Since the flotation of the Egyptian pound on November 3, 2016, the Egyptian state has taken a raft of measures on a long road to economic reforms.
The financial and monetary authorities have launched numerous, all-out measures aimed at reviving the economy and pushing growth ahead.
The non-banking sector has been one of the most targeted segments with several fresh regulations to boost Egypt’s financial services. The non-banking funding instruments include the stock market, leasing, factoring, and mortgage finance schemes.
Since November 2016, the state has issued bills and regulations.
However, the monetary policy and the foreign exchange rate have been the two main drivers.
The International Monetary Fund urges countries worldwide to boost non-banking finance to provide the private and public sectors with more funding instruments.
The Fund advises governments in emerging economies to “properly assess the potential of capital markets” in general and institutional investors in particular as part of their comprehensive strategies to address the financing gap.
Post-devaluation outlook
The repercussions of the Covid-19 pandemic and the Russia-Ukraine conflict have widened Egypt’s financial gap driving the Central Bank of Egypt to raise interest rates by one per cent and devalue the pound on March 21. In a bid to put the economy back on track, the government should boost non-banking finance to provide the private and public sectors with more funding instruments.
The enhancement of the non-banking sector is part of an overall economic reform program for sustainable development, in line with Egypt’s Vision 2030.
The Financial Regulatory Authority (FRA) has been working on a national strategy over the past five years for boosting non-banking services in a bid to enhance its role in the country’s economic and social development.
These instruments should also support small and middle-sized enterprises (SMEs).
Factoring, leasing & mortgages
Factoring is defined as a nonbanking finance instrument that enables firms to get paid faster and easier in a way that ensures a better and sustained cash flow. A creditor sells accounts receivables to a factor, or a factoring firm, to cash these receivables from debtors.
The pound devaluation may be a boon for the factoring business in Egypt. Some Egyptian exporters complain of default risks when it comes to dealing with African importers. International factoring firms can fix that. Egyptian exporters can get their money from African importers via an export factor.
As for leasing, the FRA has been improving regulations to bolster this key funding segment. The leasing is similar to purchasing on credit but offers more flexible repayment conditions for SMEs, startups,and the corporate sector in general.
It can provide manufacturing SMEs with adequate funding to get expensive machinery without purchasing them. At the end of the leasing period, SMEs own the leased machinery.
As for mortgages, a devalued pound is forecast to scale up demand for properties as a store of wealth. The devaluation has already prompted citizens to draw on real estate as a haven from inflation.
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