New CBE framework moves credit guarantee companies from contractual model to regulated activity

The Central Bank of Egypt (CBE) issued a full licensing and supervision framework for credit guarantee companies (CGCs), six years after Central Bank and Banking Sector Law No. 194 of 2020 first brought them under its oversight. The CBE board approved the rules at its 23 September meeting, according to a CBE circular (pdf). For the first time, the framework sets binding prudential ratios, a formal licensing process, and ownership limits, moving them from a largely contractual model to a regulated financial activity.

CGCs in a nutshell: Banks are usually reluctant to lend to small businesses that lack collateral or a credit history. A CGC covers part of that default risk, making lenders more willing to extend credit. The CBE defines them as companies that support individuals and micro, small, and medium enterprises (MSMEs) by covering part of the risk on their financing.

Why it matters: “The framework is not designed to restrict credit guarantee companies, but to move them from a largely programme-based and contractual model to a clearly regulated financial activity,” Financial and Strategic Risk Manager at Micro, Small, and Medium Enterprises Development Agency Ayman Taha tells EnterpriseAM. MSMEs accounted for about 43% of Egypt’s GDP and roughly 75% of total employment in FY 2023/24, according to the Planning Ministry’s 2025 Annual Report. “Improving their access to finance can therefore help preserve existing jobs, create new employment [prospects], expand production, and strengthen economic growth,” economist Iten El Margoushy tells EnterpriseAM.

IN CONTEXT- Bank lending portfolios to MSMEs grew 390% between December 2015 and December 2025 and 71% over the past five years, according to a CBE statement (pdf). But “the figures do not specify how much financing went through credit guarantee companies,” banking analyst Hany Abou El Fotouh tells us.

How we got here: The framework fills a regulatory gap that has existed since the launch of Egypt’s first and only (so far) credit guarantee company, the Credit Guarantee Company in Egypt (CGC Egypt). The company was established in 1989 under Company Law 159/1981 as a regular joint-stock company with no financial regulator oversight. It started operations in 1991. The CBE acquired a 20% stake in CGC in 2017, a move that expanded the company’s reach. By 1Q 2023, the portfolio exceeded EGP 269 bn, covering 206k SMEs, with 50% directed to youth and 23% to women. Law 194 of 2020 brought CGCs under CBE oversight, giving the CBE authority to license CGCs and set rules, but left the actual prudential, governance, and licensing details unspecified. Those rules are finally here.

What’s under the framework?

The numbers that matter: A CGC’s leverage ratio — net guarantees divided by equity plus Stage 1 expected credit loss provisions (ECL) — cannot exceed 21 to 1, capping total exposure at 21 times the company’s core capital buffer. No single client and its related parties can exceed 15% of that same base. The company must maintain a 100% liquidity coverage ratio: high-quality liquid assets (including cash, bank balances, government securities) must fully cover net expected cash outflows over a rolling 90-day period. Provisions for guarantee balances must follow Egyptian accounting and auditing standards.

The leverage formula is calculated on net guarantees: total guarantees issued minus ECL provisions for Stages 2 and 3, qualifying trust fund balances tied to specific programs and other parties’ share in joint guarantees where the contract explicitly assigns them responsibility.

A new licensing path for entrants: New entrants must be Egyptian joint-stock companies with at least EGP 50 mn in paid-up capital, as stipulated in Law 194/2020. The CBE board decides on a complete preliminary application within 90 days and notifies the applicant within 15 days. Once approved, the company has one year (extendable by another) to complete incorporation. After that, the CBE inspects the premises — EGP 100k for the head office and EGP 50k per branch. Final approval follows within another 90 days, and the company must start operations within one year or the licence lapses (also extendable by one year). The annual supervision fee is EGP 100k, due each January.

Companies must submit a five-year feasibility study, a clear ownership structure identifying ultimate beneficiaries, and evidence that the licence does not conflict with economic interests or competition rules. They must also appoint a qualified assessor to evaluate their technical infrastructure, IT systems, and information security.

Ownership rules: Foreign ownership is permitted. Anyone acquiring between 10% and 20% of issued capital needs CBE approval within 15 days. Anyone crossing a 20% stake or taking effective control needs prior CBE approval at least 60 days in advance, along with a solvency report, stated rationale, and management plans. Existing shareholders who exceed 20% through inheritance, bequest, or public subscription have 30 days to apply to regularize. Banks need approval for any stake.

Shares held above the permitted threshold lose voting rights and dividend entitlements. The holder who fails to comply with ownership rules must dispose of the excess within six months, or the CBE may take further action.

Short-term friction, long-term gain

A step toward attracting new entrants: While the framework raises the threshold to entry, it “also creates a clearer basis for new entrants,” Taha says. “The most accurate description is that Egypt has historically had a highly concentrated credit-guarantee market centered on CGC, while the new framework creates room for additional licensed players to enter.”

Short-term constraint, long-term confidence: “In the short term, the rules will limit growth that is not supported by adequate capital, liquidity, and risk capacity,” Taha explains. The prudential ratios mean some expansion will be checked. But “the quality and bankability of the guarantees should improve” as licensed CBE-supervised companies replace the current contractual model, he adds.

Decentralize decision-making: “The maximum ownership cap limits the concentration of decision-making power in the hands of a single owner, but it may make injecting large sums into the company more difficult for certain investors,” Abou El Fotouh says.

A positive step for SMEs: “Improving the efficiency, governance, and financial stability of credit guarantee companies strengthens their capacity to provide reliable guarantees, helping banks sustain financing for SMEs,” El Margoushy says. A strong, financially sound guarantee provider boosts banks’ confidence in expanding lending to SMEs, she adds. Taha agrees, “provided implementation remains efficient and does not make guarantees excessively costly or slow.”

What to watch

Some indicators will reveal who ultimately pays the price for stricter oversight: the companies, the projects, or the market as a whole, Abou El Fotouh says. They include the number of licensed companies after the grace period, the volume of guarantees issued, the time between application and issuance, the regulatory ratio values when published, and the extent of bank acceptance of guarantees as collateral substitutes. He estimates the most likely near-term effect is a slowdown in expansion rather than exits of some ins. companies from offering credit guarantee services: one to two years gives companies time to close gaps or inject new capital. Exits, if any, would come after the grace period ends, he adds.