By Mariam Fahmy and Nada Hussein
In 2015, one of the most important economic legislations of the past few years was introduced to the Egyptian legal system. The long-awaited Law No. 115 for the year 2015 regulating security over movables (the “Security over Movables Law”) allowed the creation of non-possessory security over movables for the first time in Egypt. This significantly facilitated the financing of small and medium-sized enterprises. The beneficiaries of the Security over Movables Law included licensed banks, financial institutions, financial leasing companies, NGOs, and entities providing financing for SMEs. The executive regulations of the Security over Movables Law were passed in 2016 to establish the procedural framework of the Egyptian Collateral Registry (i.e., the online platform on which the security is registered) and set out the registration and enforcement procedures of this type of security in Egypt. The Egyptian Collateral Registry (the “ECR”) started its operation in March 2018 and is currently operated by I-Score.
On 15 April 2020, the Prime Minister issued decree No. 908 for the year 2020 (the “Decree”) amending the executive regulations of the Security over Movables Law. The main amendments that were introduced by the Decree are (i) the expansion of the scope of beneficiaries of this type of security to include natural persons providing financing; and (ii) the abolishment of Art. 23 of the executive regulations, which regulated the requirements for pledging bank accounts in accordance with the Security over Movables Law.
We guide you through the key highlights of the legislation, which are as follows:
The Expansion of the Scope of Beneficiaries of this Type of Security
According to the executive regulations of the Security over Movables Law before the issuance of the Decree, the security could be granted to:
- banks and financial institutions licensed to operate in Egypt;
- companies and entities licensed to undertake financial leasing activities in Egypt;
- foundations, NGOs and companies licensed to provide financing to SMEs in Egypt;
- entities undertaking activities related to financing and granting credit facilities or the nature of their activities requires so;
- companies and entities licensed to trade movables that can be secured according to the requirements of the Financial Regulatory Authority; and
- legal entities and natural persons that grant IP rights licenses.
The Decree added natural persons to the above list of beneficiaries, which means that natural persons granting financings can benefit from the Security over Movables Law, provided that they are registered with the ECR and comply with the registration requirements of the security under the Security over Movables Law.
The Abolishment of Art. 23 of the Executive Regulations
Art. 23 of the executive regulations regulated the pledge of bank accounts in accordance with the Security over Movables Law. The said article required banks with which the accounts to be secured are opened to issue a non-objection letter on the creation of the security addressed to the ECR. The registration of a security over bank accounts will no longer require the issuance of such letter by the account bank, which was a main condition for the registration of the security on the ECR. Further, the said article required the creditor to notify the account bank of the registration that had been completed on the ECR within one week from the registration date.
The issuance of the Decree is expected to further facilitate the financing of production and service projects and especially small and medium enterprises, which were not able to provide any valuable assets to secure their financing except for movable assets, as explained by the Chairman of the Financial Regulatory Authority. The Security over Movables Law allows them to secure their financing by movable assets while maintaining possession of the secured assets to use them in their daily course of business.
Starting from the date of issuance of the Decree, the ECR registered the first security in favor of a natural person with an amount of EGP 400,000, which has been confirmed by the Chairman of the Financial Regulatory Authority.