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As defined by the World Bank Group, financial inclusion entails that “individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit and insurance—delivered in a responsible and sustainable way.”
Over the past few years, a number of initiatives aiming to build a cashless economy and enhance financial inclusion have been launched. But despite the support of President Sisi, they still seem to face several obstacles. In November 2016, Sisi launched the National Council for Payments (NCP), which he chairs himself, in an aim to lead Egypt toward a cashless economy.
In February 2017, Sisi issued a decree establishing the council and delineating the scope of its responsibilities. The council aims to reduce the use of banknotes outside the banking system, motivating electronic payments and modernizing the national payments systems.
Speaking at the opening of the Financial Inclusion Forum held in Sharm El-Sheikh in September 2017, President Sisi asserted the importance of financial inclusion as one of Egypt’s main targets. Among the benefits is ensuring access to financial services for all citizens, especially women and youth, helping merge the informal economy with the formal one; this would thereby boost economic growth and improve citizens’ living standards.
The Central Bank of Egypt (CBE) also took part in various local, regional and global initiatives to flag financial inclusion as a top priority during the last few years, particularly widening the scale of financial inclusion in Egypt.
One of the most important initiatives was that pertaining to SMEs, launched in January 2016, which directed local banks to increase finance provided to SMEs and allocate no less than 20 percent of their lending portfolios to these businesses at a competitive interest rate over four years.
The initiative also ordered banks to establish specialized units providing financial services to these enterprises. Local SMEs received a total of LE 49 billion since the launch of the initiative in 2016 through to June 2017.
In 2014, the CBE launched the LE 10-billion mortgage finance initiative; last year, its scope was amended and the CBE decided to double the funds allocated to the initiative to LE 20 billion.
In July 2017, Egypt, China and Mexico were selected as model countries in the WB’s Financial Inclusion Global Initiative. The three countries are already part of the Universal Financial Access 2020 (UFA2020) initiative, led by the WB, aiming to bring 2 billion unbanked adults in 25 countries into formal financial systems.
The three-year initiative aims to ease access to financial services to the unbanked and under banked, and develop policy recommendations in digital finance.
According to the WB, more than 55 countries have made commitments to financial inclusion since 2010. Another 30 either launched or are developing a national strategy. The international organization affirmed that pace of reforms accelerates in the countries instituting a national financial inclusion strategy.
Founder and Managing Director of boutique investment firm Multiples Group Omar El-Shenety praises the efforts exerted and initiatives launched so far, but he says that a lot more should be done to promote financial inclusion in Egypt.
“All these efforts have created momentum and were fruitful. Banks are becoming more open to small enterprises, expanding in financing SMEs, and some banks have already created special products for providing microfinance services,” says El-Shenety.
In line with El-Shenety, Mubasher International’s economist Israa Ahmed commends the steps taken by the Egyptian government after realizing the opportunities lost due to financial exclusion.
She stresses that these measures will optimize chances to assess the informal economy and better prepare it for integration with the formal economy.
She adds that the SME initiative “was a good step because one of the imbalances that drives away the informal economy is its inability to obtain adequate finance at affordable rates. Thus, the move was one of the most critical incentives for attracting the informal sector and providing financing alternatives.”
The establishment of the NCP also managed to put in place the necessary framework and coordinate between different policies, she adds.
Economic expert and former head of the Egyptian Direct Investment Association Hany Tawfik, however, seems less optimistic about the progress toward financial inclusion so far. “We have seen the establishment of the NCP, but it has not taken any serious steps until now. . . .This begs the question about our will to achieve financial inclusion and make significant progress in this regard,” he argues.
Tawfik stresses that financial inclusion requires high expenditure from the CBE on infrastructure in order for it to reach every individual and business owner nationwide. We should avoid repeating the mistakes of India, he says, which expanded financial inclusion before getting its infrastructure fully ready for such development.
On the challenges and hurdles facing the countries in the way to financial inclusion, the WB’s list includes ensuring financial access and services extending to hard-to-reach populations, including women and the rural poor.
Promoting citizens’ financial literacy and capability to better understand different financial services and products is among these challenges, in addition to making sure everyone has valid identification documents and a low-cost, accessible means for them to register.
Financial inclusion also requires providing useful financial products, addressing consumer needs, as well as establishing strong financial consumer protection frameworks. Other factors include adapting relevant regulatory and supervisory authorities and utilizing technology to improve supervision known as “regtech,” according to the WB.