years, the report says. Foreign direct investment — which the bank expects to remain below pre-pandemic levels through to 2022-2023 — is unlikely to increase in the non-oil economy unless serious reforms are implemented.

Budget deficit to narrow (though by less than expected): The budget deficit is likely to narrow to 7.2% by the end of the current fiscal year from 7.9% last year, as economic growth and the government’s efforts to digitize tax collection and customs increase revenues. The Finance Ministry currently sees the deficit standing at 6.9% at the end of fiscal year in June, narrowly missing its original 6.7% target.

As will the current account deficit: The current account deficit is expected to narrow gradually as trade, travel and gas exports increase, the report says. Despite increasing the import bill, rising oil prices should have a positive impact on the current account by boosting remittances from Egyptians working in the Gulf. That said, much of these gains will be offset by rising non-oil imports.

But debt is an issue: “Elevated debt levels, large rollover needs, and tightening global financial conditions could heighten the country’s susceptibility to external financing pressures,” the report says. Counting in our favor is that only a small portion of the country’s external debts are short-term, with the bulk of money owed to multilateral lenders with favorable maturity periods. The World Bank expects Egypt’s debt-to-GDP ratio to rise to 93% by the end of June, missing the target set by the government, which wants to get it below 90%.

Read the report: View the landing page here or check out the full report here (pdf).

The EGX has executed the sale of shares to investors who subscribed to Macro Group’s IPO, which saw it offer a 45.8% stake to institutional and retail investors over the past week, the bourse said yesterday. Macro raised EGP 1.3 bn in the IPO, which saw it sell 264.5 mn shares at EGP 4.85 apiece, valuing the company at around EGP 2.8 bn. The institutional offering — which was allocated 95% of the shares — was 1.8x oversubscribed, while the retail component saw stronger demand, closing on Monday 102x oversubscribed.

Shares will start trading Thursday (that’s tomorrow) under the ticker MCRO.CA at EGP 4.85 each, the EGX confirmed.

Advisors: Our friends at EFG Hermes are quarterbacking the transaction as sole global coordinator. EFG Hermes and Renaissance Capital are acting as joint bookrunners, while White & Case is counsel to the issuer. Dechert and Zaki Hashem & Partners are counsel to the joint bookrunners, while PwC has been appointed external auditor. Inktank is investor relations advisor.

Our first eco-friendly plastic alternatives factory? US environmental safety firm Okeanos and local infrastructure agent Income Egypt unveiled a proposal to build a local plastics alternatives factory in a meeting with Prime Minister Moustafa Madbouly yesterday, according to a cabinet statement. The factory, which would produce environmentally-friendly alternatives to single-use plastics (think shopping bags, straws and food packaging), is being styled as the first of its kind in Egypt.

Send us the deets: The companies will be drafting a more detailed proposal under directives from PM Madbouly before they move forward, clarifying the proposed timeline, and the land and value of investments needed.

The project comes as Egypt looks to burnish its sustainability credentials ahead of this year’s COP27 climate summit in Sharm El Sheikh. Projects are slated in a myriad of environmentally-friendly sectors, including green hydrogen, seawater desalination, and clean transport.

Correction: 15 February 2022

A previous version of this article misidentified Okeanos as Okyanus Group, a  Turkish construction company.

Kashat partners with Mastercard on prepaid cards: Our friends at Kashat, the region’s first nano-financial services provider, have signed a five-year partnership agreement with Mastercard to help issue prepaid cards that can be used to withdraw money and repay loans, the company said in a press release (pdf).

What does the pact cover? The pact will see “digitize the onboarding, disbursement, and collection processes” for Kashat, which provides “everyday Egyptians” with easy access to the formal financial system using nothing more than their smartphone. ​​Kashat will be able to issue prepaid cards to its users, giving them “safe and convenient ways to withdraw money and repay their loans using Mastercard’s technology and payment rails.” Both companies positioned the agreement as part of Egypt’s drive to improve access to the financial system for all Egyptians.

Kashat provides nano financial services including instant, small, short-term productive loans to the unbanked and under banked. The company doubled its addressable market to 67 mn citizens in December after expanding to cover 14 governorates. Founded in 2020, the company has raised more than USD 4.5 mn to date, including a USD 1.75 mn bridge funding round last September. High-profile US exec Marija Zivanovic-Smith joined Kashat as a non-executive board member in November of last year.

Funeral services startup Sokna has closed a USD 1 mn seed round, it announced in a press release (pdf) yesterday. The round saw participation from leading regional and international investors, including Silicon Valley-based Mentors Fund, SBX Capital, ACE & Company, and Kabnoury Ventures, and angel investors including Onsi Sawiris and Ahmed Sadek El Sewedy.

Sokna focuses on providing logistical support to people coping with a death in the family, including supporting the release of burial permits and paperwork, body preparation, cemetery set-up, transportation, hall and condolences service bookings, and obituaries. It combines “an extraordinary unity of compassion and tech-fueled efficiency,” and has the ability to “radically disrupt” the funeral industry, Onsi Sawiris said in the press release.

The firm has grown rapidly since its founding: Sokna launched in late-2020 and has grown threefold in the past year, according to the release. It’s set up operational partnerships with 20 hospitals and businesses in Greater Cairo, has 70 partner vendors, and has performed over 2.5k funerals. It now has more than 50 full-time employees.

And intends to keep going: Sokna plans to use the investment to “scale across the country,” as well as to keep growing its team and its tech to provide more services and products.

** We talked to Ahmed Gaballah, founder and CEO of Sokna, about his morning routine last summer. Check out the interview here.

ALSO FROM PLANET STARTUP-

Dubai-based fintech startup Zywa has closed a USD 1 mn pre-seed round, with participation from Y Combinator, executives from Google, Amazon, Netflix, McKinsey, and Morgan Stanley, and regional bankers and entrepreneurs, according to a press release picked up by Wamda. The company plans to expand to Egypt and in the UAE “soon,” according to the release, and expects to launch in the KSA next year. Founded in 2021, Zywa’s provides a banking app and payment cards for teens and young adults aged 11-21, designed to reinforce financial literacy and promote cashless transactions in the region.

House rejects “unconstitutional” parent fines: Proposals to ban parents of truant children from accessing public services riled MPs in yesterday’s plenary session as they rejected the amendments in principle as unconstitutional, Ahram Gate reports. New provisions in the Education Law would have prevented parents whose children miss school without sufficient reason from accessing government services, as well as slapping them with fines of EGP 500-1k. “We are surprised that the ministry comes with amendments to impose fines on parents. Instead of developing infrastructure and motivating students to go to school, we impose fines and distorted amendments that violate articles of the constitution,” Al Shorouk quoted Rep. Mahmoud Darwish as saying.

The House Education Committee came to the same conclusion last week, saying in its report (pdf) that the bill had several unconstitutional clauses and striking down the amendments.

Shawki gets heat: Several MPs criticized Education Minister Tarek Shawki for not prioritizing educational reforms while the public school system struggles with a shortage of teachers. “The law affects poor citizens. The minister must solve the most important problems in education, because there are no books, no teachers, and no classes for students,” Al Masry Al Youm quoted MP Bahaa Abu El Hamad as saying. Shawki said last year that public schools are short 250k teachers. The government last month announced it would hire 30k new teachers each year in an attempt to address the shortfall.

Also from the House:

• The House greenlit some amendments to the Real Estate Registry Act that aim to simplify property registration procedures, following the initial nod from the Legislative Committee last week. The remainder of the changes will be discussed in the next plenary session — which, contrary to what we reported yesterday, is taking place today — before receiving final approval.
• The House also passed a draft law that will see the creation of a tourism and antiquities fund that would finance the development of tourist areas and archeological sites, as well as restoration projects from the Supreme Council of Antiquities and cultural heritage work. The bill should now be on its way to President Abdel Fattah El Sisi to be signed into law. (Sharp readers will note that we already reported the fund passed by the House a couple of weeks back, having picked up an incorrect story from Al Borsa.)

Changes to the Real Estate Registry Act dominated coverage last night: Amendments to the bill greenlit by the House yesterday led coverage on the airwaves last night, with Justice Minister Omar Marwan phoning into Kelma Akhira (watch, runtime: 16:50) and Ala Mas’ouleety (watch, runtime: 13:27) to offer his insights. The changes place a 37-day time ceiling on the home registry process, Marwan said, while adding that a requirement to provide documentation of provenance was scrapped.

The entire process will be digitized, save for the owner’s signature, which will be required in person before receiving final approval, Real Estate Registry head Gamal Yacout said during a phone-in with Al Kahera Wal Nas (watch, runtime: 8:38). The bill will come into effect two months after it is published in the Official Gazette, allowing homeowners time to prepare documentation and familiarize themselves with the process, Marwan noted. Masaa DMC (watch, runtime: 8:33) also took note of the bill.

Ditto the changes to the Education Act: Changes to the education act that would have seen parents slapped with fines for students’ poor attendance were struck down by the House in principle, garnering airtime from Kelma Akhira (watch, runtime: 10:29), Al Kahera Wal Nas (watch, runtime: 21:06), Masaa DMC (watch, runtime: 2:06), and Al Hayah Al Youm (watch, runtime: 7:15). The proposal sparked a dialogue among the talking heads on how to address issues within the education system that prompt students to miss classes, rather than imposing fines as a sticking plaster. We have more on both bills in our Legislation Watch section, above.

Eight global companies have placed bids to establish green hydrogen plants in Egypt, Suez Canal Economic Zone head Yehia Zaki told Kelma Akhira (watch, runtime: 15:22) during a phone-in. MoUs are expected to be signed soon with the chosen companies in a bid to get the plants up and running by 2024, he added.

Etisalat and Honeywell sign fresh IoT agreement: Our friends at Etisalat Misr have signed an MoU with US tech giant Honeywell to provide Etisalat customers with internet of things (IoT) services as part of their ongoing work to co-build a cloud-based IoT platform, Al Mal reports. The two have been working together to build a network of smart cities and buildings through their IoT platform, which seeks to provide high-tech services in sectors including manufacturing, healthcare, hospitality, education, real estate, and transport. In early 2020, the two companies signed a contract to develop a smart city management system for the new administrative capital.

Other things we’re keeping an eye on this morning:

• The Transport Ministry plans to sign an MoU by June with Abu Dhabi Ports to set up a cargo route across the Nile — passing through Minya, Alexandria and Damietta — to transport products from Canal Sugar’s Minya sugar factory.
• Fortress Egypt: Egypt is purchasing a mobile border surveillance system from US-based Advanced Technologies Systems in a USD 93.8 mn contract announced by the US Department of Defense last week. Work is expected to be completed by February 2027.

The Health Ministry reported 2,194 new covid-19 infections yesterday, down from 2,272 the day before. Officials have previously guided to expect the current wave of the pandemic to peak by mid-month. Egypt has now disclosed a total of 444,117 confirmed cases of covid-19. The ministry also reported 60 new deaths, bringing the country’s total death toll to 23,053.

The vaccine tally: 27,512,454 people are now fully vaccinated against the virus, while some 10.7 mn people have received only their first shots and 664,713 people have received booster shots.

Egypt could start producing Sputnik V vaccines this spring, Russian Ambassador to Egypt Georgy Borisenko told Russia’s state-owned Sputnik News yesterday. The transfer of technology is “almost complete,” said Borisenko, adding that local drugmaker Minapharm is currently producing trial batches. Minapharm last year signed an agreement with Russian sovereign wealth fund RDI to manufacture some 40 mn doses per year of the vaccine, which had been scheduled to roll out in 3Q2021. Egypt has been producing China’s Sinovac covid vaccine since July last year.