A new paper proposed by the Federation of Egyptian Banks (FEB) and the Federation of Egyptian Industries (FEI) suggests an executive roadmap in a bid to turn Egypt from a cash-based into a cashless economy.
The proposals and recommendations included in the paper come in light of the growing and sustained interest in advancing financial inclusion in Egypt and the integration of low-income groups in banking systems; hence, paving the way to a smooth transition into a cashless economy.
Cardholders in Egypt constitute a small portion of the overall population. While debit card holders account for 9.6 percent of the population, the rate of credit card holders is substantially low with only 1.9 percent using them. Moreover, not all debit and credit cardholders use their electronic cards to make payments, according to World Bank figures, Global Findex 2014.
The recommendations of the executive roadmap proposed amendments to the legal frameworks and further urged to add more provisions in an attempt to modernize and digitize Egypt’s economy.
A sizeable portion of the paper approached payments associated with state-related transactions, advising that laws governing income tax, value-added tax, social insurance, payment of government salaries, pensions and social security payments be amended so that the entire payment system becomes restricted to electronic and banking means. The state undeniably has a pivotal role to play in catalyzing the shifting process, particularly that it can prompt society to count on non-cash mechanisms through financial services that pertain to the government, according to the paper.
On top of that, the paper gives an overview on all laws of the aforementioned state-related transactions. With the exception of two ministerial decrees and Law no. 201 of 2014 regarding income tax payments, there are no direct requirements in all laws stipulating the management of government payments and revenues to use banking and electronic payments – a deficiency the paper requires to be amended.
Real estate registrations and transactions
Additionally, the paper addressed the registration of real estate and the direct and significant link it has to limit cash transactions. While it may be deemed that real estate registration is rather irrelevant to the immediate scope of transitioning to a cashless economy, payments associated with real estate transactions, however, account for a significant share of annual payments in society. The paper recommends that buyers, sellers and lessees be required to conduct their transactions through banking and/or electronic mechanisms.
Non-banking financial markets and activities
In regard to non-banking financial markets and activities, the paper advised that activities that fall under the supervision of the Financial Regulatory Authority (FRA) to have new provisions that should be added to the laws regulating these markets. This should prohibit any form of cash payments once the transaction exceeds a certain minimum threshold. Mobile payments should as well be allowed in case the transaction doesn’t exceed this threshold. This includes the entire operations associated with the paid up capital of the company and its increases, the purchase and sale of the shares, and the distribution of the dividends and liquidation proceeds to be carried out through electronic mechanisms.
Entities involved in transitioning to a cashless economy
The paper addresses the forms of companies that fall under the jurisdiction of the FRA or the General Authority for Investments and Free Zones (GAFI) to move to cashless transactions. These companies include joint stock and limited liability companies, capital market operations, mortgage financing and financial leasing.
The National Council for Payments (NCP) has a quite significant role in promoting financial inclusion. The Central Bank of Egypt (CBE) has launched several initiatives towards expanding financial inclusion. The paper recommends that the NCP established a Financial Inclusion Forum, along with CBE, FRA and FEB. It further advised to develop a national plan for financial inclusion and obligate banks to create special departments for automation of payment systems.
Likewise, the paper went on to suggest that the NCP should reconsider the requirements that clients need to sign in person for opening bank accounts or mobile wallet accounts and obligate microfinance companies to disburse loans to their clients either through bank accounts or mobile wallets. Besides the various proposals, the NCP was also recommended to activate electronic payment systems and carrying out public awareness campaigns on the importance of shifting towards a cashless society.
Lagging behind as it may seem, Egypt has nevertheless been actively attempting to follow the footsteps of other international experiences. It has taken several steps forward in reforming the banking sector and amending laws and regulations.
The last recommendation by the paper was to formalize informal economic activities, dubbed as the parallel economy. The paper calls for the finalization of the unified companies law that standardizes the rules and procedures for establishing all types of companies. While economic researchers disagree over estimating the size of the informal sector, cash undoubtedly dominates the large array of transactions in the sector.
In addition to advising to finalize the unified companies draft law that has been in progress for many years and is expected to have a positive impact on the business ecosystem, the paper further suggests the promulgation of the anticipated small- and medium-sized enterprises law and provide finance and assistance to microfinance companies. Serious efforts that are exerted towards shifting to a cashless economy must be supplemented by formalizing the informal economic and commercial activities and bring them under the umbrella of formal economy to entirely implement the vision.
All infographs courtesy of CIPE, FEB, FEI and Dcode EFC.