EGYPT -The Egyptian government has begun a microfinancing programme called “Nano Finance” to integrate the informal economy into the formal sector and empower economically marginalised people through financing mechanisms that improve their living conditions.
Microfinancing seeks to provide capital needs for small farmers and the self-employed, home-based projects, day-to-day sellers and street vendors and to encourage young people to enter self-employment.
The programme will be implemented by the National Bank of Egypt in cooperation with the Alexandria Businessmen Association, whose umbrella includes a financial arm for micro-projects.
The Financial Regulatory Authority (FRA) said terms and conditions for granting nano loans include a maximum of approximately US$190 per individual to be reimbursed in three months.
Authority Executive Chairman Mohamed Omran said “nanofinancing, offered for the first time in Egypt, relies very much on digital technologies.”
More effective systems have been introduced to facilitate payments of loans through mobile phones.
Users can either use a dedicated application or send text messages with the value of the daily installment.
FRA noted that one of the advantages of microfinancing is that it promotes reliance on insurances in society and that it was for this reason that the authority was making it a requirement for companies active in microfinancing to insure loans against non-payment risk.
The authority also required microfinancing companies to update client and loan data every two weeks.
Economic analyst Yasser Amara said: “The Nano Finance product supports the poor class in Egypt, especially craftsmen who need a small capital to jump-start their professional life.”
He explained the financing offering improves codification of platforms for collective funding that have spread through social media without supervision or control.
He pointed out that the main goal of Nano Finance is to legalise conditions of workers in the informal economy and integrate them into the formal system.
“Once the beneficiary obtains a loan from the microfinance companies, a quasi-database is created within the financing companies and the beneficiary becomes obligated to pay back in installments and from there he can be taxed at a later stage,” Amara said.
Egypt’s parallel economy is estimated at $154 billion, representing about 40% of GDP.
The government therefore stands to reap huge benefits in terms of tax revenues if this system succeeds in integrating the informal economy into the formal sector.