> Posted by Allyse McGrath, Senior Associate, CFI
Readers of the 2015 Global Microscope, which spotlights the quality of the policy environment for financial inclusion, often focus on the countries at the top of the pack. However, some of the largest improvements in this year’s report are happening towards the bottom of the ranks. This trend appears on a regional scale, with the Middle East and North Africa, the region with the collective lowest scores, showing the most improved scores in this year’s issue of the Global Microscope. In this region, Egypt serves as an example of a country making huge strides even though it’s not among the top 10 countries. In fact, it scores among the very lowest handful of countries.
Up two spots from 53 to 51 out of 55 total markets this year, Egypt improved its score in 7 of the 12 Microscope indicators. The 8-point jump overall can be attributed to many factors, most notably the government’s introduction of a new regulation which broadens financial supervisory to a burgeoning microfinance sector and its welcoming of new electronic payments experiments.
In November 2014, the Egyptian Government enacted Law no. 141, more commonly known as the “Microfinance Law”, which created provisions for regulating MFIs in the country, previously excluded from the legal framework. This law expanded the reach of the Egyptian Finance Supervisory Authority (EFSA) which now has control over issuing licenses to microfinance institutions in Egypt. After the law’s issuance in 2014, the number of MFIs in Egypt rose from 400 to 640. By the end of 2015, EFSA reported that it had issued 253 licenses. The law which is aimed at ensuring efficiency, transparency, and risk management also includes a list of “Executive Decrees” by which licensed institutions must abide.
These regulations include certain levels of protecting debtor rights, creditworthiness checks, transparency, caps on microfinance loans for each customer, and regulations on how MFIs may advertise their products, among others. It is important to note that at this point, licensed institutions cannot receive any deposits. Their operations are, instead, restricted only to forms of financial leasing. EFSA has also focused recently on expanding and improving its regulation for insurance providers.
On the electronic payments front, in March 2015, the Ministry of Communications and Information Technology, the Ministry of Finance, the Egyptian Banking Corporation, and MasterCard launched a partnership aimed at broadening financial access to 54 million Egyptians through an interoperable national ID platform. As part of the agreement, MasterCard will work with the government and private sector agencies to link citizen’s national IDs to the existing mobile money platform. This system will allow the government to issue digital ID cards and move away from cash when disbursing salaries and social benefits. On the consumer-side, the IDs can be used to pay for government fees, mobile bills, merchant purchases, and domestic remittances.
Even with the great potential of both the Microfinance Law and ambitious electronic payments initiatives, the government will continue facing challenges as it (hopefully) continues to move up in the Global Microscope ranks. While the Microfinance Law is a big step, it is far from a national financial inclusion strategy. Additionally, the full effect of the law is still unknown. Specifically, there are concerns surrounding the capacities of smaller microfinance institutions that are, for the first time, regulated, while larger MFIs could be maturing to begin taking deposits. By boxing MFIs into a credit-only box with size limits, the law also cuts off the path that the better MFIs could use to develop into full service financial institutions, including taking deposits. The result can be a microfinance sector that is populated by relatively weak institutions that do not offer a wide range of services.
For more on Egypt’s recent progress and the country’s environment for financial inclusion, read the 2015 Global Microscope.
Financial Inclusion 2020 (FI2020) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.
Image credit: Laura Cuttier
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