Non-bank lenders now allowed to finance margin lending
Egyptian factoring companies are now able to finance margin lending by brokerage companies under new regulations (pdf) released by the Financial Regulatory Authority (FRA) yesterday. The move is meant to give brokerages access to new sources of funding and stimulate trading on the EGX. Eligible brokers are required to get approval from the FRA before engaging in margin lending. Allowing non-bank lenders to finance margin lending will likely be a welcome move for brokerages and industry associations, which have for years been seeking greater access to financing for the practice. Banks are typically reluctant to finance margin trading out of fear of turbulence in the stock market.
But Enterprise, what’s factoring? It’s a form of financing where one entity (known as the factor) buys invoices for uncollected receivables at a reduced price, then goes on to collect the full value of the receivables from the third party and pockets the difference. The factor charges a factoring fee in exchange for quickly releasing funds to the company selling the receivables. This fee is a percentage of the receivables, with the rate depending on industry, the volume of receivables being collected, how long the receivables have been outstanding, and most importantly the creditworthiness of the customers paying the receivables. Want more? We’ve got you covered with our explainer on factoring.