The Egypt factor

Blog | 6 June 2016

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The ambitions of the Egypt Factoring Association (EFA) are the familiar corporate aims of bigger and better. Of course. So opened the association’s chairman Gamal Moharam, targeting a doubling in membership by 2020 (currently standing is seven) and 1,000 clients up from today’s 200. He looked to Turkey as a model of development – highlighting its thriving multi-product association and central registration of documents around trade transactions.

The keynote address from Sherif Sami, chairman of the Egyptian Financial Supervisory Authority (EFSA), acknowledged the series of laws that support various receivables finance products in Egypt. A decree governing the factoring industry was introduced in 1997 and a draft new factoring law is being discussed by stockholders before presenting it to parliament. On top of this, they are about to pass a new law on leasing.

Also scheduled is clarity over movable assets as collateral and electronic registration of interest in receivables. After years of dominance by international factoring, Egypt is experiencing growth in domestic. Factors Chain International reports that in 2015 Egyptian factoring hit US$587m, a 23% increase on the previous year and now 84% of factored turnover is domestic.

 

Figure 1: Egypt’s factoring volumes

 

2011

2012

2013

2014

2015

US$200m

US$220m

US$450m

US$435m

US$537m

 Source: Factors Chain International

 

Low factoring product awareness

Sami recognised that once you get out of Cairo product awareness is very low and this continues to be the great challenge. Dr Zakaria Mohi El Dine (general manager/financing companies dept, EFSA) looked forward to a specific law on factoring:

  • granting certain rights to financiers around the assignment of receivables;
  • clarifying priority of claims in the event of insolvency of the seller; and
  • addressing the issue of ban on assignment clauses between buyer and seller (the law will over-rule in favour of the factor).

The need for knowledge transfer and repeated marketing of factoring was a common theme from speakers and delegates alike.  

The Egyptian market has bank and non-bank providers but the latter can struggle to get funding beyond the capital provided by the (regulation-specified) minority bank shareholder. Dr Shahinaz Rashid, executive director of the Financial Services Institute, sees both factoring and leasing needing to make use of securitisation as a source of funding. However a comment from the conference floor was that there was a lot of talking about securitisation, but very little actually being done.

Factoring has low rates of non-performing loans

Certainly there needs to be a greater understanding of factoring within the banks and a recognition that factors’ NPL percentages are well below 1% compared to a somewhat higher figure for the banks. Wael Badr of SAIB Bank observes that banks are only just starting to consider creditworthiness of NBFIs more positively than commercial traders. And when it comes to SMEs they have to help themselves, because, as Mohamed Magued of the board of Cairo Factors said: “the Egyptian economy has a real figure and an informal figure. The real is only 60% of the total. SMEs are vital to the Egyptian economy and its future, but SME’s inputs and outputs are not meeting the standards required by international trade”. The informality also extends to governance, structure and internal operations and hugely affects credit risks.

Support and development is available from many sources. The EFA continuously works to raise the profile of its financial solutions and the cashflow benefits of factoring receivables. The United States Agency for International Development, USAID, through its SEED project (Strengthening Entrepreneurship and Enterprise Development) focuses on micro-SMEs. The project provides technical assistance to enable young (and often female) entrepreneurs to develop their initial ideas into a viable business proposition. Ahmed Abdel Wahib, financial products senior advisor of USAID, emphasised the support they give to institutions to provide financial services and products. A senior consultant to the SEED project, Herb Willamson, expressed great enthusiasm for the role factoring can play in boosting micro, small and medium enterprises.

A fascinating and informative two days. Each one rounded off with a lunch which started at the rather late hour of 16:00. The reason became clear when it was pointed out that Ramadan starts on 6th June so the arrangement was good preparation for the fasting to come.

Peter Brinsley attended Reflections from the Egypt Factoring Association 2nd conference, Factoring Role in Financing SMEs Locally and Globally on 29 and 30 May 2016 in Cairo, Egypt

Peter Brinsley is director of trade finance consultancy, Point Forward. He can be contacted at peterbrinsley@pointforward.net

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