Financial Technology companies practicing non-banking finance activities

The establishment of Fintech companies practicing non-banking finance activities is an important path in the modern business world, as the technological sector is witnessing rapid growth and radical changes in the way financial services are provided. This type of company is characterized by employing modern technology, such as mobile applications and artificial intelligence, to provide effective and innovative financial services outside the scope of traditional banks.

Licensing and establishing of the Fintech start-up companies that want to obtain a license to practice non-banking finance activities is subject to some conditions and controls that must be observed.

In this article, we will take an overview of the conditions, controls, and papers required to establish and license financial technology companies practicing non-banking finance activities.

First: Fintech companies practicing non-banking finance activities specialize in the following activities:

1. Real estate finance activity.
2. Small and medium enterprise finance activity.
3. Microenterprise finance activity.
4. Financial leasing activity.
5. Factoring activity.
6. Consumer finance activity.

Second: Conditions for establishing startup Fintech companies wishing to practice non-banking finance activities:

1. The company must take the form of an Egyptian joint stock company.
2. the company’s activity must be limited to practicing one or more of the activities referred to in Article 1 of this decision.
3. The company’s issued and paid-up capital must not be less than fifteen million Egyptian pounds for each activity of the financing activities mentioned in Article One of this decision, or its equivalent in foreign currencies, and in case of practice more than one of the referred activities, the company’s capital must be increased according to the activities required to be practiced, taking into account the rules for combining activities issued by the Authority.
4. Preparing a technical and economic study for the company that includes an explanation of the digital business model and its applications through which the activity will be conducted, in particular, the following:
   1. The company’s digital business model and the competitive advantage that the company offers through it, which includes the difference in the business model from the traditional companies and entities currently practicing activity in the Egyptian market
   2. Stages of increasing the company’s issued and paid-up capital by not less than the minimum required in accordance with the decisions of the Board of Directors of the authority regulating each activity.
   3. The company’s plan on technology infrastructure, information security, and governance used to fully digitize processes through; Digital registration (E-KYC), credit evaluation through digital evaluation forms, and the necessary connection with an Egyptian credit query company, procedures for registering guarantees in a digital form, digital contracting, digital payments and digital collection, and identifying lists of those prohibited from acting. Or dealing, especially in the field of combating money laundering and terrorist financing digitally, and fully automated back-office work systems.
5. The percentage owned by specialists in the field of technology or financial technology, whether individuals and/or legal entities should not be less than (25%) of the company’s capital, and the founders pledged not to make any amendment to the company’s ownership structure that would result in reducing the ownership percentage of the aforementioned specialists to be less than ( 25% ) of the company’s capital unless the requirements for the minimum issued and paid-up capital for each activity are met in accordance with the decisions of the Board of Directors of the authority regulating each activity.
6. The managing director of the company must have an appropriate high qualification, meet the experience requirements required for each activity, and/or pass the tests specified by the Authority.

Third: Documents required to obtain a license of practice non-banking finance activities for Fintech startup companies:

1. Submit the license application on the digital form prepared for this purpose with the attachment documents indicating the fulfillment of the conditions.
2. Pledge to start the actual activity of the company within two months of the date of issuance of the license.
3. Pledge to obtain the approval of the Authority in case the desire to open branches of the company after payment for the scheduled services.
4. Pledge that the company’s financial leverage will not exceed four times the net equity until the final license is obtained.
5. A pledge to complete the procedures for increasing the company’s issued and paid-up capital in accordance with the decisions of the Board of Directors of the authority regulating each activity, within a maximum of two years from the date of obtaining the startup company’s license in the field of Fintech.
6. A pledge from all the company’s shareholders not to distribute any profits to shareholders before completing the increase in the issued and paid-up capital and obtaining the final license from the Authority.
7. Pledge to commit once the startup company is licensed to provide an experimental environment and technological tools for digital connectivity in accordance with the Authority’s requirements for exchanging information or activity indicators and for connecting services through (APIs).
8. A pledge to commit immediately after obtaining the start-up company’s license, to conclude an insurance policy against electronic risks issued by one of the insurance companies licensed by the Authority, in accordance with the controls issued by the authority in this regard.
9. Providing a labor policies manual necessary to practice the activity for which a license is required, in accordance with the requirements of the law regulating it and the Authority’s controls issued in this regard.
10. The company’s financing must be primarily based on risk capital companies or funds, whether established inside or established abroad, provided that these companies or funds must be subject to the supervision of an entity that exercises powers similar to those of the Authority or the Central Bank of Egypt.
11. Pledge to fully connect electronically with the Authority before the commencement of the activity.
12. Evidence of payment for examining the license application.

Fourth: Duration of the license:

• The license granted to startup companies in the field of financial technology to practice non-banking finance activities is for two years until they complete the requirements for the final license.
• The Company is obliged to obtain the final license within a period not exceeding two years, by increasing the issued and paid-up capital in accordance with the provisions of the decisions regulating each activity, provided that the ownership rights are not less than the minimum capital of the company, and the authority’s approval of its final license was issued.
• The license granted to the aforementioned companies will be canceled if they do not rectify their situation, and the decision issued to cancel the license specifies the procedures that the company must take to transfer or liquidate its activity.