Chairperson of Financial Regulatory Authority Mohamed Farid issued circular letter No. 6 /2022 regarding enhancing the effectiveness of controls of microfinance and small and medium-sized enterprises (SMEs) financing.
The FRA noted that some companies, associations and civil institutions licensed to engage in financing activities for small, medium-sized and micro enterprises provide supplementary financing to their clients, so that the recipient of financing can obtain new financing before the completion of the original payment period for the same type of existing financing. In a way that allows the customer to replace, in whole or in part, what was previously paid in the financing account, by providing him with new financing under different names, whether with the same value paid or others, without taking into account technical considerations necessary for the safety of granting financing.
Accordingly, the circular letter obligated companies and entities licensed to engage in the two activities of financing micro-enterprises and financing SMEs not to renew financing granted to customer except after verifying that existing financing has actually been paid in full, and it is not permissible to pay any amounts due to the existing financing by obtaining new financing.
The circular letter authorized financing entity to provide new financing to existing customers parallel to existing financing, provided that it is not of the same type of financing granted to the customer (current financing / investment financing) and in the same funded activity, after verifying the customer’s ability to pay financial obligations after the new financing, with commitment that value of obtained financing in all financing products does not exceed maximum limit stipulated in laws and regulations.
Additionally, the circular prohibited granting existing customers new financing with the aim of providing supplementary financing before the completion of the original repayment period for the same type of financing granted to them.