EGYPT Law and Practice Contributed by: Dina Kamel, Helal El Hossary, Omar Fouda and Kareem Hashem, Zaki Hashem
4.3 Sources of Funds for Fiat Currency Loans NBFS companies may fund the loans they offer to clients through various sources. Each funding source has its own legal and regulatory considerations. The main sources of fiat currency funds for loans include the following. Company’s Paid-In Capital NBFS companies may use their own paid-in capital to finance loans. This capital is typically raised from the company’s shareholders and can be used to provide loans to clients directly. Using equity capital can be advantageous as it does not create debt liabilities. However, there are some legal requirements regarding capital adequacy, which vary among NBFS. The FRA set minimum capital requirements to ensure that the company remains sol - vent and capable of fulfilling its obligations to clients. Loans Repaid by Shareholders NBFS companies may borrow funds from share - holders, typically in the form of shareholder loans, to finance lending activities. These loans may be repaid once the company has enough cash flow from its loan portfolio. Shareholder loans are subject to specific legal condi - tions regarding interest rates, repayment terms and documentation. The FRAs require these transactions to be properly disclosed to and pre-approved by other shareholders, ensuring that the interest rates charged are not excessively high or exploitative. Different Types of Bank Facilities NBFS companies often rely on credit facilities (such as term loans) provided by banks to finance their lending products. These credit facilities can be used to fund the loans made to clients. Borrowing from banks is regulated by the CBE, which sets guidelines for lend - ing practices. NBFS companies must follow key regu - lations: • AML: Under the Anti-Money Laundering Law, NBFS companies must implement strict AML measures, including KYC checks, monitoring for suspicious activity and reporting to the EMLCU.
• Leverage and borrowing limits: The FRA sets rules to prevent NBFS companies from over-leveraging. According to the FRA’s decrees, companies must maintain a certain capital adequacy ratio, ensuring they do not take on too much debt relative to their capital. Securitisations NBFS companies may convert future receivables into tradable securities (bonds), which are sold to inves - tors. These securities are backed by the future pay - ments that are expected to be made by virtue of con - sumer finance payments, microfinance payments, etc. By securitising these future cash flows, the company can raise funds upfront. Securitisation is a complex financing mechanism that involves multiple legal, regulatory and structural con - siderations. One of the key regulatory requirements is disclosure, as NBFS companies must provide inves - tors with comprehensive and accurate information regarding the bonds. This typically includes conduct - ing a detailed due diligence review of the securitised portfolio. In addition, the issued securities must comply with regulatory requirements relating to the credit rating, transparency, investor protection, and the prepara - tion and issuance of an information memorandum. The transaction is also subject to extensive oversight by the FRA, requiring multiple approvals at various stages of the securitisation process. 4.4 Syndication of Fiat Currency Loans Fiat currency loans issued by banks may be syndi - cated in accordance with CBE laws and the relevant regulations. Unlike banks, NBFS companies do not issue such syndicated loans or credits for their clients. 5. Payment Processors 5.1 Payment Processors’ Use of Payment Rails Entities may operate new payment rails if licensed as PSOs under Law 194/2020 (Articles 184–185) and the CBE rules, including meeting the EGP500 million capi - tal requirement and operational standards (Rule s2-2-
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