FRA issues financial solvency standards for consumer financiers

Alyaa Stohy
3 Min Read

Egypt’s Financial Regulatory Authority (FRA) has issued financial solvency regulations for consumer finance companies, according to FRA Chairperson Mohamed Omran.

The FRA will request that consumer finance companies prepare a work plan that includes a timetable to comply with financial solvency standards before the end of fiscal year (FY) 2019/20. The companies would then be required to submit quarterly reports to verify their commitment to applying these standards.

Omran said the new standards include setting the minimum capital adequacy standard to measure the consumer finance company’s ability to meet the risks associated with granting credit.

They would set a minimum that must be met in the company’s capital base, including paid-up capital, or the amount set aside to engage in activity with consumer finance providers, and other property rights.

This would come in addition to supporting loans provided by shareholders attributed to the company’s assets or the assets of the independent accounts allocated for their consumer finance activity. This would be in line with a weighting of the value of those assets according to the risks granted and used, in addition to a margin to cover operating risks.

Omran noted that the FRA’s decision No. 101 of 2020 includes a licence that the company obtains loans to finance its activities with a maximum of nine times the equity rights. This falls within the Ministry of Finance’s decision to grant tax concessions to consumer finance practitioners by not including the interest of loans obtained by the companies within the taxable income pool,.

The FRA criteria include confronting the risks of concentration and investing the company’s funds by granting financing to a limited number of individuals.

The new standards also set a maximum for what one customer gets, while the volume of transactions with a single customer may not exceed 10% of the company’s or finance provider’s capital base. This is after excluding the balances whose risks are not assumed by banks, venture capital companies, credit risk coverage agencies, non-payment risk insurance providers or any other guarantees accepted by the authority.

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