Background.

The Financial Regulatory Authority (“FRA”) Decree No. 268 of the Year 2023, sets out the incorporation requirements, needed license, and the minimum required capital (authorized and paid-up) for the non-banking financial services companies. In addition, the FRA Decree No. 58 of the Year 2022, also gives a descriptive insight into the incorporation requirements for companies that wish to operate and provide non-banking financial services by using financial technology.

Scope of Application

In furtherance, Article No. (1) of the FRA Decree No. 268 of the Year 2023, limits and determines the targeted business activities by such Decree. Hence, the provision of this Decree shall be applicable and mandatory upon the following activities:

1. Real Estate Finance;
2. SME’s Finance;
3. Microfinance;
4. Financial Leasing;
5. Factoring; and
6. Consumer Finance.

Incorporation Requirements

Meanwhile, the incorporation requirements as per Article No. (2) of this Decree are as follows:

1. The company shall be in the form of a Joint Stock Company (“JSC”);
2. The company’s activity shall be from the previously mentioned activities;
3. The company’s authorized and paid-up capital shall not be less than EGP 15,000,000 (or it’s equivalent in other foreign currencies) for each of the previously mentioned activities);
4. The company shall prepare a technical and economic study, which shall include the company’s digitalized business model and its applications;
5. The owned percentage by the expertise in the realm of technology or financial technology in the company, shall not be less than (25%). Unless the company wants to meet the minimum required authorized and paid-up capital amount, for each activity; and
6. The company’s managing director shall have a higher educational qualification.

 In addition to the above-mentioned requirements, the companies’ incorporation applications shall be submitted in accordance with Article No. (2) of the FRA Decree No. 58 of the Year 2022, which stipulates that the companies’ incorporation applications shall include:

1. The name of the company and founding shareholder(s),
2. Three (3) copies of the company’s Articles of Association (“AoA”),
3. Bank certificate,
4. The auditor’s appointment acceptance report,
5. General Authority for Investments and Free Zone’s (“GAFI’s”) non-confusion certificate,
6. An acknowledgment of upholding the necessary technological infrastructure, means of protection and security for the company’s activity, and
7. An acknowledgment of submitting one of the listed depositary and registry company’s certificate(s), when receiving the operational license.    

Provided that, at the time of writing this Article there are no additional requirements required. However, the FRA may add in the next few weeks additional or specific requirements for the incorporation process.

Operational License Requirements

To secure the non-banking financial services company operational license, the company must fully adhere to the regulations outlined in Article (3) of this Decree, which details the requirements for obtaining such a license. Additionally, compliance with Article (4) of FRA Decree No. 58 of 2022 is mandatory, excluding the final clause of the said Article. This operational license is valid for two (2) years serving as a grace period, necessitating the company’s acquisition of the final operational license within this timeframe. The requirements for this final license, as per Article (4) of the Decree, include: ensuring the company’s authorized and paid-up capital meets specified amounts, and maintaining ownership rights equivalent to or exceeding the minimum required capital. Failure to meet these criteria may result in the revocation of the granted license for non-compliant companies, as per the provisions outlined in the preceding paragraph.

Conclusion:

To conclude, this article discusses the incorporation requirements and operational licenses for non-banking financial services companies operating in the realm of financial technology, under the FRA Decree No. 268 of 2023. It also references FRA Decree No. 58 of 2022, providing insights into the incorporation process for such companies. The scope of application includes various financial activities such as real estate finance, SME finance, microfinance, financial leasing, factoring, and consumer finance.

For startups venturing into non-banking financial services, especially those utilizing financial technology, these decrees outline stringent requirements. The mandate for a minimum authorized and paid-up capital of EGP 15,000,000 for each activity; and prior to this Decree each of the aforementioned activities had the following authorized and paid-up capital requirement:

1. The real estate finance activity had a minimum required authorized and paid-up capital of EGP 50,000,000;[1]
2. The SME’s finance and microfinance activities had a minimum required authorized and paid-up capital of EGP 75,000,000;[2]
3. The financial leasing and factoring activities had a minimum required authorized and paid-up capital of EGP 75,000,000;[3] and
4. The consumer finance activity had a minimum required authorized and paid-up capital of EGP 75,000,000.[4]

In addition, for those startups delving into this sector, these regulations present a great opportunity, notably the stipulation of a minimum authorized and paid-up capital of EGP 15,000,000 for each activity, which is significantly lower than previous requirements as mentioned above. Prior to this decree, the capital thresholds varied considerably, with activities like real estate finance necessitating a much higher capitalization.

Navigating these stringent requirements demands meticulous financial planning and strategic foresight. Startups must not only fulfill the financial prerequisites but also demonstrate technological expertise and ensure compliance with operational licensing mandates. Failure to meet these criteria could jeopardize the viability of their ventures.

This decree is creating opportunities for innovation and growth within the non-banking financial services sector. By aligning with the established frameworks and leveraging financial technology effectively, startups can carve out a niche in this dynamic landscape, serving the evolving needs of consumers and businesses alike.

---

[1] According to the FRA Decree No. 64 of the Year 2015.

[2] According to the FRA Decree No. 93 of the Year 2023.

[3] According to the FRA Decree No. 91 of the Year 2023.

[4] According to the FRA Decree No. 94 of the Year 2023.