A new banking law finally came into effect in Egypt this October. The law was tentatively approved by the Egyptian House of Representatives on May 5. An exhaustive review followed. The review period lasted almost 5 months and saw several amendments to the original draft. Here is a look at how the new law will impact remittances and the country’s digital banking environment.
Glimpses of Growth
Egypt is a key stakeholder in the MENA (Middle East and Africa) region. It is strategically placed at a trade juncture connecting the east and west. It also links the Mediterranean Sea with the Red Sea – another busy global trade route. Thousands of Egyptian overseas workers reside and work in Europe. They rely on mobile platforms like the Ria Money Transfer App to send remittances.
International Financial Law Review’s FDI (Foreign Direct Investment) Report 2020 mentions that Egypt recorded a 60% investment growth from 2018 (85 projects) to 2019 (136 projects). It was the second ranked destination for FDI in the MENA region. Furthermore, Egypt attracted 12% of all capital investment in the MENA region. This amounted to EGP 214.4 billion (EUR 11.56 billion).
Despite its prominent place in MENA the adoption of financial services in Egypt has only recently started to take off. A Global Capital study on Egypt’s financial inclusion estimates that in 2017 only 8-12% of Egyptians held bank accounts. After several national level initiatives by the Egyptian government, the percentage has grown significantly. As of October 2020 nearly 60% of Egyptians had bank accounts. The number of debit and credit cards in the country has doubled since 2010. A reformed banking law is expected to boost financial inclusion further.
The New Banking Law
Egypt’s newest banking legislation applies to all major financial entities in the country. These include the CBE (Central Bank of Egypt), credit reporting agencies, credit guarantee companies, payment providers, money transfer companies, remittance service providers, and exchange firms. The law requires Egyptian banks to have a minimum capital of EGP 4.85 billion (EUR 261.93 million). Its representative offices must have capital of EGP 147.27 million (EUR 7.95 million). The chairperson of the Federation of Egyptian Banks (FEB) Mohamed El-Etreby hailed the new banking law as “an important and positive step for Egypt’s banking sector”. Alaa Farouk, chairperson of the Agricultural Bank of Egypt (ABE), also welcomed the new law. He called it a milestone in Egypt’s banking sector. He appreciated that the law supports ABE’s efforts in improving Egypt’s financial inclusion.
Faster International Transfers to Egypt
The Central Bank of Egypt (CBE) is now registered with SWIFT (Society for Worldwide Interbank Financial Telecommunication). The CBE has implemented the IBAN (International Bank Account Number) system to facilitate international payments. IBAN is a standardized system of identifying international bank accounts. With all major Egyptian banks now on the IBAN platform, Egyptians will benefit from faster and more accurate processing of money transfers. It will greatly reduce transactional errors and delays in payment transfers. The Deputy Governor (Banking Operations) at the CBE Amany Shams al-Din stressed that IBAN will “…increase the accuracy and effectiveness of banking transactions”. He added that it will be helpful in “maintaining the confidentiality of information, as well as reduces operational risks.”
Under the superseded banking law the CBE exercised indirect supervision over payment system operators and service providers. These included money transfer agencies and foreign exchange services. The new banking law gives the CBE direct supervision over these operators. It enables the CBE to treat them as banking entities. These service providers now require licenses to operate. They must comply with the new requirements of the law according to their categorization. Better and more direct supervision is expected to weed out malpractices in the payments sector of the Egyptian banking industry.
The CBE is hard at work on tightening the regulations governing the operations of payment service operators. These regulations will encompass mobile payments, electronic banking, international money transfers, remittances, payment methods for electronic money, contactless payments, and QR code payments. Egyptians can expect a safer, more efficient, and more transparent framework for international payments and remittances.
There is more
All of the banking reforms Egypt has seen recently are aimed at compliance with international standards. The New Banking Law also aims to bring stability and predictability. Global Capital, in their study on Egypt’s financial inclusion, predicts a rapid acceleration in digital banking penetration and its adoption during the next few years.
About the author:
Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.