Egypt: Non-Traditional Offerings

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With the Arab world's largest population and a high level of poverty, Egypt is an ideal candidate for the expansion non-traditional banking products, including mobile banking and microloans. The government is now setting the legal groundwork needed to increase the banking options available to its low-income citizens.

Since its international debut six years ago, mobile banking has gained a foothold in African countries with large unbanked populations. In January the Egyptian central bankEgyptian central bank announced it was in the final stages of authorising legislation to regulate the mobile banking sector.

At present only 10% of Egyptians have a formal bank account, due in part to the lack of branches in rural areas. In addition, there are 14m people living under the poverty line who traditionally considered unbankable by commercial financial institutions. Online banking has also yet to catch one due to low Internet penetration (16%). The mobile market, on the other hand, is surging, with an estimated 55m registered accounts in the country. "Unlike Westerners, whose mobile usage is limited to necessities, Egyptians use mobile phones excessively," Ayman Sabry, business development manager at Middle East Network Solutions, told local press.

In 2001 Arab BankArab Bank started offering simple mobile banking services, allowing customers to check account balances from their phones. Since then, a number of other players have joined the market, offering more sophisticated products such as money transfers. As the current system of keeping track of and paying bills at payment points is slow and bureaucratic, there is real potential for mobile bill payments to proliferate. Indeed, a study by Ipsos Marketing Research showed that 84% of respondents would to prefer to hire someone else to pay their bills.

As the majority of Egyptian transactions are cash-based, one barrier for mobile banking to overcome is distrust of technology, but this is set to change. "There has been huge development in the field of securing information exchange via mobile phones, namely the introduction of new encryption systems that are impossible to hack," said Sabry.

BNP ParibasBNP Paribas recently applied for a mobile banking licence in partnership with MobinilMobinil, Egypt's largest mobile carrier. Their product, called M-Wallet, should debut in March. Orascom TelecomOrascom Telecom, which holds the majority stake in MobinilMobinil, launched its first mobile banking operations in Pakistan in 2009.

The new legislation should clarify the terms of partnership between banks and Egypt's three mobile operators. "The Central Bank of EgyptCentral Bank of Egypt should approve the framework in the very near future and it will be the bank's responsibility to control the quality of the operational set-up," Phillipe Joannier, the head of BNP Paribas Egypt, told OBG. "We believe this service will represent a real public service to all the Egyptians who do not yet have easy access to banking services."

Microfinance is another means of increasing financial services to the poor that has gained international prominence in the past decade. Typically, microloans have been dispensed to low-income entrepreneurs to fulfill a social goal, but Egypt and other countries are looking to broaden the scope of microfinance and transform it from a charitable enterprise to a commercial one. "Today, microfinance institutions need access to commercial finance, transactional services support, savings: a broad cross section of financial support," Aftab Ahmed, Citibank Egypt chairman, said at the Sanabel microfinance conference held in Cairo in January.

To promote commercial microfinance, the government has drafted a law regulating the sector, which will diversify the financial products available on the market, as well as introduce transparency standards. "The first priority is a regulatory framework for companies," Ghada Waly, advisor to the Egyptian Financial Supervisory AuthorityEgyptian Financial Supervisory Authority chairman for microfinance, told the Sanabel conference.

However, recent legislation does not yet allow microfinance providers to accept deposits, which would be a watershed event for the Egyptian microfinance segment. Though not all citizens need loans, all can benefit from saving money. Along with mobile banking, legalising microfinance savings accounts has the potential to greatly increase the percentage of banked Egyptians.

© Oxford Business Group 2010