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Sunday, 7 February 2021

New regs for SME lenders

A new regulatory framework for SME lenders is now the law of the land after being published in the Official Gazette (pdf) last week. Under the framework, lenders must have in place appropriate risk assessment and capital adequacy protocols, ensure they appoint experienced boards (which lines up with recent regulations on internal structure), and seek approval if a single party plans to hold over more than 25% of the lender. The lenders also need to follow Egyptian Accounting Standards when reporting financials, have specialists on staff, and provide funding to each project separately.

Capital adequacy and risk management: The regs require SME lenders to maintain a capital adequacy ratio of 12% and set aside 15% of their operating profit as a contingency against operational risks, as well as only take on debt up to 9x of their equity base. Other risk mitigation regulations include having 100% of the liquidity needed to cover outbound cashflow for a 30-day period on hand at all times and lending no more than 10% of capital to a single borrower, or 25% to borrowers in the same industry.

Supervision and monitoring, foreign ownership: Other elements of the new framework include rules for monitoring and supervision, such as inspections by the authority, and a requirement to get security clearance to on-board foreign owners.

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