The non-banking financial activities sector is facing major challenges, however; it is gaining momentum, but the effects on activities and growth expectations vary in light of the continuing economic repercussions.
In an interview with Daily News Egypt, Alaa Al-Afifi, CEO of the Non-Banking Finance Sector at EFG Finance, said that each of the non-banking financial activities has different dimensions, and is affected by the economic repercussions in a different way with investors wary of expansions in light of the rise in interest rates, the financial leasing activity will be greatly affected.
He explained that the effect is less severe on factoring, but with the cessation of imports, this activity is affected, while the effect was prolonged on real estate financing, which led to a decline in the lustre of real estate as an investment tool at the present time, especially with the difficulty of liquidation, explaining that the activities of microfinance and consumer financing are still reaping the gains of high inflation.
The annual inflation rate was about 31.5% last April, compared to 33.9% compared to March 2023.
Al-Afifi said that the current market conditions necessitate the need to consider the risks, and that caution be an integral part of striving for growth in all financial activities offered by the company to maintain the quality of the portfolio of each activity, with the need for periodic follow-up after granting funding without exaggerating the required procedures, stressing that challenges usually drive innovative solutions.
Integration of EFG Finance activities
EFG Finance provides innovative financing services under the umbrella of its subsidiaries, which include financial leasing and factoring activity in Corp Solutions, insurance in KAF, real estate financing through Bidaya, and microfinance activity in Bidaya, which in turn is owned by Fatora, in addition to digital payments via PayTabs, according to Al-Afifi.
He went on to say that the company seeks to create integration between all its affiliated activities by creating a unified platform that includes all its financing services in order to facilitate the customer’s needs, as well as support his investment growth, starting from small projects to financing major projects.
Al-Afifi stated that the integration between activities and between the arms of EFG Holding, which owns an investment bank and a commercial bank, will create strong products in the market, benefiting from the wide customer network.
The company aims to obtain a license to finance small and medium enterprises to complete the range of products it offers, as it has already obtained the initial approval, and is awaiting final approval to launch a new company for activity that will be wholly owned by EFG Finance, according to Al-Afifi.
He added that the aim of the new license is to provide financing for the largest customers, whose financing needs exceed more than EGP 500m.
Al-Afifi revealed that the company is in the process of contracting with a major food company to provide financing services to it, and to all its customers from major hypermarkets around the republic, as well as retailers, explaining that the contract will take place immediately after obtaining a license for small and medium enterprises, and financing will be provided through all subsidiaries according to need. and client type.
He revealed that the non-bank financing activity contributes a large part to the total revenues of EFG Hermes, and it is expected that the activity will maintain its contribution despite the current challenges in the market.
The non-bank financing sector revenues increased at an annual rate of 15%, to record EGP 689m during the first quarter of 2023, and financial leasing revenues witnessed a slight decline, at an annual rate of 2%, to reach EGP 44m during the first quarter of 2023, because of the decline in sales during that period.
Al-Afifi revealed that the group is seeking to reconcile the conditions of subsidiaries in various activities related to the decisions of the Financial Regulatory Authority regarding increasing the capital of non-banking financial activities companies, as it is currently working to increase the capital of the microfinance company in addition to the rest of the financing activities.
The FRA approved an increase in the capital of the financial leasing activity to EGP 100m, while it raised the capital of real estate finance companies to EGP 85m, as well as the minimum capital for companies licensed to engage in the activity of financing small and micro projects from EGP 25m to EGP 75m, in addition to raising The capital of consumer finance companies ranged from EGP 10m to EGP 75m for companies to be established in this activity.
Financial leasing
The company aims to pump financing through the financial leasing activity with a value of up to EGP 7bn by the end of this year, after its financing portfolio recorded about EGP 6.9bn at the end of 2022 for a total of 11 contracts, explaining that the company contracted with 7 clients in the first quarter of this year.
Al-Afifi pointed out that with the economic repercussions and the impact of financial leasing activities at high interest rates, the company is seeking to achieve the same funds, while adopting a new and different strategy in the funds provided to keep pace with the current slowdown, likely to see a breakthrough by the end of this year.
According to the data of the Central Bank of Egypt, the rates of return for deposit and lending for one night and the price of the main operation are at 18.25%, 19.25% and 18.75%, respectively.
Al-Afifi pointed out that the company has become focused on clients with financial solvency, and focuses its operations on granting greater value for financing to one customer, instead of a policy it adopted based on granting fewer funds to a larger number of customers, as well as entering with other companies and parties in joint financing to distribute risks.
He added that the company began to look at new sectors that were not funded, especially a vital sector such as tourism, especially as it generates dollar revenues, with the state adopting a strategy to support the tourism sector during the recent period.
Al-Afifi explained that there are sectors where the company has become more conservative in granting financing to emerging companies, especially with global developments, with various controls in place to reduce financing risks.
He revealed that the company is in the process of completing a securitization process for Corp-Solutions at a value of EGP 1bn by the end of next June, indicating that this year the company will not conduct other securitization operations.
Al-Afifi added that default rates are reasonable, especially since there is a permanent focus on the quality of the portfolio, and we have a tendency to keep a larger part of the financing on the financial statements, and not to resort to securitization again until the end of this year.
He explained that the cost of securitization has become high in light of the current interest rates, and the decision to securitize the portfolio is not the easiest in light of the state of uncertainty on the global and local scene.
Al-Afifi stressed that the financial leasing activity deals with all investment activities, as the company sensed the impact of the industrial sector in particular on the current repercussions, as some resorted to reducing investment or retreating from the expansion decision.
The company now deals with each financing case separately, and studies them separately, and determines the extent of the financing need.
Factoring activity
Al-Afifi believes that the company’s factoring activity will maintain the same performance rates achieved during the past year, which amount to about EGP 2.3bn, especially since it is one of the activities affected by economic changes such as stopping imports and high interest rates.
Factoring activities under the umbrella of EFG Finance increased at an annual rate of 72% to reach EGP 31m during the first quarter of 2023.
Factoring is a method for obtaining short-term financing through which a company sells its outstanding debts (invoices – checks) in favour of the factoring company in return for immediate money.
Al-Afifi stressed that the company works to encourage customers and sets internal policies of fair pricing and flexible repayment periods that make a large number of customers refinance with the company again, especially those that were not negatively affected, to preserve the customer as well as the quality of the portfolio, while investigating the required guarantees.
Microfinance
Regarding microfinance, Al-Afifi revealed that the size of the existing portfolio of Tanmeyah has reached EGP 4.2bn, and it is intended to achieve the same financing during the current year, with the company’s growth expectations, especially after the changes that the group is making to Tanmeyah, while the company has issued financing issues during the past year that amounted to about EGP 6.9bn.
In mid-May, Tanmeyah appointed Gino Johnson as CEO, and adopts a new strategy to drive growth in the field of financing micro projects, by enhancing the efficiency of its operational processes, developing its technological infrastructure, and developing the range of services and products it provides in the field, with a focus on maximizing positive returns and sustainable value for various individual and small business customers alike, as well as contributing to the promotion of economic growth in general.
The new changes aim to seize a larger market share than microfinance in the market, after the company’s market share reached about 10%.
The company made large provisions during the period of the repercussions of the “Coronavirus”, which makes it avoid being affected by the economic repercussions, explaining that the company executed a large part of the provisions at the end of 2022, while it will execute another part during 2023, explaining that the default rate in the portfolio reaches 2-3. % with the prospect of increasing it during the coming period.
Al-Afifi continued, that the company offers a maximum financing limit of EGP 100,000, and the company is increasing these financings to keep pace with inflation at the present time, stressing the importance of the financial supervision trend in the recent period to raise the maximum value of microfinance provided by companies from EGP 200 to EGP 220,000.
He added that customers need a considerable period to adjust the consumption pattern with regard to obtaining financing, and that customers’ priorities will change during the coming period and will be directed to the purposes of maintaining activities.
Al-Afifi revealed that a development company is considering launching new financing products in cooperation with its recently acquired subsidiary Fatora, of which it owns an estimated 96% stake, while the founder of Fatora owns the remaining 4%.
In June of last year, Tanmeyah acquired the Fatora e-commerce platform, and the deal combined the exchange of shares and cash, and the acquisition will allow Tanmeyah to access the growing network of merchants dealing with Fatora, which will be used to bridge a large gap in the corporate finance market, stressing that the aim of this process is to facilitate Tanmeyah’s access to Fatora’s customers and provide them with financing services.
In a related context, the company is adopting a strategy towards facilitating the customer’s access to financing by facilitating the documentary cycle and other requirements, especially in light of the competition in the market.
Mortgage financing
EFG Finance provides real estate financing activity through the Foundation’s Bedaya Mortgage Finance, in partnership with Talaat Moustafa Group and GB Capital, with equal shares.
Al-Afifi revealed that the volume of the company’s financing portfolio amounted to about EGP 2.2bn during 2022, expecting the same funds to be pumped during the current year, and negotiations are underway with a number of real estate developers to finance their portfolios.
He added that the main objective of the company was to provide real estate financing to individuals in a way that relies on technology and speed of performance, but the individual market is not the best currently, especially since financing individuals in light of the current high interest has become difficult and must be dealt with caution, expecting an increase in individual customers during the coming period.
Al-Afifi explained that the real estate market is currently in favour of the buyer, not the seller, and most real estate developers give different options to the customer with an increase in the instalment period, which makes them play the role of the real estate financier, stressing that the company does not finance any units either, but there is a selective process.
Kaf Insurance
Kaf Insurance aims to launch new technology-based insurance products in the first place.
According to Al-Afifi, the company focuses on targeting companies and small and micro business owners. Kaf is currently working to expand its scope of work by providing innovative insurance products that target a new segment, which are individuals.
Kaf was established in 2020, and the company is the result of joint cooperation between EFG Hermes Holdings, GB Capital, and Tokio Marine. It is developing a digital insurance services platform with the aim of maximizing the value provided to individuals and companies in the fields of life and health insurance for segments of society that do not enjoy adequate insurance services. It also seeks to continue providing its innovative insurance solutions with the aim of increasing demand rates among its individual and corporate clients, as well as bridging the insurance gap in the Egyptian market.
