In a move that’s both a relief to some and a headache to others, Egypt’s Financial Regulatory Authority (FRA) recently unleashed Decision №184 of 2024, a sweeping new mandate halting the acceptance of establishment applications and initial approvals for companies and entities seeking to enter the microfinance and consumer finance sectors. The decision, which freezes new licenses for one year, came as a surprise to many players in the industry. However, some companies in Egypt (including fintechs) appear to have dodged the regulatory bullet — at least for now.

The FRA, in its usual matter-of-fact tone, assured the market that this decision was born out of “continuous keenness to achieve financial stability for markets and non-banking financial institutions.” Translated from regulatory speak, this means that with a flood of new licenses pouring in over the past two years, the FRA is tapping the brakes to ensure the solvency of the service providers it oversees. After all, who wouldn’t want to make sure the ship is seaworthy before letting more passengers on board?

According to the FRA’s official statement, no fewer than 15 consumer finance licenses and 10 microfinance licenses were handed out like candy over the past two years, and the authority is still reviewing several pending applications. For a country that’s looking to ensure financial stability, such generous licensing might start to feel like a risk. In fact, the FRA noted that 25 companies are already licensed to engage in microfinance, while an additional 30 hold consumer finance licenses — numbers that might make even the most seasoned regulators twitch a little.

But here’s the silver lining for fintechs in Egypt that got in early: the FRA’s freeze only applies to newcomers. Companies already established, those with initial approvals, and even entities that submitted applications before the ink dried on this decision are all in the clear. Moreover, civil associations and institutions that had applications in the works also escaped unscathed. And here’s where it gets interesting — the FRA has given an explicit green light to fintech companies using financial technology under the 2022 Law Regulating and Developing the Use of Financial Technology in Non-Banking Financial Activities. So, for those savvy enough to embrace the fintech route, it’s business as usual.

But why the sudden pause? While some may attribute this to the sheer volume of new entrants into the market, the FRA emphasized that this decision is part of a larger strategy to ensure that these entities remain solvent and capable of fulfilling their promises to consumers. In other words, the authority would rather not deal with the aftermath of a slew of failing companies unable to keep their financial heads above water.

In a mild twist, the FRA has offered a “virtual community dialogue” in the coming days, a platform where companies can voice their concerns and offer feedback on the new financial solvency standards. The dialogue will focus on Basel III regulations, a global framework for banking resilience, which the FRA is keen to see applied in non-banking financial institutions. It also plans to review companies’ compliance with the new minimum capital requirements — EGP 75 million ($1.5 million) for most non-banking entities, and EGP 100 million ($2 million) for those dabbling in real estate finance.

The FRA’s eagerness to implement these stricter solvency measures does not come without merit. The microfinance sector alone serves nearly 3.8 million beneficiaries, while consumer finance helps around 1.9 million individuals — both vital cogs in Egypt’s economic engine. Together, these sectors manage an impressive EGP 91.7 billion ($1.8 billion) in financing. With such high stakes, one could argue the FRA’s cautious approach is justified.

For fintechs navigating the complex regulatory waters in Egypt, the latest licensing freeze is a reminder that agility — and perhaps a healthy dose of foresight — can be the key to survival. Traditional microfinance and consumer finance firms may feel the heat, but those embracing fintech’s potential can breathe a little easier, at least for now. Whether this marks the beginning of a more fintech-friendly era or just a temporary respite remains to be seen.