The Central Bank of Egypt (CBE) is moving to pre-empt any potential consumer credit bubble, tightening the screws on how banks fund non-bank financial institutions, industry sources told EnterpriseAM. The CBE has verbally instructed banks that they must now obtain prior approval before participating in any securitization transaction, we were told.

Why this matters: Until now, banks were the reliable, high-volume buyers of securitized bonds, which are the lifeblood of the consumer finance industry. By requiring prior approval, the central bank is effectively installing a kill switch on the flow of capital from bank deposits to consumer finance players. Consumer finance has exploded in popularity amid an affordability crisis prompted by spiraling inflation in recent years.

The bigger picture

This is not an isolated regulatory tweak: It appears to be the second half of a coordinated effort by regulators to cool the consumer lending market amid widespread expectations that the central bank will continue to lower interest rates throughout 2026. In October, the Financial Regulatory Authority extended its suspension of new licenses for consumer finance and microfinance companies for another year, effectively freezing the market structure. And now, the central bank is restricting the funding of the existing players.

The goal? A controlled landing. “The CBE is acting proactively … specifically, high inflation could lead to a spike in consumer default rates,” former Industrial Development Bank Chairman Maged Fahmy told us. By restricting securitization, the CBE forces consumer lenders to slow down their origination of new loans and pay closer attention to credit quality, preventing a bubble from forming just as borrowing costs are set to drop.

After years of parking cash in high-yield government paper, banks are looking to protect margins as interest rates decline — and higher-return alternatives to traditional lending are definitely on the menu, economist Hany Abou El Fotouh told us. “Securitized bonds are attractive because they offer higher yields — and that is exactly what’s worrying. Banks occasionally over-indulge in high-yield ‘wrapped’ debt without sufficient risk assessment. The CBE wants to ensure every securitization is built on strong, guaranteed assets, not just paper with an attractive coupon.”

Securitization has been on a tear

The move comes after an explosion in securitization activity this year. Securitized issuances surged 182.5% in value q-o-q to EGP 17.8 bn in 3Q 2025, according to FRA data (pdf). This month alone, we have reported on at least six securitization issuances worth a combined EGP 7.9 bn.

“The risk is that this growth is concentrated almost entirely in consumer loans and real estate development — sectors most sensitive to economic shocks and eroding purchasing power,” Abou El Fotouh said. Financing for consumer finance companies jumped 58% y-o-y to EGP 74.9 bn in the first 10 months of 2025. The surge in consumer lending creates risk for the banking sector, says Fahmy, noting that unchecked growth in the current inflationary climate creates a higher risk of default.

If you run a consumer finance company, your cost of funds just became a major headache. The business model of many NBFIs relies on originating loans and then quickly securitizing them (selling them off) to free up capital to lend again. If banks — the primary buyers — are sidelined by red tape, that cycle slows down. Consumer finance companies may be forced to scale-back their installment sales operations, Fahmy warns.

A tiny loophole? Microfinance firms issuing bonds through dedicated securitization companies — rather than directly through banks — might remain shielded, though the full scope of the mandate remains to be seen, Sanda Microfinance CEO Ahmed El Khatib told us.

The global context: While painful for operators, the move brings Egypt in line with global norms. Markets including the US, UK, and Canada impose similar prior-notification rules on banks to monitor risk transfers, Agricultural Bank of Egypt Corporate Credit Risk Manager Hany Hafez notes. The decision will enhance transparency and shore-up risk management strategies across the system, he says.

Meanwhile: Consumer finance interest is now (mostly) exempt from VAT

The Egyptian Tax Authority greenlit a decision to exempt interest on consumer finance from VAT, according to a circular from the authority seen by EnterpriseAM. The VAT exemption only applies to FRA-licensed companies who separate the value of interest from the value of the good or service on their invoices. There are currently 46 companies who fit the bill.

Why this matters:The decision removes the tax risk that had threatened consumer finance players’ margins and prevents a 14% increase in the cost of credit for consumers. It will also help companies and the tax authority close numerous disputed tax files, as it now allows companies to eliminate the provisions and accounting reservations they had been forced to set aside to hedge against these tax risks, thereby strengthening the sector’s financial positions, Egyptian Consumer Finance Federation Chairman Saeed Zater told EnterpriseAM.

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