FRA Amends Regulations for Non-Banking Foreign Currency Financing to Boost Leasing and Factoring Sectors
The Board of Directors of the Financial Regulatory Authority (FRA), chaired by Dr. Islam Azzam, has issued a decree amending certain regulations governing non-banking financing in foreign currency. The amendments to Decision No. (318) of 2025 aim to resolve practical challenges that emerged following the initial implementation of these rules, specifically within the financial leasing and factoring sectors.
Introducing "Sale and Leaseback" for FX Financing
The newly introduced amendments add a new provision for foreign currency financing in the financial leasing and Small and Medium-sized Enterprises (SMEs) financing sectors. This provision permits "sale and leaseback" operations aimed at funding import activities, purchasing assets, or settling foreign currency obligations related to the client’s core business.
This addition aligns with the legislative and regulatory framework of the financial leasing sector, particularly FRA Board Decision No. (82) of 2019, which regulates asset purchase and leaseback operations. This is in addition to the existing provision that permits foreign currency financing for "import operations falling within the scope of the client’s activity."
For both cases, the decree stipulates that the financing process must be supported by documentation proving the opening of a Letter of Credit (LC) at a bank or its equivalent, or by any documentary or electronic notices confirming the completion of the transaction. Clients operating within Free Zones are exempted from this requirement.
Facilitating International Factoring
Regarding the factoring sector, the new decree classifies factoring clients (assignor companies) located in Free Zones as external (foreign) parties.
Furthermore, it introduces significant facilitations for international factoring in foreign currency. This comes after noting that some countries lack a "correspondent factor," which was previously a mandatory requirement in factoring agreements.
Key facilitations include:
Non-Recourse Factoring: Allowing the replacement of the correspondent factor with a bank, insurance company, venture capital firm, foreign financing entity, or any other entity recognized by the FRA, to guarantee the rights of the factoring company and all involved parties.
Recourse Factoring: If the factoring company retains the right of recourse against the client (the assigning seller of financial rights), the amendments permit the company to finance its clients in foreign currency even in the absence of the aforementioned guarantor entities.
Diversifying Funding Sources
In a move to provide greater flexibility for financial leasing, factoring, and SME financing companies when extending foreign currency credit, the decree broadens the permissible sources of such funding. These sources now include:
Loans from the company’s shareholders.
Loans from subsidiary or affiliated companies.
Any other financing sources approved by the FRA.
These are in addition to the previously permitted sources, which included self-resources, banks, entities licensed to deal in foreign exchange, and foreign entities (subject to prior FRA approval).
FRA Leadership Perspectives
Dr. Islam Azzam, Chairman of the FRA, stated that the decree is designed to grant factoring and financial leasing companies greater flexibility when interacting with market participants in foreign currency transactions.
"The decision strikes a balance between operational facilitations and transactional governance, thereby supporting the prosperity of both sectors and maximizing their contribution to the national economy," Azzam noted.
He added that this rapid adjustment to regulations implemented earlier this year underscores the FRA's commitment to keeping pace with market dynamics. It reflects the Authority's strategy of leveraging practical market feedback and addressing emerging issues through continuous coordination with the Egyptian Federations for Financial Leasing and Factoring, and maintaining an ongoing industry dialogue.
Sector Terminology Overview:
Factoring: A short-term financing tool used to accelerate cash flows and improve liquidity and profitability. It involves a contract where the factor (factoring company) purchases current and future financial rights arising from the sale of goods or services by the seller (assignor).
Financial Leasing: A contractual agreement between a lessor and a lessee, where the lessor transfers the possession of a self-owned or supplier-acquired asset to the lessee for use in income-generating activities for a specific period and a predetermined rent.