It could be a while before we see any new consumer finance or microfinance firms enter the market: The Financial Regulatory Authority (FRA) has suspended issuing new licenses for companies seeking to operate in consumer finance or microfinance for one year, according to a statement. The decision — which took effect on 11 October — applies to traditional financing methods but excludes fintech-based services.

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The why: The move comes in response to a notable increase in licenses granted over the past two years — the authority handed out 10 microfinance and 15 consumer finance licenses over the past two years — raising concerns about the financial solvency of existing service providers. The decision aims to ensure that markets and non-banking financial institutions remain stable.

DATA POINT- There are currently 25 licensed microfinance firms and 30 licensed consumer finance firms in the country, serving some 3.8 mn and 1.9 mn individuals, respectively.

The fine print: The decision doesn’t apply to companies that already received the preliminary greenlight to start operating in the consumer finance or microfinance spheres. The year-long suspension is subject for renewal as the authority sees fit.

More efforts to strengthen the NBFI sector: The authority will soon start reviewing NBFIs’ compliance with the minimum capital requirements. The regulator will also hold discussions with NBFIs in the coming days, prior to implementing Basel III financial solvency standards.

Remember: The authority increased the minimum capital requirement for NBFIs to EGP 75 mn from EGP 50 mn in 2023 and gave firms a year to comply. The new capital was introduced to ensure non-banking financial services firms have a buffer against external financial shocks and mitigate risk in the sector.

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