Pioneering Financial Inclusion: The Role of NBFIs in Shaping Egypt’s Economy
Updated 12/10/2024 8:00:00 AM
The non-banking financial sector in Egypt is experiencing a transformative phase, emerging as a crucial component of the country's economic landscape.
Non-banking financial institutions (NBFIs) encompass diverse entities, including leasing and factoring companies and microfinance providers.
Beyond mere financial intermediation, NBFIs are pivotal in fostering economic resilience and inclusivity. They play a vital role in mobilizing savings and facilitating investments without the need for traditional banking licenses.
Despite challenges, the future for NBFIs in Egypt appears promising, driven by favorable demographic trends and ongoing economic reforms to enhance the business environment.
Current Landscape of Egypt’s Non-Banking Financial Sector
Since 2014, the government has been working to activate non-banking financial services (NBFS) to formalize the economy and improve financial access. All NBFS are regulated by the Financial Regulatory Authority (FRA).
“Over the last decade, NBFIs in Egypt have grown and transformed significantly. Regulatory reforms introduced by the FRA have improved the operational framework for these institutions,” Ahmed Fawzy Hussein, PhD holder and assistant professor of economics, tells Arab Finance.
“Leasing, factoring, and microfinance have increased in demand, particularly from small and medium enterprises (SMEs) and underserved populations. Digital transformation has played a pivotal role in shaping the sector, with fintech solutions driving efficiency and accessibility,” Hussein adds.
The FRA recently reported that the total financing granted through capital market and non-banking financial entities subject to the authority’s supervision amounted to EGP 646.6 billion in the first nine months of 2024.
Meanwhile, the Central Bank of Egypt (CBE) recently revealed in its Financial Stability Report for March 2024 that the non-banking financial sector assets account for 9.8% of nominal gross domestic product (GDP) and represent 7.7% of total financial system assets.
Non-Banking Financial Sector Drives Economic Inclusion
In 2022, Prime Minister Mostafa Madbouly emphasized the pivotal role of the non-banking financial sector in supporting the Egyptian economy’s growth. With its diverse activities and financing solutions, the sector helps economic entities operating in various productive activities finance their expansions and develop their business volume. This supports the state’s production capabilities and the economic and social development goals.
Moreover, the non-banking financial sector in Egypt supports financial inclusion. Hussein explains, “NBFIs have been instrumental in advancing financial inclusion in Egypt. By offering tailored financial products such as microfinance, leasing, and consumer finance, they have bridged the gap for individuals and businesses excluded from the traditional banking system.”
“NBFIs have also facilitated access to credit for SMEs, contributing to job creation and economic growth. Moreover, partnerships with fintech firms have enabled the delivery of financial services to remote and rural areas, empowering a larger segment of the population,” he adds.
Salma Chalabi, economics specialist and PhD Student, agrees, saying, “NBFIs are rapidly growing in Egypt. They support SMEs and underage individuals through various initiatives aimed at financial literacy and inclusion.”
Challenges Facing the Sector in Egypt
As the non-banking financial sector thrives in Egypt, NBFIs still face a number of challenges
, especially new NBFIs entering the Egyptian market.
Chalabi highlights that challenges include a complex regulatory framework, with stringent requirements for licensing and compliance that can hinder new entrants from effectively establishing operations.
“Low levels of financial literacy among potential customers can limit demand for NBFI services, making it challenging for new firms to attract clients,” according to Chalabi.
A Promising Future
The non-banking financial sector is expecting a promising future in Egypt. Chalabi highlights, “Demographic changes and economic reforms are expected to significantly drive NBFI growth by boosting demand for diverse financial services and improving accessibility.”
“With over 32% of Egypt's population under the age of 15, NBFIs have a substantial opportunity to serve young people who are currently unable to open bank accounts,” she points out. “NBFIs in Egypt collaborate with governmental bodies to support youth through various initiatives to promote financial literacy and inclusion.”
“The non-banking financial sector is likely to witness accelerated adoption of digital platforms and artificial intelligence to streamline operations and enhance customer experiences,” according to Hussein.
“Expansion into underserved rural areas is also expected as part of a broader financial inclusion agenda. Additionally, environmental, social, and governance (ESG) initiatives may gain traction, with green finance and sustainable lending becoming focal points,” he says. “Collaborations between NBFIs and traditional banks are expected to increase, fostering a more integrated financial ecosystem.”
Characterized by significant growth and transformative potential, the non-banking financial sector in Egypt stands at a pivotal juncture. As a key driver of economic resilience and inclusivity, NBFIs enhance access to financial services for underserved populations and support SMEs.
Looking ahead, the future of the non-banking financial sector appears optimistic. Demographic shifts, coupled with economic reforms, present great opportunities for NBFIs to expand their reach and innovate their offerings.
By Sarah Samir
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