A Snapshot of Egypt’s Financial System

Wafik Grais, 04 Mar 2015

Egypt’s financial system has undergone significant reforms since 2005. While important progress has been made, further work is needed for it to play an effective role in the country’s socioeconomic development. .

 

From 2000 to 2010, regulatory and supervisory arrangements fostered stability and vibrancy. The Central Bank of Egypt (CBE) ensures the banking system's safety and soundness and conducts the country’s monetary, credit, and banking policies. Nonbanking financial activity is under the purview of the Egyptian Financial Supervisory Authority (EFSA), a public authority that regulates and supervises nonbanking financial markets and instruments to ensure market stability and competitiveness.

 

Banking remains the core and largest segment of the country’s financial system. By 2011, Egypt had consolidated its banking system to 39 banks and privatized Bank of Alexandria, one of the four dominant public sector banks. Banks improved their balance sheets.[1] By 2003, the banking system's aggregate assets were US$230 billion, or 89.5 percent of gross domestic product (GDP).[2] However, the ratio of assets of deposit banks to GDP, a measure of financial depth was close to 65 percent, lagging relative to other countries in the region.

 

In recent years, Egypt’s financial system has diversified and seen the renaissance of a vibrant stock exchange within a robust institutional framework. However, market capitalization remains at around 30 percent of GDP, one of the lowest in the region.[3] Legislation and regulations were developed for mortgage, leasing, and factoring that remain fledgling activities, however. A policy focus to develop an enabling framework for a vibrant insurance industry is needed. The insurance sector can help mobilize long term resources, ensure social protection, mitigate business risks and ultimately foster socioeconomic development. [4]

 

Large segments of the population remain outside the financial services industry. Only close to 10 percent of the adult population had a bank account in 2010. However, with 3,610 branches, the banking system is able to serve about 23,000 persons per branch, which augurs well for increased penetration. More than 395 nongovernmental organizations are active in the microfinance sector, as are four banks. The market is concentrated with about 65 percent of more than 1.4 million borrowers served by seven institutions.[5]

 

The industry is contributing to poverty reduction, with a larger presence in Upper Egypt and offering opportunities to women, who represent more than 50 percent of borrowers. Notwithstanding the large number of institutions, significant outreach, and borrowers’ profile, supply gap estimates are close to 90 percent.[6] Small and medium enterprises also have limited access to bank credit and need to rely on self-finance or acquaintances for credit, hindering entrepreneurship and business expansion.

 

References

 

  • Ernst & Young. 2012. “Growing Beyond: DNA of Successful Transformation. World Islamic Banking Competitiveness Report 2012–2013.” Ernst & Young, Dubai, December.
  • Lester, Rodney. 2011. “The Insurance Sector in the Middle East and North Africa. Challenges and Development Agenda.” World Bank Policy Research Working Paper 5608, World Bank, Washington, DC, March.

 


[2] See CBE, http://www.cbe.org.eg/NR/rdonlyres/91E1EC1A-A474-4782-B1B6-326B7997F948/2088/Bankingsectorconsolidatedfinancialstatement.pdf; and own calculations assuming a GDP of US$257 billion and a US$/LE exchange rate of 6.8. Islamic finance assets are reckoned at around 5 percent of financial assets (see Ernst & Young 2012).

[4] The same variables are 2.3 percent, 4 percent, and 45 percent for high-income OECD countries (see Idem and Lester 2011).

[5] Assiut Businessmen Association, Lead Foundation, Alexandria Businessmen Association, the Egyptian Small Enterprise Development Association, Dakahleya Businessmen Association for Community Development, Banque du Caire, and Al Tadamun. See EFSA, http://www.efsa.gov.eg/content/efsa2_en/efsa2_merge_page_en/micro_merge_page_en.htm.

[6] See SANABEL, http://www.sanabelnetwork.org/SanabelFiles/Publications/TransparencyPublications/Sanabel_Profile_Egypt_Eng.pdf and EFSA at http://www.efsa.gov.eg/content/efsa2_en/efsa2_merge_page_en/micro_merge_page_en.htm.

 

 


Wafik Grais is an International Senior Adviser specializing in Islamic finance, financial regulation, investment financing, private equity management, and corporate governance with expertise in SMEs and green growth financing. He was co-founder and chairman of Viveris Mashrek, a Cairo-based, financial advisory services company specialized in private equity investments in SMEs, licensed by Egypt's Financial Supervisory Authority. He spent 28 years in international finance notably with the World Bank in Washington DC where he held several senior positions both in operations and at corporate levels. He holds a Ph.D. in Economics.

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