dsp ii financial sector benchmarks implementation

January 15, 2008 This publication is made possible by the support of the American People through the U.S. Agency for International Development (USAID). The contents of this report are the sole responsibility of BearingPoint, Inc and/or its implementing partners and do not necessarily reflect the views of USAID or the United States Government.

DSP II FINANCIAL SECTOR BENCHMARKS IMPLEMENTATION BENCHMARK VERIFICATION REPORT II JANUARY 2008

DSP II FINANCIAL SECTOR BENCHMARKS IMPLEMENTATION BENCHMARK VERIFICATION REPORT II JANUARY 2008 TECHNICAL ASSISTANCE FOR POLICY REFORM II CONTRACT NUMBER: 263-C-00-05-00063-00 BEARINGPOINT, INC. USAID/EGYPT POLICY AND PRIVATE SECTOR OFFICE JANUARY 15, 2008 AUTHORS: THAM V. TRUONG AND ARWA MORSY1

SO 16 DISCLAIMER: This study report is made possible by the support of the American people through the U.S. Agency for International Development (USAID). The contents of this study / report / website (specify) are the sole responsibility of BearingPoint, Inc and / or its implementing partners and do not necessarily reflect the views of USAID or the United States Government.

1 The authors would like to thank the assistance of the Egypt Financial Services Project, especially Messrs. Francois Pepin and Noel Taylor, and the collaboration of Mses. Enas Bishr and.Shahinaz A. Fathi of the Minsitry of International Cooperation, and of Mses. Ghada Mahmoud and Doris Solomon of the TAPR II project. Comments from Mr. Paul Bruning of the USAID Mission in Egypt are also appreciated. .

CONTENTS 1. BACKGROUND ...................................................................................................... 2

2. OBJECTIVE ............................................................................................................ 2

3. TAPR II ASSESSMENT: ......................................................................................... 2

BENCHMARK 4.1:...................................................................................................... 3

BENCHMARK 4.2:...................................................................................................... 5

BENCHMARK 4.3:...................................................................................................... 7

BENCHMARK 4.4:...................................................................................................... 8

BENCHMARK 4.5:...................................................................................................... 9

BENCHMARK 5.1:...................................................................................................... 9

CERTIFICATION LETTERS........................................................................................ 0 CERTIFICATION LETTER NO. 1 ........................................................................................ 1 CERTIFICATION LETTER NO. 2 ...................................................................................... 18 CERTIFICATION LETTER NO. 3 ...................................................................................... 40 CERTIFICATION LETTER NO. 4 ...................................................................................... 84 CERTIFICATION LETTER NO. 5 .................................................................................... 109 CERTIFICATION LETTER NO. 6 .................................................................................... 126

EFS MEMORANDUM ............................................................................................. 147

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1. BACKGROUND Under the Development Support Program II (DSP II), the Arab Republic of Egypt acting through its Ministry of International Cooperation (MIC) and the United States of America acting through its Agency for International Development (USAID) signed on 20 March 2005 a Financial Sector Reform Memorandum of Understanding (MOU) that identifies, among other things, the Government of Egypt (GOE) commitments to: strong and independent central bank management; create a functioning government securities market; implement a comprehensive program of reforming the Egyptian banking system; strengthen the legal and regulatory framework for the overall financial system; and promulgate and implement a code of corporate governance. On 29 September 2005, USAID submitted to the GOE a detailed time-bound DSP II Financial Sector Monitoring Plan – with agreed-upon policy items, benchmarks, means of verification for compliance with benchmarks and terms of disbursement.

The GOE approved the Monitoring Plan in January 2007. MIC uses the Plan to monitor financial sector policy changes implemented by various public institutions and Ministries and reports them to USAID and shares the information with TAPR II (Technical Assistance for Policy Reform II) Advisors who are tasked with monitoring and reporting on reform progress.

TAPR II reviewed, per USAID request, the status of GOE implementation of benchmarks 1.1, 1.2, 1.3, 3.1, 3.2 and 3.3 in December 2006 and ascertained that the just-mentioned benchmarks were achieved.2 USAID disbursed $ 275 million in January 2007.

In December 2007, USAID requested that TAPR II review the status of GOE implementation of benchmarks 4.1-4.5 and 5.1.

2. OBJECTIVE The objective of this review is to work with USAID, MIC and other GOE institutions to assess the implementation status of benchmarks 4.1, 4.2, 4.3, 4.4, 4.5 and 5.1 as of 10 December 2007. Using USAID documents, it will identify each policy item and the related benchmarks and means of verification. It will, then, review the agreed upon means of verification provided by MIC, other GOE institutions and USAID projects to ascertain the implementation status of DSP II policy changes in the financial sector.

3. TAPR II ASSESSMENT: TAPR II’s assessment of the achievement of selected benchmarks is based on the required means of verifications that are identified in the Monitoring Plan. In addition to the TAPR II analysis, this document contains six certification letters corresponding to five benchmarks in Policy Item 4 and a single benchmark in Policy Item 5 of the Financial Sector Reform cash transfer program.

2 Tham V. Truong and Arwa Morsy, DSP II Financial Sector Benchmarks Implementation – Benchmark Verification Report (December 2006), Technical Assistance for Policy Reform II (TAPR II), Cairo, Egypt.

TECHNICAL ASSISTANCE FOR POLICY REFORM II 2

Policy Item 4 relates to: Strengthening the legal and regulatory framework for the overall financial system, including creating the necessary conditions for and establishing a functioning and liquid mortgage market, improving and simplifying the process against which loans may be foreclosed and supporting the establishment of an independent credit bureau.

Policy Item 5 relates to: Publish a corporate governance best practice code to generate awareness and encourage companies to comply with the code.

All benchmarks in these two Policy Items have to be achieved before a single disbursement of $50 million can be made.

Each of the six certification letters covers several documents: an excerpt from the Monitoring Plan related to the benchmark and the documents that serve the Means of Verifications.

Based on TAPR II’s evaluation, and MIC’s signature and concurrence on the certification letters, all six benchmarks now appear to be met.

BENCHMARK 4.1: The GOE shall issue implementing/executive regulations (by 09/30/05) that would: establish national standards for conducting real estate appraisals; establish a real estate appraisal and certification program; establish national land title registration system, including procedures and appropriate information systems; and, reduce property transfer and/or registration fees to less than 1 percent of the transaction price.

MEANS OF VERIFICATION FOR BENCHMARK 4.1: 1. A copy of the guidelines that promote and ensure best practices in the Egyptian

property appraisal profession.

2. A copy of the implementation plan for property registration and evidence that it has been implemented.

3. A copy of the official decree that reduces property transfer and registration fees as described above.

For clarity purpose, the implementation status of real estate appraisal, property registration and property transfer/registration fee will be reviewed separately before the overall implementation status of benchmark 4.1 will be assessed.

TAPR II Analysis

DOCUMENTATION REVIEW FOR REAL ESTATE APPRAISAL

The Mortgage Finance Authority (MFA) has issued guidelines that promote and ensure best practices in the Egyptian property appraisal profession (see attached Certification Letter # 1). In addition, the Egypt Financial Services (EFS) Project has indicated that approximately one hundred appraisal professionals were provided with internationally consistent appraisal guidelines and standards through materials and


training provided by the Cairo University, as a requirement to be licensed by the MFA (see attached EFS memorandum, pp. 149-152).

IMPLEMENTATION STATUS OF REAL ESTATE APPRAISAL

Based on the above documentation review, the authors have concluded that the GOE had met the real estate appraisal requirement under benchmark 4.1.

DOCUMENTATION REVIEW FOR PROPERTY REGISTRATION

The Ministry of State and Administrative Development (MSAD), Ministry of Justice (MOJ) / REPD (Real Estate Publicity Department) and ESA (Egyptian Survey Authority) are introducing a title registration based system, which is the major focus of the National Urban Real Estate Registration. Within the National Project for Title Registration, 9 areas (including New Cairo, El Shorouk, El Oubour, 6th of October, El Sheikh Zaid, El Maadi, Madinet Nasr, Masr El Gedida, Dokki) have been designated for applying the title registration system. MSAD has issued a multi-year National Urban Real Estate Registration Plan whose target completion date is 2013 (see attached Certification Letter # 2 for a translation of the status report of the referenced Plan). The MSAD November 2007 progress report has, for example, indicated the following elements of the Plan had been implemented: amendment to the registration fee law was endorsed in May 2006 and applied in June 2006; a contract was awarded in June 2006 to IBM to automate the title registration system; and, inter-ministerial decisions were made to streamline workflows and improve provision of services to facilitate the title registration process (see attached Certification Letter # 1 for a translation of said progress report and more details).

In addition, the attached EFS report has, for example, noted that: a number of important protocols between affected agencies were signed by July 2007 and the tender for private surveying companies to undertake mapping work in districts is currently underway; parcel index mapping is underway in selected areas and relevant selected office spaces are now being upgraded in preparation for deployment of hardware, software, staff and new registry customers; and training on registration and cadastral concepts and operations, basic IT skills and customer services has been delivered to approximately 50 relevant staff (see EFS memorandum, pp. 153-155).

IMPLEMENTATION STATUS OF PROPERTY REGISTRATION

Based on the above documentation review, the authors have concluded that the GOE had achieved the property registration objective that was set under benchmark 4.1.

DOCUMENTATION REVIEW FOR PROPERTY TRANSFER AND REGISTRATION FEES

Law No. 83/2006 introduced a new transaction-based scale of fees to replace the previous property value-based fee of 3 percent (see attached Certification Letter # 1). The new transaction-based fee has a maximum of LE 2000 for properties with an area of 200 m2 or more.


In addition to shifting to a transaction-based fee and lowering the registration fees across the board for registering transactions, MOF issued a letter in January 2006 exempting mortgage contracts from the stamp duty tax. This MOF initiative was implemented at the request of MFA (see attached EFS memorandum, pp. 152-153).

In addition the MOJ ministerial decree no. 5424 /2006 was issued to implement law number 83/ 2008 setting the maximum and fixed registration fees.

IMPLEMENTATION STATUS OF PROPERTY TRANSFER AND REGISTRATION FEES

Based on the above documentation review, the authors conclude that the GOE has achieved the property transfer and registration fees objective that is set under benchmark 4.1.

OVERALL IMPLEMENTATION STATUS OF BENCHMARK 4.1

Based on the above reviews of documents and implementation status, the authors have concluded that the GOE had achieved benchmark 4.1.

BENCHMARK 4.2: Introduce appropriate legislation that would: define rules for joint property ownership; and establish land ownership (title) certification for the purpose of securing land holding for residential or commercial property.

MEANS OF VERIFICATION FOR BENCHMARK 4.2:

1. An official copy of the legislation.

2. A report verifying that the legislation meets the objectives stated above and that individual units in multi-unit buildings are being registered as private property.

TAPR II Analysis

DOCUMENTATION REVIEW AND ANALYSIS

Certification Letter # 2 identifies the appropriate legislations that define rules for joint property ownership and establish land title certification. According to EFS legal specialists there is no need for new legislation to define rules of joint-ownership and establish title certification for the purpose of securing land holding for residential or commercial property (see attached EFS memorandum, pp. 155-158). It is the opinion of EFS Land Attorneys that, despite numerous shortcomings in its current form, the concepts of ownership of multistory buildings, apartments, and joint ownership of common areas are well established in Egyptian law. More specifically, these concepts are covered in:

• Civil Code – Articles 856-869


• Law No. 49/1977 – Union of Real Estate Owners in Realty Divided in Stories or Apartments

• Ministry of Housing Decree No. 109/1979

According to EFS, there are shortcomings in the current legal framework and its implementation when it comes to addressing registration of divided co-ownership. The GOE has recognized that problems exist and is taking steps to address these. Below is a summary of some of the areas where problems associated with divided co-ownership and registration in general are being addressed by recent GOE initiatives.

The MFA and New Urban Communities Authority (NUCA) signed a protocol in September 2006, which had a primary purpose of permitting the transfer and registration of portions of a larger allocated area. It also allows for the registration of buildings and mortgages of buildings or parts of buildings, where the land upon which the buildings are situated has not been registered. Prior to this Protocol, payment for the entire area allocated had to be made in full in order to acquire title, even to a part such as a lot or unit in a building.

To support implementation of the September 2006 MFA-NUCA protocol, with regards to registration of rights by REPD (Real Estate Publicity Department or real property registry offices in Egypt) offices, the Ministry of Justice (MOJ) and REPD drafted and issued several Technical Circulars in early 2007 that have, according to ESF, facilitated the registration of mortgage finance agreements by REPD. The introduction of this protocol has directly resulted in stimulated activity in the real estate market within new urban communities, as evidenced by new mortgage loans originating in these communities. Information within Mortgage Finance Companies has proved difficult to get, but EFS has indicated that EHFC currently holds 73 loans for properties in new urban communities. This accounts for almost 25% of its loan portfolio.

In addition, REFP approved in October 2007 a series of business process reengineering recommendations that are aimed to streamline and simplify the registration processes. Finally, the GOE has also drafted a new Housing and Construction Law, including provisions on Inhabitants’ Union (co-ownership rules) to replace the existing Law No. 49/1977 referenced above. GOE has identified this legislation as a priority for passage under the current session of the People’s Assembly (see EFS memorandum, p. 157).

IMPLEMENTATION STATUS

Based on the above review of documents, analysis and the opinion of EFS specialists “that concepts and principles of divided co-ownership have long been in existence in Egypt; however the legislative framework and its implementation have faced constraints caused by inefficiencies and deficiencies. GOE, under the leadership of MOJ with support from MFA and NUCA, has undertaken to overcome these constraints by bringing about improvements in the framework for divided co-ownership and registration” (see EFS memorandum, p. 158), the authors have concluded that the GOE had achieved benchmark 4.2.


BENCHMARK 4.3:

The GOE shall introduce appropriate legislation and issuance of implementing regulations to enact modern bankruptcy procedures including foreclosure and eviction, procedures that would facilitate joint lender/debtor resolution of outstanding debts. (12/31/05)


1. A report on the legal and regulatory framework for bankruptcy and resolution of problem loans, particularly in the real-estate sector, with analysis showing that the framework meets the objectives stated above.

2. Official copies of the relevant legislation and implementing regulations.

TAPR II Analysis

DOCUMENTATION REVIEW

According to EFS (see attached EFS memorandum, pp. 158-161, for more details), mortgages and foreclosures existed under the Civil Code of Egypt but were not utilized much, and foreclosures could take up to 5 years prior to 2001. The Real Estate Finance Law (commonly referred to as the “Mortgage Law”) that was enacted by the GOE in 2001 provides for more expeditious and better means of foreclosure.

The Executive Regulations under the Real Estate Finance Law were also issued in 2001. However, they were never enforced with respect to foreclosure, and remained untested until 2006, partly because the judges were unaware of them and of mortgage finance, and partly because there were no foreclosure cases. EFS has noted two recent noteworthy developments in the implementation of the mortgage law foreclosure and eviction provisions.

First, some 26 new “Economic Panels” (one panel per governorate) have been established within the existing court system and judges were trained in economic laws including mortgage law and foreclosure procedures. Each Economic Panel has three judges that are specialized in hearing economic cases, including mortgage law aces and foreclosures in all the courts of first instance. Approximately 100 judges have been trained in all new economic laws, including mortgage law and foreclosure procedures.

Mortgage agents and appraisers, licensed by the Mortgage Finance Authority, were also trained to further enhance the foreclosure and eviction process when appointed by the courts to execute foreclosures and auctions under the judges’ supervision.

Second, five (5) mortgage foreclosure cases have recently been brought to the courts under the 2001 mortgage law, of which three (3) were resolved within 6 months, and the other two (2) should be resolved soon, and for which out-of-court settlements are being contemplated. Previously, foreclosure procedures not under the mortgage law took up to five years.


Current mortgage law procedures, that were reviewed in 2005 and revised subsequently, are now being applied by judges to non-mortgage law foreclosures as well.

Based on its analysis that was summarized above, EFS has concluded that: “Foreclosure and eviction provisions in the mortgage law provide adequate protection to lenders and borrowers to resolve their problem debts and to allay lenders’ concerns regarding their ability to recover their capital. The problem has been with the lack of implementation of the Law and its executive regulations in large part due to judges not being cognizant of the Law. To remedy this, judges, and mortgage agents and appraisers, have been and continue to be trained on mortgage and foreclosure issues. The foreclosure process is now being carried out by judges, foreclosure agents, and appraisers, knowledgeable in foreclosure and eviction, applying clear steps within set timeframes” (see attached EFS memorandum, p.161 and see certification Letter # 3 for more details regarding EFS analysis).

The 2001 Real Estate Finance Law and its implementing regulations are summarized in the attached Certification Letter # 3.


Based on the above review, the authors have concluded that the GOE had achieved benchmark 4.3.

BENCHMARK 4.4:

The GOE shall pass appropriate legislation, if required, and issue implementing regulations that would permit the establishment of private credit bureaus. (09/30/05)


Official copies of the legislation and implementing regulations for establishing private credit bureaus.

TAPR II Analysis


According to EFS specialists, the amendment to the Central Banking Sector and Money Law enacted in 2005 by Law 93 constitutes appropriate legislation for establishing private credit bureaus (see EFS Memorandum, p. 162-163). That amendment also mandates CBE to supervise the private credit bureaus and issue relevant rules.

The attached Certification Letter # 4 provides a translated excerpt of the referenced amendment to the Banking Law and a translation of the rules, regulations and licensing for Egyptian Credit Bureaus respectively.



Based on the above documentation review, the authors have concluded that the GOE had achieved the private credit bureau benchmark 4.4.

BENCHMARK 4.5:

The GOE shall facilitate the securitization process through the completion of legislative changes. (06/30/05)


Official copies of the relevant legislation and implementing regulations and a report verifying that the legal framework meets the objectives stated above.

TAPR II Analysis


Translation of relevant legislation and executive regulations is provided in Certification Letter # 5. The Capital Market Law (CML) was, according to EFS specialists, amended in June 2004 by adding a new chapter of nine articles to provide the legal framework for “securitization”. Following the amendment to the CML in 2004, a new chapter was added to the executive regulations in November 2004 including 14 articles related to the operation of securitization companies and issuance of securitized bonds. The executive regulations were revised and improved in late-2006 (see EFS Memorandum, pp. 163-166).

The establishment of the above-mentioned securitization legal framework has, according to EFS, enabled the Contact Securitization Company to: issue the first securitized bond of LE 140 million of a car loans portfolio in January 2006 and a second bond for LE 159 million in January 2007; and, apply to the CMA in November 2007 for a third bond issue of 225 million. In addition, the Egyptian Arab Land Bank emitted two bond issues for a total of LE 1.8 billion. Four housing companies have, recently announced their plan to securitize, in early 2008, their portfolios of installment sale receivables of around LE 1.8 billion (see EFS memorandum, pp. 163-166).


Based on the above documentation review, the authors have concluded that the GOE had achieved the bond securitization benchmark 4.5.

BENCHMARK 5.1:

The GOE shall publish a corporate governance best practice code to generate awareness and encourage companies to comply with the code. (09/30/2005)




An official copy of the decree or administrative act that issues the code of corporate governance.

TAPR II Analysis


The Head of the Board of Trustees of the Directors’ Center issued on 10 October 2005 the Decree No. 332 that introduced the Corporate Governance Rules and Criteria Handbook (see Certification Letter # 13 for a translation of the referenced decree).


Based on the above documentation review, the authors have concluded that the GOE had achieved the corporate governance best practice code benchmark 5.1.

CERTIFICATION LETTERS

Attachments:

1. Excerpt from Monitoring Plan for Benchmark 4.1 2. English translation of excerpt of the Mortgage Finance Authority/ Board of Directors

Decisions for Appraisers 3. English translation of an updated status report of the implementation plan of the National

Project of Urban Title Registration. 4. Selected Section of a memorandum from USAID-Egypt Financial Services Project to USAID

Egypt concerning the implementation plan for property registration. 5. English translation of select articles of law no. 83 of 2006 amending some provisions of law

no. 70 of 1964 on registration and publicity fees and title registration system law issued upon decree of Law no. 142 of 1964.

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Excerpt from Monitoring Plan for Benchmark 4.1

Benchmark 4.1: Issuance of implementing/executive regulations that would:

• Establish national standards for conducting real estate appraisals. • Establish a real estate appraisal and certification program. • Establish national land title registration system, including procedures and

appropriate information systems. • Reduce property transfer and/or registration fees to less than 1 percent of the

transaction price. Objectives for Benchmark 4.1

The People’s Assembly enacted the new mortgage finance law (Law 148/2001) in June 2001. Executive regulations were issued in December 2001 to establish the Egyptian mortgage market. The law and its executive regulations enabled the establishment of the Mortgage Finance Authority (MFA) to regulate the mortgage sector. In addition, the law allowed for debt securitisation, which will enhance the secondary market for trading mortgage-backed securities. The responsibility of implementing the mortgage law and overseeing the MFA is with the Ministry of Investment.

After four years of the enactment of the mortgage law and its executive regulations, mortgage finance is still almost non-existent. Major problems still exist that impede the development of the market. Among these problems, two are critical. At present, Egypt does not apply internationally accepted methods of valuing properties. The valuation process is not sufficiently reliable as to be of use to potential buyers, sellers or to mortgage lenders. Appraisers are not legally accountable for their valuations.

The second major problem is the registration of ownership rights since if the land/property is not registered, it cannot be used as security for a loan. Many properties are built on lands which have never been registered, or in many cases, transfers of ownership have not been registered. As such, the presumed owner of the land is not necessarily the real owner of this land. Many reasons can be cited for this problem. First, there is a tax on the registration of land. Although this has been reduced to 3% of the property’s value, it is still considered too high. In addition, the registration procedures in Egypt are bureaucratic and inefficient and often require several years to register a property.

In order to promote international best practices in real-estate appraisal as represented by the International Valuation Standards Committee (IVSC) standards, the GOE through its Mortgage Finance Authority (MFA) should promote and set guidance for organizations of real-estate professionals, including private organizations, to set standards of practice, provide training, and certify sufficiently qualified new entrants into the profession. MFA will coordinate promotional and training assistance, including drawing on the resources of U.S. organizations such as the Appraisal Institute and the Mortgage Banking Association. The

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MFA will also approve training providers and examinations proposed by suitable professional organizations.

For property registration, the Ministry of Justice, along with the Ministry of State for Administrative Development, should issue an implementing plan to establish a streamlined registration system that alleviates the main obstacles to rapid and inexpensive property registration. Such a plan would reduce excessive regulatory and clerical burdens, re-design the registry system, allow the prompt registration of subsidiary notices, improve the methods for geographic and spatial description of parcels and units, remove the requirements for unnecessarily repetitious surveys, outsource the surveys where appropriate, reorganize local registry offices, initiate model registry offices, and reduce property transfer and registration fees to less than one percent of the transaction price or a fixed fee for covering actual registration costs . The Ministry of Justice will also coordinate assistance to help implement the plan.

Terms of Disbursement for Benchmark 4.1

1. The GOE will issue guidelines that ensure that standards for Egyptian appraisal professionals, administered to the extent possible through professional organizations, meet all appropriate IVSC standards.

2. The Ministry of Justice will adopt and start implementation of a plan for property registration that meets the objectives stated above.

3. The GOE will issue an official decree to reduce property transfer and registration fees to less than one percent of the transaction price or to cover actual registration costs.

Means of Verification for Benchmark 4.1

To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following means of verification:

1. A copy of the guidelines that promote and ensure best practices in the Egyptian property appraisal profession.

2. A copy of the implementation plan for property registration and evidence that it has been implemented.

3. A copy of the official decree that reduces property transfer and registration fees as described above.

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English translation of Excerpt of the Mortgage Finance Authority/ Board of Directors Decisions Regarding Appraisers

7/2 Approving the following phrasing An undertaking To Perform Appraiser's Duties

I, as a real estate appraiser, do pledge to appraise properties in accordance with the mortgage finance law provisions, promulgated by law no. 148 of 2001, its executive regulations and the rules decided by the Mortgage Finance Authority in full faith, honesty, honor and impartiality, pay due diligence in performing my job and abstain from appraising properties owned by any of my relatives up to the fourth degree, any of their subordinates, partners or deputies and not to purchase properties appraised by me.

Name:

Signature:

Date:

ID No.:

22/4/2003

Third: Determining Appraisers' Fees

13/3 Approving the following rules in estimating the appraiser's fees:

1. The appraiser's minimum fees shall be LE 400, provided the report discloses the period during which the property is valid for use in the purpose for which it was established.

2. For the economic housing that "whose area does not exceed 80 m2", the appraiser's fees shall be LE 400/unit, provided the maximum of each building is LE 2000.

3. As for the non-economic housing, the fees shall be estimated at LE 7/m2 in the property building, with a maximum of LE 3000 /building.

4. Fees shall be estimated at LE 7/m2 of the property building + LE 2/m2 of the land, with a maximum of LE 5000 for the villa "the building that is composed of 1, 2 or 3 stories maximum, connected by an internal stairway and represents an integrated residential unit and is not constructed on the entire land, as it is surrounded by a garden or outside yards".

5. Fees of appraising lands inside the boundaries "in cases of collaterals" shall be LE 5/m2 of the land, with a minimum of LE 400 and a maximum of LE 5000 per case.

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6. Fees of appraising lands outside the boundaries "in cases of collaterals" shall be estimated at half a pound/m2 in the land, with a maximum of LE 200/acre and LE 5000/land, whichever is less, and a minimum of LE 500 per case.

7. In all cases, the appraiser's fees shall not include the specialized consultancy works which shall be managed by a consultant engineer other than the appraiser, and the appraiser shall not have the right to draft a consultancy report for the same property under appraisal.

With consideration that the appraiser shall be entitled to receive his fees immediately after performing the task assigned to him.

All this shall be in the framework of the mortgage finance law and its executive regulations (22/12/2004).

21/5 Agreeing upon accepting copies of the tax card of the consultancy office in which the applicants applying for certification in the appraisers schedules with the MFA do participate "or employed" therein according to the terms approved by the MFA in its decree no. 3/2/1, along with attaching the employer's approval thereon and submitting a declaration certifying that the actual work shall not be performed except after presenting his tax card (20/12/2004).

22/3/2 Agreement upon phrasing the following pledge for appraisal certification applicants:

- I, ………………………………., applying to be listed in the MFA appraisers’ schedule, do pledge not to exercise the appraiser's business except after obtaining a tax card indicating this business, and this is a pledge provided by me to be considered legally. (10/1/2005).

24/2/1 Non-acceptance of exempting any mortgage case to be appraised by MFA certified appraiser not employed by the financier. (15/3/2005).

24/2/2 Approval of reducing the fees of the appraiser who is assigned to appraise the

residential units for low-income earners that are sold under the mortgage system and subsidized by the GSF, to become LE 1000 per building and LE 10,000 per project, this applies to the recent government project buildings located in one area, with considering the controls set forth in the memorandum prepared by Dr. Ahmad Anees on the same subject.

24/3 Agreeing on providing special exemptions only for graduates of the military faculties from the condition of submitting an official certificate from the syndicate with which the applicant is registered, indicating that no disciplinary judgment has been passed against him/her, unless otherwise rehabilitated, as one of the documents required for listing in the appraisers and brokers' schedules with the MFA. (15/3/2005).

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25/5/2 Approving the data and documents required to be presented to the Registry Committee accompanied with the listing application prepared for this purpose as follows:

1. University graduation certificate. 2. Experience documents indicating that the applicant exercised appraisal for a period

not less than 5 years for Ph.D holders, and not less than 10 years for MA holders and not less than 15 years for university graduates.

3. An official certificate from the syndicate with which the applicant is registered, indicating that no disciplinary judgment has been passed against him/her, unless otherwise rehabilitated.

4. An approval by the employer to exercise the appraisal business if the applicant is a government, university, institute, general authority, public or private sector employee.

5. Criminal record. 6. A certificate indicating that no bankruptcy or insolvency judgment has been passed

against him/her. 7. Copy of the tax card. 8. The applicant's curriculum vitae. 9. Completing the training course prepared by MFA. 10. Submitting a pledge to perform the appraiser's duties according to the mortgage

finance law no. 148 of 2001, its executive regulations and all relevant decrees as determined by the MFA. (18/4/2005).

33/5 Agreeing upon not being listed in more than schedule with the MFA and taking all necessary actions. (8/11/2005)

34/2/1 Initial agreement upon the proposal presented by Dr. Ahmad Ragaei Anees to form two MFA affiliate committees to undertake developing standard national specifications for appraisal, following up its update, establishing rules for licensing, rating, constant training for appraisers and following these principles in practice thereof. (22/11/2005)

37/1/1 Approving the appraisers' code of ethics project that is prepared by the Egyptian

Association Of Real Estate Appraisers. (7/3/2006)

37/1/2 The Egyptian Association Of Real Estate Appraisers invites all MFA certified appraisers to attend the ceremony of approving the code of ethics.

37/1/3 The Egyptian Association Of Real Estate Appraisers develops a proposal for all penalties and fines to be applied on the appraisers who violate the code of ethics and presents it to the board (BOD).

37/1/4 The Egyptian Association Of Real Estate Appraisers develops rating for appraisers

and presents it to the board for approval.

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37/1/5 Requesting appraisers to present a quarterly achievement report to the MFA revealing (listing) their activities for that period.

37/1/6 To form a committee at the MFA to study a random sample to verify the reports submitted from the real estate appraisers.

37/1/7 Amend listing terms and conditions at the MFA records for appraisers to include the appraiser's affiliation to the Egyptian Association Of Real Estate Appraisers. This will ensure that all registered appraisers will comply with the profession's code of ethics.

37/7 Approve the following rules of renewal of listing at the MFA's lists and records:

- to send a notification to those listed at the MFA lists through a receipt acknowledged mail to apply for renewal of listing. If they did not apply for renewal, their names will be deleted from the list.

- Refreshing training courses shall be organized for re-listing at the MFA lists and records and passing the final exam of the training will be a pre-requisite for those who do not have a university degree.

- Updated certificates of the following should be submitted: 1. An official certificate from the syndicate where the applicant is listed, in addition to

a certificate indicating that no disciplinary actions are taken against him unless otherwise rehabilitated.

2. Criminal record. 3. A certificate that the applicant has not been declared bankrupt or insolvent.

40/6/1 A two-day training course shall be organized for real estate appraisers at the Real Estate Appraisal and Construction Technology Center of the Cairo University every three months. This course shall be held quarterly with a prerequisite of making a presentation on an appraisal project to the listing committee (23/5/2006).

40/6/2 Extending the grace period of renewal of listing at the MFA's lists and records to three months instead of one month.

40/6/3 Approving the fees of issuing the certificate of renewal at the MFA to be L.E. 500.

42/3/1 Approving the proposal submitted from Dr. Ahmed Ragaee Anis concerning renewal for real estate appraisal experts while exempting the program instructors from taking the exam. (3/10/2006).

46/6/1 Approving the form of listing renewal at the real estate appraisers of the MFA (6/12/2006).

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46/8 Approving that the exams of the training courses be held at the MFA's headquarters and under its supervision.

47/3/1 It has been approved to add another renewal condition of attending six training courses every year for any member as a prerequisite for renewing the membership at the Egyptian Real Estate appraisal Association, while this is not considered a prerequisite for renewal at the MFA's lists (18/12/2006).

49/4 To approve including the names of mortgage finance brokers, appraisal experts and real estate agents who are listed at the MFA for review only at the MFA's website (12/3/2007)

51/5 Developing a plan for making new regulatory frameworks for the real estate appraisers utilizing the existing calibers and benefiting from the local and foreign expertise in this field. (8/5/2007)

52/3 The MFA shall notify the real estate appraisal expert who are listed at the MFA lists not to specify the validity of the appraisal report since it represents the value at the time of appraisal. Financing agencies may request that the appraisal be repeated in case that the market witnessed any changes that may affect the properties’ value (18/6/2007).

56/5 To approve concluding a cooperation agreement between the MFA and the entities requesting technical material for the real estate appraisal training course (10/9/2007).

9

Date: 22/11/2007

Arab Republic of Egypt National Project for urban registration Mrs. Imtithal Zaki Hasan Head of Central division for international cooperation with the US Ministry of International Cooperation

Greetings,

Reference to your letter dated November 18, 2007, in which you requested us to provide you with implementation plan report of the national project for title registration.

Please find attached a project status report. The report shows completed activities to-date and the status of pending works planned in the different phases of the project and scope of implementation for current phase.

With reference to implementation status of the improved system in Mokkatam executed through cooperation with EFS/USAID, I would like to inform you that we did not reach an agreement with the USAID officials about the technical structure of said system to endorse it within the technical frame of the national project of title registration in Egypt which was established within MSAD national project.

Kind Regards, Manager, Urban Title Registration Project Eng. Emad Hasan Mohamad

Enclosures:

Statue report, national project for title registration

10

Arab Republic of Egypt MSAD (Urban Title Registration Project)

Translation of the Status Report of

The National Project of Urban Title Registration

1. Completed activities

• The reconnaissance project in Dokki has been completed on 15/12/2005. An accurate financial prototype for cost of title certificate per each unit was made accordingly.

• Amendment of registration fee law has been endorsed in May 2006. It became effective on 06/08/2006 according to the table below:

No. Surface Area Registration fees L.E

1 Up to 100 sm 500

2 From 101-200 sm 1000

3 From 201-300 sm 1500

4 Over 300sm 2000

Fees are inclusive and include surveying cost.

• Bid was awarded to IBM to automate the system (bid no. 4/2006) in June 2006 to include the following:

1. Analysis, design, and development of title registration in urban areas 2. Supply of necessary hardware, equipment and networking for the system 3. Provide warranty and technical support for all components within scope of contract

for (3) years from actual delivery and operation date. 4. Deployment, installation, supply and training in (9) urban locations in Cairo & Giza.

• Identify parameters of title registration system in cooperation with MOI and WB Mission in March 2007 within the frame of Doing Business Report

• Hold the Higher Committee meeting and several meetings for the executive committee of project. The following was done until date of this report

11

1. Signing of improved workflow diagram in all phases of system application in all involved entities on 31/05/2007, between REPD, ESA & MSAD.

2. Agreement of surveying services between REPD, ESA & MSAD in accordance with decrees after the meeting of Prime Minster on 05/06/2007

3. Agreement of surveying works in new communities between NUCA, ESA & MSAD on 24/06/2007

4. Completion of endorsement of BPR document during the phase of title registration system in urban areas on 28/06/2007 by means of the contract signed with the performing company. Document is signed by REPD and MSAD.

5. Complete preparation of the executive framework of new fee structure on 19/11/2007 in accordance with law 83/2006.

Planned activities in project

a) Automation and establishing integrated information network

No. Major activity Targeted date

1 Complete development and operation of central system for urban title registry to include major involved entities and agencies

March 2008

2 Complete development, operation & deployment of title registration system in Dokki and 6th of October

June 2008

3 Complete deployment and operation of system in rest of targeted areas

August 2008

b) Simplification and re-engineering of business process

Registration fees were reduced under law 83/2006 and executive mechanisms for said law are in previous phase. We currently focus during the existing phase (BPR: ending in 31/12/2007) to increase performance rate of property registration system in Egypt to reach the following parameters:

Existing system No. Parameter

(averages) WB read-out

National project read-out

Targeted system

1 No. of agencies applicant need to N/A 4 1

12

visit

2 No. of major implementation phases

7 7 3

3 No. of executive steps N/A 21 13

4 No. of days required to have the service

193 161 14

C) Civil works in sites


1 Set-up new designs of locations in targeted areas in existing phase according to existing areas and new workflow scheme

31/12/2007

2 Complete contracting with the performing company for required works in targeted locations

31/01/2008

3 Complete civil works in Dokki and 6th of October 31/03/2008

4 Complete refurbishment and equipment in Dokki and 6th of October

30/04/2008

5 Complete civil works in rest of targeted locations 30/06/2008

6 Complete refurbishment and equipment in rest of targeted locations

31/07/2008

7 Contract with a major consultant to be in charge of deployment throughout Egypt

30/09/2008

d) Training Program to convert to the new system


1 Prepare curriculum of training program for personnel in involved entities and establish selection criteria according to the new workflow diagram

31/01/2008

13

2 Select and identify staff to be trained in targeted locations 28/02/2008

3 Complete staff training in Dokki & 6th of October 30/04/2008

4 Complete staff training in rest of targeted locations 30/06/2008

Please find below the targeted locations under existing phase:

No. Location No. of properties No. of units

1 Dokki 5,000 60,000

2 Heliopolis 9,600 120,000

3 Nozha 9,000 110,000

4 Nasr City 8,000 140,000

5 Maadi 5,000 60,000

6 6th of October 40,000 150,000

7 Cherook 14,000 50,000

8 Badr 14,000 50,000

9 New Cairo 23,000 80,000

10 Sheikh Zayed 9,000 30,000

Total 136,600 850,000

Note: Nozha has been added to the nine-targeted locations as it belongs to targeted locations in REPD registry offices under the existing deed system.

14

Egypt Financial Services (EFS) Project

MEMORANDUM

DATE: November 28, 2007

TO: Paul Bruning, USAID CTO FROM: Francois Pepin, EFS COP RE: Commentary on Development Support Program II Benchmarks ________________________________________________________________

Implementation Plan for Property Registration Program

(Excerpt of the full memorandum that is attached at the end of the report)

EFS has reviewed the implementation plan of the Ministry of State Administrative Development (MSAD) submitted to USAID by Ministry of International Cooperation in November 2007, which included two reports of progress against its implementation dated January and June 2007. This implementation was prepared and submitted by MSAD as the coordinating authority for the National Urban Real Estate Registration Program.

It is the opinion of EFS that the submitted plan outlines implementation of a comprehensive list of activities that address the majority of key issues raised in the objectives section of the DSP-II Monitoring Plan. It should be noted that the implementation plan submitted covers only Phase 1 of the national program. EFS has been aware of the core concept behind the National Urban Real Estate Registration Program since its inception in 2005, which is the conversion from the current deeds registration system to a nation-wide title-based registration environment by 2013. Nevertheless, it is not unreasonable to expect that only the implementation plan for Phase 1 would have been prepared to the level of detail as submitted to USAID with detailed plans for subsequent phases to be prepared incrementally.

Phase 1 of the national program consists of many activities connected with analysis of the current environment and design of new procedures, legal revisions, IT systems development, staff training, organizational reform, surveying and mapping, and establishing model title registry offices in nine districts of Greater Cairo.

The progress reports provided by MSAD detail those activities that have been completed to date and those still pending. Some of the milestone documents referenced have been attached as evidence of their delivery. EFS is not in a position to verify the physical existence or completion of all documents and activities referenced, however based on EFS’ regular dealings with MSAD and the process owners, MOJ/REPD and ESA, EFS reasonably assumes that these have in fact been completed.

Although there is only one change in progress between the June 2007 and November 2007 progress reports, EFS is aware of the successful completion of several key initiatives of the

15

implementation plan that should appear in a more recent progress update. For example, it is known that a number of important protocols between affected agencies were signed by July 2007, and the tender for private surveying companies to undertake mapping work in the nine districts is currently underway.

As a stakeholder in terms of its advisory role, EFS has assisted the MOJ in some of the activities listed in the implementation plan, primarily those connected with introducing the pilot parcel-based deeds system in Mokattam. Many sub-activities connected with this initiative, some of which are not reflected in the implementation plan, have been completed or are currently underway. Business process reengineering has been approved by Real Estate Publicity Department or “REPD”, (the real property registry office in Egypt), as have the Systems Requirements Specifications for the proposed IT system and the assignment of the model office service area boundaries. Parcel index mapping is underway in Mokattam and relevant REPD and ESA (Egyptian Survey Authority) office spaces are now being upgraded in preparation for deployment of hardware, software, staff and new registry customers. To date, training on registration and cadastral concepts and operations, basic IT skills and customer services, has been delivered to more approximately 50 staff from REPD and ESA.

Conclusion

It is the opinion of EFS that the GOE has prepared an implementation plan that addresses most key objectives raised in the DSP-II Monitoring Plan. This implementation plan has been adopted by relevant GOE agencies, MSAD, MOJ/REPD, and ESA, and its implementation is currently underway.

16

17

The Official Gazette, Issue no. 22 (B), on 6th of June 2006

Selected Articles of Law no. 83 of 2006

Amending some provisions of Law no. 70 of 1964

On registration and publicity fees and title registration system law

Issued upon decree of Law no. 142 of 1964

In the name of the people,

The President of the Republic,

The People's Assembly passed the following law, and it is hereby enacted:

Article one

Fees payable for publicity of documents and bills of legal proceedings, and all of their related procedures, including survey works, may not, in accordance with legal provisions, exceed LE 2000, for publicity of each property disposal or activity, or for each document of real estate property, or record of each real estate property in the title registry.

Categories of mentioned fees shall be identified in a decree to be issued by the Minister of Justice.

Article two

Fees payable for the activities mentioned in Chapters One and Two of Part One of decree of Law no. 70 of 1964 on registration and publicity fees shall be identified at no more than LE 30 for each of such activities.

The provisions of the preceding article shall be applicable on each fee, in case of multiple fees.

In cases where fees are determined by the number of documents, papers or pages, or others, the fees payable for each document, paper, page, or other may not exceed LE 15.

Categories of mentioned fees and sums shall be identified in a decree to be issued by the Minister of Justice.

Issued at the Presidency of the Republic at 9th of Jumadah Al Aula 1427 A.H., corresponding to 5th of June 2006 A.D.

Attachments:

1. Excerpt from Monitoring Plan for Benchmark 4.2 2. Select Translation of the Civil Code 131 / related to ownership of Storeys in Buildings

(Articles from 856 till 869) 3. Select articles of Law No. 49/1977; Chapter 2 of Part IV. On Union of Real Estate Owners in

Realty Divided in Stories or Apartments 4. Ministry of Housing Decree No. 109/1979 5. Mortgage Finance Authority / New Urban Communities Authority Protocol dated 21

September 2006 6. Technical Circular # 60 / March 2007 implementing the abovementioned protocol, permitting

registration of units in the name of the investor even if the land is only allocated to the developed and also deletes the reallocation fee

7. Selected Section of a memorandum from USAID-Egypt Financial Services Project to USAID Egypt concerning Benchmark 4.2

Technical Assistance for Policy Reform II 8 El Sad El Aali Street, 18th Floor

19

Dokki, Giza, Egypt 12311 Tel: +2 02 335 5507 Fax: +2 02 337 7684 www.usaideconomic.org.eg


Benchmark 4.2. Introduce appropriate legislation that would: • Define rules for joint property ownership. • Establish land ownership (title) certification for the purpose of securing land holding for

residential or commercial property.

Objectives for Benchmark 4.2

At present, the absence of legislation relative to the topics of condominia and property subdivision means that registration of ownership rights to subdivided land parcels or housing units cannot be performed until all parcels or units of the whole are registered. This greatly complicates and lengthens the registration of individual ownership rights. As a key innovation for expanding real-estate financing to a broader part of the Egyptian population, a condominium law is needed that facilitates registration of individual units in multi-family dwellings, as well as registration of the property held in common by owners of individual units.


1. Legislation is enacted to allow owners of units in multi-unit buildings to certify their private ownership of their units and their joint ownership of the land and other aspects of the unit held in common.


To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or assist in the provision of) the following Means of Verification.

1. An official copy of the legislation. 2. A report verifying that the legislation meets the objectives stated above and that

individual units in multi-unit buildings are being registered as private property.

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Select Translation of the Civil Code 131 / 1948 Civil Code for Ownership of Storeys in Buildings (Articles from 856 till 869)

Ownership of Storeys in Buildings Article 856 In the absence of any provisions to the contrary in the title deeds, when the different storeys or various apartments of a building belong to different owners, such owners are considered co-owners of the ground and of the parts of the building intended for the common use of all, especially of the foundations, the main walls, the main entrances, yards, roofs, lifts, passages, corridors, the floor supports and pipes of all kinds with the exception of pipes inside the storeys or the apartments. These parts of the building held in common cannot be divided; each of the owners has a share in these parts in proportion to the value of his share in the building. No owner can dispose of his share in the parts held in common independently of his share in the building. The inner walls which separate two apartments belong as party property to the owners of these two apartments. Article 857 Every owner may, with a view to enjoying his part of the building, utilize the parts held in common, in accordance with the use for which they are intended, provided he does not prevent the other owners exercising their rights. No modification can be made to the parts held in common, even in the event of reconstruction, without the consent of all the owners, unless such modification, made by one of the owners, at his own cost, is of such a nature as to facilitate the use of the parts held in common, does not change the use to which they were intended and is not prejudicial to the other owners. Article 858 Every owner must participate in the cost of the preservation, maintenance, management and reconstruction of the parts held in common. Subject to any agreement to the contrary, the share of every owner in these costs will be calculated in proportion to the value of his share in the building. No owner can renounce his share in the parts held in common with a view to avoiding participation in the costs referred to above. Article 859 The owner of a lower storey is bound to execute works and repairs necessary to prevent the higher storey from falling. If he refuses to execute the necessary repairs, the judge may order the sale of the lower storey. In any case, the “Judge des Referes” may order the execution of urgent repairs.

21

Article 860 If the building falls down, the owner of the lower storey is bound to rebuild his storey, failing which, the judge may order the sale of the lower storey, unless the owner of the upper storey offers to rebuild the lower storey himself at the cost of the owner of the lower storey. In this latter event, the owner of the upper storey may refuse to allow the owner of the lower storey to occupy or make use of his storey until he has repaid the amount of his debt. He may also obtain authority to let or to occupy the lower storey in repayment of the amount due to him. Article 861 The owner of the upper storey shall not heighten the building in such a way as to injure the lower storey. Syndicates of Owners of Storeys of a Single Building Article 862 When a building, divided into storeys or apartments, belongs to several owners, such owners may form a syndicate amongst themselves. A syndicate may also have for its object the construction or the acquisition of buildings with a view to allocating the ownership of parts of such buildings to members of the syndicate. Article 863 A syndicate may, with the consent of all it members, establish rules with a view to assuring a better enjoyment and the good management of the building held in common. Article 864 In the absence of such rules or if such rules do not contain provisions in respect of certain points, the right to manage the parts held in common belongs to the syndicate, whose decisions will be, in this respect, binding, provided that all the interested parties have been summoned to a meeting by registered letter and that the decisions have been taken by a majority of the owners, calculated on the basis of the value of their shares. Article 865 The syndicate may, with the consent of the majority prescribed in the preceding article, take out collective insurances against risks to the building or to the co-owners jointly and may authorize, at the expense of the owners who so demand, all works or installations which increase the value of all or part of the building, upon the conditions and subject to such compensation and other obligations as may be laid down by the syndicate, in the interests of the co-owners. Article 866 A representative shall be appointed by the majority of the owners, as provided for in Article 864, to carry out the decisions of the syndicate. If the required majority is not obtained, a representative of the Syndicate will be appointed, at the request of one of the co-owners and

22

upon the other owners being called to give their views, by the President of the Court of First Instance within whose jurisdiction the building is situate. The representative of the Syndicate shall, if need be, upon his own initiative, take all necessary measures for the preservation, protection and maintenance of all parts held in common. He shall be entitled to call on any party concerned to perform these obligations. These provisions shall apply in the absence of any provision to the contrary in the rules of the Syndicate. The representative of the Syndicate shall represent the Syndicate before the courts, even against the owners if need be.

Article 867 The remuneration of the representative of the Syndicate will be fixed in the decision or order appointing him. The representative of the syndicate may be discharged by a decision taken by the majority of the co-owners, as laid down in Article 864, or by an order of the President of the Court of First Instance within whose jurisdiction the building is situate, after the co-owners have been summoned to be heard on the question of his discharge. Article 868 If the building is destroyed by fire or otherwise, the co-owners are, subject to any agreement to the contrary, bound to conform to the decision of the syndicate as to its reconstruction taken by the majority, as provided in Article 864. If the syndicate decides to reconstruct the building, any amount due as compensation on account of the destruction of the building shall, without prejudice to the rights of the registered creditors, be set aside for the costs of reconstruction. Article 869 Any loan made by the syndicate to one of the co-owners, in order to assist him to carry out his obligations, will be secured by a privileged charge on his divided part as well as on his undivided share in the parts of the building held in common. The rank of this privilege will date from its registration.

Source : http://www.tashreaat.com/view_studies2.asp?id=523&std_id=82

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http://www.tashreaat.com/view_studies2.asp?id=523&std_id=82

Select articles of Law No. 49/1977

Part IV. Ownership of Real Estates

Chapter 2 Union of Real Estate Owners in Realty Divided in Stories or Apartments

24


EFS MEMORANDUM

DATE: November 28, 2007 TO: Paul Bruning, USAID CTO FROM: Francois Pepin, EFS COP RE: Commentary on Development Support Program II Benchmarks ________________________________________________________________

BENCHMARK 4.2 (Excerpt from the full memorandum that is attached at the end of the report)

A. Objective

At present, the absence of legislation relative to the topics of condominium and property subdivision means that registration of ownership rights to subdivided land parcels or housing units cannot be performed until all parcels or units of the whole are registered. This greatly complicates and lengthens the registration of individual ownership rights. As a key innovation for expanding real-estate financing to a broader part of the Egyptian population, a condominium law is needed that facilitates registration of individual units in multi-family dwellings, as well as registration of the property held in common by owners of individual units.

Terms of disbursement related to property registration under benchmark 4.2 Legislation is enacted to allow owners of units in multi-unit buildings to certify their private ownership of their units and their joint ownership of the land and other aspects of the unit held in common.

EFS Commentary

Condominium Law Requirement It is the opinion of EFS that opening sentence of the objectives statement is incorrect in its assertion that there is an absence of legislation relative to condominium and property subdivision. One possible source of this misconception is some statements by World Bank consultants in relation to this issue, around the time of initial formulation of DSP-II.

With respect to divided co-ownership and subdivision of property, it has long been the opinion of EFS Land Attorneys that, despite numerous shortcomings in its current form, the

37

concepts of ownership of multistory buildings, apartments, and joint ownership of common areas are well-established in Egyptian law. More specifically, these concepts are covered in

• Civil Code – Articles 856-869 • Law No. 49/1977 – Union of Real Estate Owners in Realty Divided in Stories or

Apartments • Ministry of Housing Decree No. 109/1979

As mentioned above, there are shortcomings in the current legal framework and its implementation when it comes to addressing registration of divided co-ownership. The GOE has recognized that problems exist and is taking steps to address these. Below is a summary of some of the areas where problems associated with divided co-ownership and registration in general are being addressed by recent GOE initiatives:

The MFA and New Urban Communities Authority (NUCA) signed a protocol in September 2006, which had a primary purpose of permitting the transfer and registration of portions of a larger allocated area. It also allows for the registration of buildings and mortgages of buildings or parts of buildings, where the land upon which the buildings are situated has not been registered. Prior to this Protocol, payment for the entire area allocated had to be made in full in order to acquire title, even to a part such as a lot or unit in a building.

To support implementation of this protocol, with regards to registration of rights by REPD offices, MOJ/REPD drafted and issued Technical Circular #60 in March 2007. When it comes to registration of mortgage finance agreements facilitated by the introduction of the MFA-NUCA Protocol, Circular #60 directs that REPD to apply provisions contained within Technical Circular #1. This MOJ/REPD circular was prepared and issued in January 2007 to facilitate the registration of mortgage finance agreements by REPD. The introduction of this protocol has directly resulted in stimulated activity in the real estate market within new urban communities, as evidenced by new mortgage loans originating in these communities. Information within Mortgage Finance Companies has proved difficult to get, but EHFC currently holds 73 loans for properties in new urban communities. This accounts for almost 25% of its loan portfolio.

As previously mentioned under Benchmark 4.1, GOE through REPD and ESA is showing progress in other key areas related to improving property registration as a whole. In October 2007 REPD approved a series of business process reengineering recommendations developed collaboratively by REPD and EFS. These will streamline and simplify registration processes, which, along with transactions fees, have been key constraints of formal registrations. The process reengineering was undertaken as a first step towards automation of functions with REPD offices, however it was not automation driving the reengineering. REPD has formally signed off the system requirements specifications for software that will be deployed to the model deeds registry office as well those of the title based system that will be rolled out in the nine districts of Cairo.

In addition to process reengineering for streamlining and simplification of registration procedures, MOJ leadership has brought about changes to REPD technical instructions and

38

a view to revising Executive Regulations of Law No. 114/1946. At the request of MOJ EFS coordinated a series of multi party stakeholder workgroup meetings to identify reforms to improve REPD technical instructions. The group consisted of representatives from REPD, ESA, MSAD, MFA and NUCA. The working group prepared a list of 34 recommendations for revisions to the instructions with the majority of those being adopted by REPD. These are reflected in draft circulars that are currently with MOJ for formal approval. EFS has also recently held meetings with MOJ and REPD officials to identify possible reforms in the executive regulations that would build on the progress achieved with regards to technical instructions.

The GOE has also drafted a new Housing and Construction Law, including provisions on Inhabitants’ Union (co-ownership rules) to replace the existing Law No. 49/1977 referenced above. GOE has identified this legislation as a priority for passage under the current session of the People’s Assembly.

Conclusion

It is the opinion of EFS that concepts and principles of divided co-ownership have long been in existence in Egypt; however the legislative framework and its implementation have faced constraints caused by inefficiencies and deficiencies. GOE, under the leadership of MOJ with support from MFA and NUCA, has undertaken to overcome these constraints by bringing about improvements in the framework for divided co-ownership and registration.

39

Attachments:

1. Excerpt from Monitoring Plan for Benchmark 4.3 2. Selected Section of a memorandum from USAID-Egypt Financial Services Project to USAID

Egypt concerning Benchmark 4.3 3. Law 148/2001; promulgating the Real Estate Finance Law 4. Cabinet Decree No.1 of the year 2001 issuing the Executive Statues of the Real Estate

Finance Law as Promulgated by Law No. 148 of the year 2001.

41


Benchmark 4.3: Introduce appropriate legislation and issuance of implementing regulations to enact modern bankruptcy procedures including foreclosure and eviction, procedures that would facilitate joint lender/debtor resolution of outstanding debts.


The GOE has identified a new bankruptcy law as a priority to provide adequate security to lenders and borrowers, to resolve problem debts, to allay lenders' concerns regarding their ability to recover their capital in the event of default, and thus to strengthen the base for real-estate financing. The Prime Minister has created a public-private national commission for review of commercial law and has made bankruptcy one of the first issues for the commission to consider.

In addition, the GOE has mobilized international assistance to design steps it will take to strengthen implementation. Studies have identified as key steps the establishment of practical guidance for judges in applying bankruptcy law and rules for agents of the Ministry of Justice in carrying out judgments.


1. Legislation and implementing regulations in effect on bankruptcy, including issues relevant to real-estate finance, such as foreclosure and eviction, provide adequate security to lenders and borrowers in cases of problem loans.




2. Official copies of the relevant legislation and implementing regulations.

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MEMORANDUM DATE: November 28, 2007

TO: Paul Bruning, USAID CTO FROM: Francois Pepin, EFS COP RE: Commentary on Development Support Program II Benchmarks ________________________________________________________________ (Excerpt of the full EFS memorandum that is attached at the end of the report)

Please find below the EFS Commentary with respect to the Benchmark 4.3

Benchmark 4.3. Introduce appropriate legislation and issuance of implementing regulations to enact modern bankruptcy procedures including foreclosure and eviction, procedures that would facilitate joint lender/debtor resolution of outstanding debts. (12/31/05)


The GOE has identified a new bankruptcy law as a priority to provide adequate security to lenders and borrowers, to resolve problem debts, to allay lenders' concerns regarding their ability to recover their capital in the event of default, and thus to strengthen the base for real-estate financing. The Prime Minister has created a public-private national commission for review of commercial law and has made bankruptcy one of the first issues for the commission to consider.

In addition, the GOE has mobilized international assistance to design steps it will take to strengthen implementation. Studies have identified as key steps the establishment of practical guidance for judges in applying bankruptcy law and rules for agents of the Ministry of Justice in carrying out judgments.





43


4. Official copies of the relevant legislation and implementing regulations. EFS Commentary

The EFS project is engaged, with its GOE counterparts, in improving and implementing foreclosure and eviction for default in a mortgage loan under the Real Estate Finance Law of 2001 (“mortgage law”). It is in this role EFS wishes to comment as follows.

Previous to 2001, mortgages and foreclosures existed under the Civil Code of Egypt but were not utilized much, and foreclosures could take up to 5 years. However the 2001 Real Estate Finance Law, commonly now referred to as the “Mortgage Law”, provides for more expeditious and better means of foreclosure.

The Executive Regulations under the Real Estate Finance Law date back to 2001. They were never enforced with respect to foreclosure, and remained untested until 2006, partly because the judges were unaware of them and of mortgage finance, and partly because there were no foreclosure cases.

In December 2005, EFS undertook a review of foreclosure and eviction provisions under the mortgage law, its regulations, amended regulations, the Civil and Commercial Codes, to report on:

- part of the law that is contradictory or unclear, - how the law is implemented in the Courts, - meet with legal experts in Mortgage Financing; - write a final report with recommendations on improvements to the laws and

processes related to foreclosure; and - assess the advantages/disadvantages of passage of a non-judicial foreclosure law in

Egypt.

The report concluded:

- the foreclosure law is in place and has components to accomplish foreclosure; - its executive regulations set forth eight (8) specific procedures (unlike the 84 steps of

the Code of Civil and Commercial Procedures) in accomplishing the foreclosure within set time frames, as follows:

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Time limit Procedure Ex. Reg. article #

Step #

Not less thaFinancer sends a notice to investor before starting enforcement

n 60 days from the day of defaulting

17 1

Not less than 30 days from borrower receiving the notice.

Financer services the investor with the official enforcing notice

18 2

7 days Financer services the real estate registration office so as to document the event of starting the foreclosure enforcement process at the real estate page.

19,20 3

15 days The court assigns an agent who nominates two appraisal experts determine the value of the real estate

21,22 4,5

15 days The real estate agent develops a list for the terms and conditions for the sale

23 6

According to auction conditions

The real estate agent proceed with the auction

24 7

Within 3 days of collection

The real estate agent deposits the sale revenue at the treasury of the court

25 8

There have been two recent two developments that are noteworthy in the implementation of the mortgage law foreclosure and eviction provisions. First, there has been significant training of judges. Some 26 new “Economic Panels”, one or two in each governorate of Egypt, have been established within the existing court system: such panels of three judges are specialized in hearing economic cases, including mortgage law cases and foreclosures, in all the courts of first instance. Judges on these panels,

45

46

approximately 100 of them, have been trained in all new and amended economic laws, including mortgage law and foreclosure procedures.

EFS, in coordination with the Ministry of Justice, has developed and conducted such training through the National Center for Judicial Studies (NCJS), the judges’ training institute. There are now three ongoing training programs provided by the NCJS: a) a general 10-day course for judges, of which a two-hour session addresses mortgages and foreclosures generally; b) a 1-day course on mortgage and foreclosure for judges on economic panels; and c) a 3-day course on mortgages and foreclosures, which has become a requirement for judges dealing in foreclosures.

EFS also developed training courses for mortgage agents, licensed by the Mortgage Finance Authority and appointed by the courts to execute foreclosures and auctions under the judges’ supervision, and for appraisers, licensed by the MFA, to further enhance the foreclosure and eviction process.

Second, five (5) mortgage foreclosure cases have recently been brought to the courts under the 2001 mortgage law, of which three (3) were resolved within 6 months, and the other two (2) should be resolved soon, and for which out-of-court settlements are being contemplated. Previously, foreclosure procedures not under the mortgage law took up to five years. Current mortgage law procedures are now being applied by judges to non-mortgage law foreclosures as well.

Conclusion

Foreclosure and eviction provisions in the mortgage law provide adequate protection to lenders and borrowers to resolve their problem debts and to allay lenders’ concerns regarding their ability to recover their capital. The problem has been with the lack of implementation of the Law and its executive regulations in large part due to judges not being cognizant of the Law. To remedy this, judges, and mortgage agents and appraisers, have been and continue to be trained on mortgage and foreclosure issues. The foreclosure process is now being carried out by judges, foreclosure agents, and appraisers, knowledgeable in foreclosure and eviction, applying clear steps within set timeframes. The benefits of this reform are also being extended to foreclosure cases that are not under the mortgage law and this generally strengthens the base for real estate finance.

3. Rules, regulations and licensing for Egyptian Credit Bureaus. The work in the attached document is a result of the technical assistance provided by EFS and its consultants who worked very closely with the Central Bank of Egypt over a period of eight months. Central Bank of Egypt had made some changes/additions after finalization of the work of EFS consultants. This document represents the approved version by the Central Bank board of Directors. On January 17, 2006 the board of the Central Bank approved the rules organizing the operations of credit bureaus, the rules organizing exchange of information between Central Bank, banks, mortgage finance & financial leasing companies and Credit Bureaus and the Central Bank Supervisory System.

Technical Assistance for Policy Reform II 8 El Sad El Aali Street, 18th Floor

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Dokki, Giza, Egypt 12311 Tel: +2 02 335 5507 Fax: +2 02 337 7684 www.usaideconomic.org.eg

Excerpt from Monitoring Plan for Benchmark 4.4 Benchmark 4.4: Passage of appropriate legislation, if required, and issuance of implementing regulations that would permit the establishment of private credit bureaus Objectives for Benchmark 4.4

The GOE through the CBE is supporting the creation of private credit bureaus to help build an adequate system for sharing critical information on credit histories of borrowers. A functioning private credit bureau would provide lenders with up-to-date information on potential borrowers' experience in handling debt, allowing lenders to select creditworthy borrowers without expensive, time-consuming and intrusive investigations. The absence of a credit bureau greatly increases the uncertainty and risks to a bank from lending to small businesses and others that have not developed a long-standing customer relationship with the banking sector.

Provisions for consumer protection, regulation of the bureaus and rectification of individual borrower files, as well as implementation of supporting information technology, rating procedures and public awareness campaigns, will have to follow.


1. Appropriate legislation and implementing regulations for establishing private credit bureaus are enacted.



1. Official copies of the legislation and implementing regulations for establishing private credit bureaus.

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Translation of Select Articles of Law No. 88 of the Year 2003 Promulgating the Law of the Central Bank,

The Banking Sector and Money, Amended by Law No. 93 of the Year 2005

In the Name of the People, The President of the Republic, The People’s Assembly has passed the following Law and we hereby promulgated it.

Article: 67 (bis)

The Central Bank Board of Directors may license companies to extend services of inquiry and credit rating related to the indebtedness of the customers of banks, real estate finance companies, and financial lease companies, as well as the indebtedness of applicants for credit facilities from suppliers of goods and services. Inquiry and credit rating company shall take the form of an Egyptian joint-stock company. Its purpose shall be solely to carry out services of inquiry and credit rating. The paid-up capital of the company shall not be less than LE 5 million.

The Central Bank Board of Directors shall issue a decision specifying the rules, terms and procedures of licensing, the work system of these companies and the Central Bank’s system of supervision thereon.

Article: 99

The Central Bank shall exchange with banks the information and data related to their customers’ debt and credit facilities. These information and data shall also be exchanged with the real estate finance companies, financial lease companies, and inquiry and credit rating companies. The Board of Directors of the Central Bank shall set the rules regulating the exchange of information and data, in a way guaranteeing their secrecy and ensuring the availability of the information and data required for sound bank credit.

The Board of Directors shall also set the rules to be followed for preparing the due diligence reports on banks, paving the way for selling all, or part of their shares, or for their merger.

Technical Assistance for Policy Reform II 87

8 El Sad El Aali Street, 18th Floor Dokki, Giza, Egypt 12311 Tel: +2 02 335 5507 Fax: +2 02 337 7684 www.usaideconomic.org.eg

Article: 100

The board chairmen and members of banks, real estate finance companies, financial lease companies, inquiry and credit rating companies, as well as their directors or staff shall be prohibited from giving or disclosing any information or data related to bank customers, their accounts, deposits, trusts or safes or their transactions in respect thereof, or from enabling other parties to have access to them in cases other than those permitted by virtue of the provisions of this Law.

This prohibition shall also apply to anyone who, by virtue of his/her profession, position, or work, peruses and has access, directly or indirectly, to the said information and data.

Article : 101

The provisions of Article (97) and (100) of this Law shall not prejudice the following:

(A) The tasks that are legally assigned to auditors of banks, and the powers legally vested with the Central Bank;

(B) The bank’s commitment to issue a certificate of the reasons for refusing to cash a check, upon the demand of who is entitled to that right;

(C) The right of the bank, the real estate finance company or the financial lease company to disclose all or part of the data concerning customer’s transactions, which are necessary to establish the bank’s or the company's right in a judicial dispute, arising between the bank or the company and the customer concerning these transactions;

(D) The stipulations of the laws and provisions regulating the combat of money laundering;

(E) Information and data provided by inquiry and credit rating companies, pursuant to the rules established by the Central Bank Board of Directors.

Article: 123

In compliance with the provisions of this Law, whoever, with the intention of premeditated fraud falsifies or conceals certain facts in the data, reports or other papers submitted by banks to the Central Bank, shall be liable to imprisonment and a fine of not less than twenty thousand pounds, and not more than one hundred thousand pounds.

Any person commits a cheat or a fraud in providing services of the inquiry or credit rating with the intention of facilitating the obtainment of credit, shall be punished by a fine of not less than LE 10 thousand and not more than LE 100 thousand. Moreover, this person shall be sentenced to pay, in favor of the credit provider, an amount of money equal to the non-repaid value of this credit, according to the damages befalling the credit provider as a result of the cheat and fraud committed by that person.

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Article: 135

Without prejudice to the penalties and other sanctions stated in this Law, or any other law, in case a bank is found to violate any of the provisions of this Law, the Statute of the Central Bank or decisions issued by its Board of Directors, the said Board may take any of the following measures:

(a) lodge a caution

(b) reduce or suspend the credit facilities granted to the violating bank

(c) prevent the violating bank from conducting certain transactions, or limit the size of the credit offered thereby

(d) obligate the violating bank to deposit non-interest bearing balances at the Central Bank, for the period it chooses, in addition to the credit

balance stipulated in Article (74) of this Law

(e) demand the board chairman of the violating bank to invite the board for a meeting to consider the subject of the violations ascribed to the bank, and take the necessary actions for their removal. One or more representatives of the Central Bank shall attend the board’s meeting in this case

(f) appoint an observer member in the bank’s board of directors for a period to be determined by the Board of Directors of the Central Bank. This member shall be entitled to participate in the board’s discussions and to record his/her view in the decisions taken thereby

(g) dissolve the board of directors, and appoint a delegate mandated to manage the bank for a period not exceeding six months extendible to another six-month period. This delegate shall, during the period of his/her appointment, submit the issue to the general assembly of the bank for electing a new board of directors, or merging in another bank, or liquidating the bank

The measures stipulated in items (A, E, G ) may be taken, in case a violation has been established with respect to any inquiry and credit rating company, or any money transfer company. Also, the license granted to this company may be cancelled.

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RULES, REGULATIONS AND LICENSING FOR EGYPTIAN CREDIT BUREAUS FINAL REPORT EGYPT FINANCIAL SERVICES PROJECT TECHNICAL REPORT #39

May 2005 – February 2006 This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International Inc.

DATA PAGE Activity Title and Number: Egypt Financial Services (EFS) Project

Contract No. 263-C-00-05-00003-00

Prepared for: EFS CTO: Gregg Wiitala

EFS DCTO: Ingi Lotfi

Economic Growth Division

Office of Financial and Information Technology

USAID/Egypt

Task: Task 4: Establish a Broad-Based Credit Information System

KRA: KRA 4.1 Strengthen the Capacity of CBE for Oversight of Private Information Systems and Protection of Consumer Rights

KRA 4.2 Private Sector Credit Bureau Operational

Activity: 4.1.1 Assist the CBE in consolidating its role as a credit bureau regulator and licensor

4.2.2 Determine credit bureau licensing requirements

Author: Marian Mishriki, Task Leader

Arab Legal Consultants

Larry Ulrich, Credit Bureau Adviser

Oscar Marquis, Credit Bureau legal adviser

Miguel Llenas, Credit Bureau Adviser

Date: May 2005 – February 2006

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

The work in this document is a result of the technical assistance provided by EFS and its consultants who worked very closely with the Central Bank of Egypt over a period of eight Rules, Regulations and Licensing for

Egyptian Credit Bureaus

Technical Report #39

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months. Central Bank of Egypt had made some changes/additions after finalization of the work of EFS consultants. This document represents the approved version by the Central Bank board of Directors. On January 17, 2006 the board of the Central Bank approved the rules organizing the operations of credit bureaus, the rules organizing exchange of information between Central Bank, banks, mortgage finance & financial leasing companies and Credit Bureaus and the Central Bank Supervisory System. The requirements and procedures to license credit bureaus was approved in 30 August 2005 and a preliminary approval was given to the first Egyptian Credit Bureau to be established under the banking law.

Rules, Regulations and Licensing for



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TABLE OF CONTENTS

ACRONYMS .............................................................................................................IV

PART ONE: RULES ORGANIZING THE OPERATIONS OF CREDIT BUREAUS.. 1 First: Definitions .............................................................................................................................. 1 Part Two: Rules Organizing the Relation between the Credit Bureau and Parties dealing with it ................................................................................................................................................. 3 1. Relation between the credit bureau and data/information providers................................. 4 2. Relationship between the credit bureau and the................................................................... 4 3. The company’s relation with clients (consumer rights) ....................................................... 5 4. Relation between the bureau and other credit bureaus licensed by the Central Bank ..... 6 Third: Rules Organizing the Company’s Operations .................................................................. 6 Fourth: Operating and Processing Data Rules .............................................................................. 7

PART TWO: RULES ORGANIZING DATA EXCHANGE BETWEEN THE CENTRAL BANK OF EGYPT, BANKS, MORTGAGE FINANCE COMPANIES, FINANCIAL LEASING COMPANIES AND CREDIT BUREAUS............................... 8

First: Definitions ............................................................................................................................... 8 Second: Provision of Data and Information.................................................................................. 9 Third: Inquiry................................................................................................................................... 9

PART THREE: CENTRAL BANK SUPERVISORY SYSTEM ................................. 11 First: Central Bank Supervisory System...................................................................................... 11 Second: Penalties in Cases of Violation ....................................................................................... 11

ATTACHMENT: REQUIREMENTS AND PROCEDURES TO LICENSE CREDIT BUREAUS ............................................................................................................... 13

First: Requirements to obtain preliminary approval to incorporate the company................. 13 Two: Rules and Requirements to obtain the License and Register the company with the Central Bank................................................................................................................................... 14




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ACRONYMS

AI Appraisal Institute

ABS Asset-backed Securities

BDA Bond Dealers Association

CAPMAS Central Agency for Public Mobilization and Statistics

CASE Cairo and Alexandria Stock Exchanges

CBE Central Bank of Egypt

CMA Capital Market Authority

CRA Commercial Registry Authority

CTO Cognizant Technical Office

EAA Egyptian Appraisers Association

EBA Egyptian Bankers Association

ECMA Egyptian Capital Market Association

EFS Egypt Financial Services Project

EHFC Egyptian Housing Finance Company

EIMA Egyptian Investment Management Association

EISA Egyptian Insurance Supervisory Authority

EJA Egyptian Judges Association

ELA Egyptian Lawyers Association

EMBA Egyptian Mortgage Brokers Association

ESA Egyptian Survey Authority

EREA Egyptian Real Estate Association

ERESA Egyptian Real Estate Surveyors Association

GAFI General Authority for Free Zones and Investment

GOE Government of Egypt

IFS International Federation of Surveyors (Egypt Chapter)

IPF Investors Protection Fund

KRA Key Results Area

MBA Mortgage Bankers Association

MCDR Misr for Clearing, Depository, and Registry

MFA Mortgage Finance Authority

MLS Multiple-listing Service

MSAD Ministry of State for Administrative Development

MOF Ministry of Finance

MOH Ministry of Housing




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MOJ Ministry of Justice

MOI Ministry of Investment

MOU Memorandum of Understanding

NASD National Association for Securities Dealers

NIB National Investment Bank

PGF Payment Guarantee Fund (Guarantee Fund)

PIN Parcel Identification Number

SEC Securities and Exchange Commission

SII Securities and Investment Institute

UCD Universal Cadastral Database

UNCITRAL United Nations Commission on International Trade Law

USAID United States Agency for International Development

YEBA Young Egyptian Bankers Association

Rules, Regulations and Licensing for vEgyptian Credit Bureaus


Part One: Rules Organizing the Operations of Credit Bureaus

First: Definitions

The following definitions refer to the terminologies mentioned in the law and these rules:

1. Credit Bureau1: A joint stock company with a paid-up capital not less than LE 5 million, licensed by the CBE to conduct its activities. Its nature of activities shall be the formation of credit files through collection, processing, maintaining and analyzing personal and credit data and information related to the indebtedness of the clients of banks, mortgage finance, financial leasing companies and companies providing credit as suppliers of goods and services in addition to the provision of inquiry and credit scoring services, issuing credit reports to the users without making recommendations related to granting the credit.

2. Data Providers: Entities that provide any form of credit and entities that have personal or credit or any information and data related to clients' payment habits credit worthiness and furnish them to the credit bureaus as per these rules.

3. Data Subject 2 (Client/Subject of Inquiry): Natural persons (individuals) and legal persons who have or apply for credit and whose data and information are collected in credit files at the bureau and are available for inquiry pursuant to these rules.

4. User: Legal entities which contracted with the bureau and which have a legitimate purpose to inquire, obtain credit reports and the services provided by the bureau, as well as the clients/subjects of inquiry who have credit files in the company, pursuant to these rules. The company shall be forbidden to deal with natural persons as users, inquiring about others, except for their right to inquire about their own information and data as per these rules.

5. Credit File: It contains the clients' personal and credit data and information that are collected, processed and maintained with the company, including:

a. Data provider: This includes its name, nature of business and address.

b. Personal data:

Natural Persons: They include the name, nationality, date and place of birth, identifier documents, present and past addresses in the last three years, profession, place and address of present and past jobs in the past three years, spouse name in addition to any other data that serves the purposes of the company.

1 In Arabic “Investigation (inquiry) and Credit Scoring Companies” are used to mean credit bureaus. In this document the word company also means credit bureau. 2 Throughout this document the word client or customer means the data subject or the consumer.




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Legal Persons: They include the name, legal status, names of shareholders holding more than 10% of the paid up capital, commercial register number, its date, registration place, address, principal and sub-activities and information about the financial position of the company, in addition to any other data that serves the purposes of the company.

c.. Credit Data: It includes loan value and/or authorized credit limit, the utilized balances, type of facility or product, currency, maturity date, installments due and types of collaterals offered in addition to any other data that serves the purposes of the company.

d. Payment Habits: These are historical data for a minimum of five preceding years, unless the client obtained credit for the first time, reflecting the extent to which clients are regular in meeting their commitments on due dates and they include:

Positive information: Information that reflects the clients' payment of obligations in due dates.

Negative information: Information related to clients' delinquencies including: payment delays, irregularities, dishonored cheques and bills, defaults, delinquency, court sentences, seizures, protested bills of exchange, insolvency and bankruptcy.

e. Public Record Information: Information available in public records including civil, commercial, real estate and court registries.

f. Inquiries made to the credit file: It includes the user’s name, business and date of inquiry.

The credit file should not contain data related to political, party, other general organizations affiliation, religious beliefs or health condition.

6- Database: Electronic database that contains credit files of all clients and it includes their related data and information which were collected from data providers, processed and maintained with the company.

7- Consent: Explicit signed written authorization by the client, his legal representative or authorized agent indicating his consent to:

Inquire about his data and information. Forward his data to credit bureaus.

The consent shall not be required for entities subject to the provisions of Article 99 in law no. 88 for 2003 and its amendments and they are banks, mortgage finance and finance leasing companies.

8- Credit Report: A report issued by the company, in hard or electronic form, containing all or part of the client's information and data available in the credit file or a summary.




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9- Credit Scoring: Use of personal and credit information and data in the credit file of the client to arrive at a numeral statistically based and objectively applied to all clients to determine the degree of risk related to nonpayment of the client’s future obligations.

10- Source of Gathering Data and Information:

It is one or all of the following sources which are authorized legally or contractually to provide data and information to inquiry and credit scoring companies and they include:

Banks operating in Egypt Central registry with the Central Bank of Egypt Mortgage finance companies Financial leasing companies Insurance companies Social fund for development Institutions that offer credit to medium, small and micro enterprises Factoring companies Companies operating in the area of financial securities as per the capital market law

number 95 for 1992 and its amendments Suppliers of goods and services selling a product or offering a service on installment

basis Other credit bureaus licensed by the Central Bank of Egypt Authorities overseeing the public records and they are the civil, commercial, real estate

and court registries Other entities that have data and information that serve the purposes of the company

11- Permissible Purpose:

The user should have a permissible purpose for inquiring and obtaining the credit report. The permissible purpose is represented in the following:

As per a court sentence, court order or arbitration Providing, increasing, renewing, or amending the terms of any form of credit, Accepting a guarantee in any form Determining the credit scoring of the client who is applying for the credit or reviewing the

credit position to determine regularity in meeting his commitments in due dates As per a signed consent from the client

Part Two: Rules Organizing the Relation between the Credit Bureau and Parties dealing with it The relation between the company, the data/information providers and users is governed by the law and the rules organizing the operation of these companies, the contract between the company and each party, on condition that it includes the following:

Purpose and scope of the agreement Ensuring the secrecy, protection of and correctness of the data and information Type of information and data to be collected and the target segments whose data and

information is collected Dates of sending the data and information, the method and security measures. Rules of inquiry and obtaining the credit reports




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The services rendered and required fees and methods of payment Defining the liability of the relationship parties with respect to the correctness of data and

information Dispute settlement related to implementation of termination of the contract

Following are the rules governing the relation between the company and each party:

1. Relation between the credit bureau and data/information providers

The company’s contract organizes the relation between the company and the data/ information providers and includes the company’s commitment to maintain the secrecy of the information and data and use in accordance with the permissible purpose as per these rules. The obligation of the information/data provider should include the following:

a. Undertake all necessary procedures and precautions to secure the data and information provided to the company and verify its correctness

b. Obtain an authorization from the client providing his consent to send his data and information to the credit bureau and keep the authorizations for review by the company if the latter requests so, with the exception of the institutions stipulated in Article 99 of Law no. 88 of 2003 and its amendments, which are the banks, financial leasing companies and mortgage finance companies for which no consent is required

c. Periodically making available and updating the information and data of the clients who obtained credit within a maximum period of one monthly as per the forms of the company

d. Notifying the company with any legal or judicial action taken against their clients within a maximum period of one month from the date of action

e. Informing their clients who were extended or refused credit with the name and address of the credit bureau, and indicate to them their right to obtain their own credit report, the right to submit a complaint to object to the information and data in their credit report

f. Deal with complaints submitted by clients within a maximum of 15 working days from the date of receiving the complaint from the company as per the rules outlined afterwards, and keeping a data base with complaints received and the outcome of investigation

g. The information/data provider is responsible for the correctness of the information and data provided by him to the company, and ensuring its security until made available to the company

2. Relationship between the credit bureau and the users

The relation between the company and the users is organized by contracts and it includes the right of the user to inquire and obtain credit reports and use all other services offered by the company and its compliance with the following:

a. The laws and rules issued by the Central Bank and the rules organizing the request and use of the credit reports that are provided by the company.

b. The user must have, at minimum, one of the permissible purposes to inquire and obtain credit reports and enjoy the services that are provided by the company which are stated in this regulation

c. Obtain the client’s authorization consenting to inquire about his related data and information, clarifying the purpose of the inquiry with attestation from the user that the




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client’s signature is correct, and maintain these authorizations for the company’s review if it requests so, except for the entities stated in Article 99 in Law no. 88 of 2003 and its amendments which are the banks, mortgage finance and financial leasing companies.

d. Inquiries and obtaining credit reports should be according to the contracts’ terms with respect to: Submitting the request on the form prepared for this purpose Mechanism and way of obtaining the credit reports Payment of the fees to obtain the credit reports

e. User’s obligation to use the credit report for the permissible purpose for which it was requested and for no other purpose

f. Non exchange of data and information in the credit report with others or allowing others to view it for or without a fee

g. The user is obliged not to change or amend any item of the credit report which it obtained from the company

h. The user cannot assign its right to others or give a license to others to inquire i. The user undertakes that the inquiry will be done by authorized officials whose names

and jobs will be notified to the company and is committed to inform the company with any change in the authorized officials who inquire or any their employment is terminated with their commitment to maintain the secrecy of the information and data

3. The company’s relation with clients (consumer rights)

a. A client shall have the right to request a copy of their own credit report on the form

prepared for this by the company at any time as per the system set by the company after paying the required fees

b. A client shall have the right to file a complaint if the data and information in his/her credit report are not true within 15 days of receiving the report. If a complaint is not filed during this period, the data & information shall be deemed correct and fully accepted by him/her, unless proven otherwise.

c. The complaint shall be submitted on the form prepared by the company for this purpose, along with attached supporting documents, and clarification of the items subject of the complaint in the credit report and the required action that is requested whether re-investigating, cancellation, correcting or adding.

d. The company has to investigate the complaint and if found not related to the correctness of data or information, then the complaint is filed and the consumer is notified within a period of maximum 10 working days from the date of receipt of the complaint. If the complaint is accept, the company has to investigate and undertake the necessary correction of the information and data if an operational & processing error by the company was made, or send it to the data/information provider within maximum 10 working days from the date of receiving the complaint.

e. The data provider has to examine the complaint received from the company, and inform it with the result of its investigation either to confirm the correctness of the data and information or correct the detected errors and send it to the company within a maximum period of 15 working days from the date of receiving the complaint.

f. In case material changes are made to the credit report, as a result of the investigation of the complaint by the company or the information/data provider, the consumer who filed the complaint has to be notified. Notices with the changes shall be sent to all the users who made inquiries and obtained credit reports in the past three months preceding the changes.

g. All issued credit reports while the complaint is being investigated will include a notice that a complaint has been filed.




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h. If the complaint is in connection with inquiries made without purpose or without consent, the company shall recourse to the user to provide evidence that there is a permissible purpose to inquire or consent from the complainer agreeing to inquire about the credit file.

4. Relation between the bureau and other credit bureaus licensed by the Central Bank

The relation between the credit bureau and other credit bureaus licensed by the Central Bank shall be governed by a contract and shall specifically include the following:

Purpose and scope of the agreement Type of data that will be exchanged, frequency, methods of communication and security Mutual services, fees and method of payment Defining the legal responsibility of each party to the relation especially with respect to the

correctness and secrecy of the exchanged data/information Dispute settlement related to execution or termination of a contract

The relations between credit bureaus are subject to fair competition principles, fruitful cooperation and mutual interest in the light of the laws governing companies

Third: Rules Organizing the Company’s Operations

1. The company is obliged to contract with data and information providers and users and to include the nature of dealings and legal responsibility of each party to the contract, using the samples prepared by the company for that purpose and maintaining all contracts in this concern.

2. The Chairman, board members, directors and employees of credit bureaus are forbidden to access information or data except on a need to know basis for their work. They are also forbidden to give or disclose any information or data about clients, their accounts or dealings that enable others to access them other than in the situations authorized by the law. This restriction shall apply to anyone who by virtue of his profession, position or job, either directly or indirectly receives or views data and information referred to herewith.

3. The company shall put the systems that ensure employees’ obligations to maintain the secrecy of data and information and take all necessary procedures to ensure compliance.

4. The bureau shall prepare an information leaflet including the address of the main office and branches if any, telephone numbers, fax, e-mail address, activities, working hours, services rendered and how to obtain them, fees and method of payment.

5. The company is obliged to publicize that it has a license to conduct its activity from the Central Bank board of directors & the date of obtaining the license in all its correspondence, publications including the credit reports and its website.

6. The company has to maintain its database including the information and data related to the clients in the credit bureau premise in Egypt

7. The company is obliged to establish a unit to deal with consumers’ requests to obtain their credit reports and receive complaints. The employees of this unit should be knowledgeable with consumer rights and qualified to deal with consumers.

8. The company shall issue the credit report on the form prepared for this purpose with an attachment of the definition of the terms.




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9. The company is responsible for the errors in operating and processing data and information

10. The company is obliged to maintain a date base with all credit inquiry requests for a period not less than two years, including information about the date of inquiry, the name of the inquirer, its business and number of inquiries. The credit report should include the number of inquires made on the clients credit file in the last 12 months

11. The company is obliged to maintain a date base with complaints received for a period not less than three years from the date of the last action related to the complaint, including the actions taken to examine them and the outcomes of the investigations, in addition to statistical reports highlighting their numbers, types, and sources.

12. The company is obliged to appoint a Compliance Officer to monitor the company’s compliance with its operational rules and procedures, the applicable laws and regulations issued by the Central Bank with respect to the working system of the credit bureau, rules organizing exchange of information and data, and the Central Bank Supervisory system.

13. The company has to provide a suitable and secure method to offer inquiry and credit scoring services and make its credit reports accessible to users in all the governorates of Egypt.

14. The company has to include in its credit reports negative information related to clients as per this regulation for a period of five years from the date of clearance of these clients in any way such as finalization of legal proceedings in the way of cancellation, withdrawal, or legal sentence or repayment.

15. The company has to use its data and information to develop systems for credit scoring as per the norms in this field.

Fourth: Operating and Processing Data Rules

1. The company is obliged to provide appropriate equipment and technological means that enable it to establish and operate systems and databases.

2. The company shall collect, match, record incoming data and information from the data providers, process and analyze it in a manner that serves its purposes.

3. The company is obliged to take all precautionary measures to ensure that the data and information are obtained from reliable sources.

4. The company has to take necessary measures to secure and protect the data and information, maintain its secrecy including the following:

a. Establish a system to physically secure the database site. b. Establish an alternative emergency (back-up) center, at a suitable distance from the

company’s headquarters to handle potential hazards or crisis. c. Approve regular back-up archiving systems, and establishing plans to retrieve

information in emergencies to ensue that the data is not lost or damaged. d. Provide secured means of communication to exchange data and information with data

providers and users. e. Provide protection and security to access the company’s system and database and

establishing an emergency plan to deal with operations to penetrate the systems. f. Contracts with the company’s employees should stipulate their compliance with the

secrecy of the data and information. Also, written internal policies and rules should be set and regularly revised with respect to their access and use of the database.

g. Establish operational controls for staff’s authorization to access and use the data base, and determine penalties for noncompliance with authorized use.

h. Develop a system for authentication of identities and validate the correctness of personal information




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i. Set a documented manual for the operations rules and procedures to be reviewed annually.

5. The company has to regularly review the data security and protection procedures in order to detect any weaknesses and take the necessary actions to avoid their occurrence.

6. The company should notify the Central Bank with any operation to penetrate its systems, and the procedures taken by the company to limit operational and associated legal risks.

7. The company should hold periodic meetings with groups of data and information providers and users to inform them about the company’s activities, best practices in providing data and information, inquiring and obtaining credit reports and any other services provided by the company.

Part Two: Rules Organizing Data Exchange Between the Central Bank of Egypt, Banks, Mortgage Finance Companies, Financial Leasing Companies and Credit Bureaus In the framework of the rules approved by the CBE Board on April 26, 2005 regarding the credit registration system at the CBE, which include data exchange rules between the Central Bank of Egypt, banks, mortgage finance and financial leasing companies as per provisions of the law and its executive regulations, following are rules of exchange of data and information between the Central Bank of Egypt, banks, mortgage finance, financial leasing companies and Credit Bureaus related to the clients’ debts and credit facilities offered to them, including definitions as follows:

First: Definitions 1. Exchange: means, as per Article 99 of law no. 88 for 2003 and its amendments

provision of data and information related to clients’ indebtedness and credit facilities offered to them, between the Central Bank, banks, mortgage finance and financial leasing companies and credit bureaus, as well as inquiring and obtaining credit reports prepared by the latter, containing the clients’ credit history, in addition to credit scoring reports.

2. Subject of exchange: data and information related to the clients’ debts and credit facilities offered to them whether they are from natural or legal persons.

3. Data exchange parties: Central Bank, banks, mortgage finance, financial leasing companies and credit bureaus.

In accordance with Article 99 of law no. 88 for 2003 and its amendments, exchange of data and information with respect to clients’ debts of banks, mortgage finance, financial leasing companies with the Central Bank and credit bureaus does not require the clients’ consent, and this exchange is not deemed a breach of confidentiality or the nondisclosure provision stipulated in Article 97 of the law, being based in accordance with the law requirement and within the rules set by the Central Bank Board, provided confidentiality is maintained.

The exchange between credit bureaus and Central Bank, banks, mortgage finance and financial leasing companies will be in accordance with contracts between them in the capacity of data and information provider and user at the same time.




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The rules regulating data and information exchange include providing data and information to credit bureaus and inquiring to obtaining credit report as follows:

Second: Provision of Data and Information

Banks, mortgage finance, and financial leasing companies are mandated to provide data & information related to their clients' debts and credit facilities offered to them to credit bureaus and must comply with the obligations of the data and information providers stipulated in these rules with respect to:

1. Providing personal and credit data and information of their clients and updating them. 2. Bearing responsibility for the security and correctness of information and data provided to

the company. 3. Dealing with consumers’ complaints.

The CBE provides whatever data or information is available in its credit registration system, including negative lists whether they are available now or in the future regarding the debts and credit facilities offered to the clients of banks, mortgage finance and financial leasing companies for the following entities:

1. Natural persons. 2. Legal persons (clients) of banks, mortgage finance or financial leasing companies if their

authorized credit is up to Egyptian pound one million.

Third: Inquiry

The relation between the Central Bank, banks mortgage finance and financial leasing companies shall, in their capacities as users on one hand and credit bureaus on the other hand, be organized by the contract concluded between them which secure their right to inquire and obtain credit reports and benefit from the other services offered by credit bureaus. They are obliged to follow users obligations stated in these rules, in addition to the following:

1. Obligation to inquire and obtain credit reports which include the credit history of their clients before offering the credit, increasing, renewing or amending its terms, in addition to credit scoring reports.

2. The Inquiry must be conducted for one of the permissible purposes stated in the regulations organizing credit bureau operations.

3. Obligation to maintain the credit report in the client’s file as a reference for follow up. 4. Chairmen, board members, directors and employees of banks, mortgage finance and

financial leasing companies are prohibited to provide or disclose any information or data related to clients or their accounts or dealings that enable others to access them except in situations when it is legally permitted by the law. This prohibition applies to whoever receives or accesses directly or indirectly by virtue of his profession, job or work the referred to data and information.




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5. Banks, mortgage finance and financial leasing companies must establish rules that ensure maintaining the secrecy of the data and information and adopt necessary measures to ensure compliance.




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Part Three: Central Bank Supervisory System

First: Central Bank Supervisory System

The Central Bank of Egypt board is the entity legally designated to license and supervises credit bureaus. To this end, the Central Bank shall:

1. License credit bureaus and register them in a special register. 2. Establish the rules, terms, procedures of licensing of companies, their operating systems

(by-laws), rules organizing data & information exchange of clients’ debts and credit facilities of banks, mortgage finance companies, financial leasing companies with credit bureaus and the Central bank supervisory system over credit bureaus.

3. Review the forms prepared by the company and any amendments thereof, especially: Sample contracts with data and information providers and users. Authorization form of clients consenting to inquire about them and send their

data/ information. Credit report request form. Credit report form. Complaint form disputing the correctness of data or information.

4. Supervise the companies’ activities with the purpose of following up the company’s compliance with the law and rules and regulations issued by the Central Bank board in this respect.

5. Request data, information and credit reports that serve the purposes of overseeing and supervising the company’s activities on the dates and as per the forms determined by the Central Bank.

6. Oversee and inspect the company’s operations, in particular: Operations rules and procedures manual prepared by the company Review contracts signed with data providers and users. Review inquiry requests of credit files. Review the complaints received by the company, the procedures taken to examine

such complaints, results and prepared statistical reports with respect to number, type and source.

Review the reports prepared by the company’s compliance officer with respect to the violations of the operating procedures and rules and the laws and regulations issued by the Central Bank board.

7. Inspect the information systems of the company in order to ensure the system soundness, effectiveness in managing operating risks, by reviewing:

The structure of information systems The rules and procedures operating manual. The data protection and security systems.

Second: Penalties in Cases of Violation

1. If there is evidence that a credit bureau violated the provisions of the law, its amendments, and decrees issued by Central Bank board with respect to the rules, conditions, and procedures of licensing, the company operating system, the rules organizing the exchange of data and information and ensuring their secrecy, and CBE




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supervisory system, the matter should be referred to the Central Bank board to take any of the following actions stipulated in clauses "a, e, g" in Article 135 of the law:

- Issue a warning - Request that the chairman of the company invites the board to meet to

examine the violations attributed to the company and take necessary actions to remove them. The board of directors meeting shall be attended by a representative or more from the Central Bank.

- Dissolve the board of directors and appoint a delegate to run the company for a period not exceeding six months, renewable for a further period. The delegate shall, during his term, propose to the company’s General Assembly the election of a new board, merging with another company or liquidation.

- The license granted to the company may also be withdrawn.

2. In accordance with Article 123 of the law, the credit bureau is subject to a fine not less than L.E. 10,000 and not exceeding L.E. 100,000 for whoever cheats or deludes in rendering inquiry or credit scoring services with the intention of facilitating provision of credit , apart from a sentence to pay the credit provider the equivalent sum of the unpaid credit which subjected the credit provider to damage because of the fraudulence or misrepresentation.

3. In accordance with Article 124 of the law anyone who violates articles 97 and 100 related to maintaining the secrecy of clients accounts and forbidding disclosure of information and data related to their accounts and their dealings shall be subject to imprisonment for a period not less than a year and a fine not less than L.E. 20,000 and not more than L.E. 50, 000




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Attachment: Requirements and Procedures to License Credit Bureaus 3

First: Requirements to obtain preliminary approval to incorporate the company An application should be submitted to the Central Bank's supervision and control department to obtain the initial approval to start procedures to incorporate the company. It should include and satisfy the following data and documents:

1. The name and address of the applicant. 2. The legal address of the company which will be used for correspondence. 3. Copy of the initial contract and draft of the articles of association, which includes the

company's purpose, names of founders, their nationalities, addresses and share of each in the paid up capital.

4. A statement with the founders’ previous experience in the field of banking and credit 5. The amount of the company's paid up capital, number of shares and the nominal value

per share, in addition to the value of any in kind participation. 6. The company's duration. 7. A statement with the suggested name of the company in English and Arabic 8. The study prepared to incorporate the company including the activities and services

provided by the company and its plan to make the services accessible in all the governorates & its policies in setting prices for its services, and the suggested organization chart.

9. The company’s undertaking to: a. Use the Arabic language in its correspondence b. Appoint board of director’s members and executive directors who have good reputation, eligibility, competence and practical experience. c. Comply with the Central Bank, Banking sector and money law number 88 for 2003, its amendments, the existing regulations and the regulations and procedures issued by the board of directors of CBE that organize the company’s operation while ensuring the secrecy of the data and information. d. Provide any data, information or documents requested by Central Bank

The application will be presented to the Central Bank of Egypt's board of directors to take a decision within 30 days from the date of application provided the required information and documents are complete.

The necessary procedures to incorporate the company should be finalized within a year from the date of notification of CBE board of directors’ initial approval. The validity period of the initial approval can be extended by a decree from the Central Bank of Egypt's Board of Directors.

3 Approved by the Central Bank board 30 August 2005




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Two: Rules and Requirements to obtain the License and Register the company with the Central Bank

An application should be submitted to the Central Bank of Egypt's Regulation and Supervision department to obtain a license to engage in inquiry and credit scoring activities and register the licensed company in a special register at the Central Bank. The following documents are to be attached to the application:

1. The Central Bank’s initial approval to incorporate the company. 2. The decree issued to incorporate the company. 3. A copy of the company's articles of association. 4. Copy of the company’s listing at the commercial register. 5. The address of its head office, branches and agencies, if any. 6. A copy of the minutes of the company’s general assembly meeting appointing board of

directors members, and the decrees issued by the board to appoint its chairman, managing director and/ or its responsible executive directors.

7. The names of and information related to the Chairman, board members, managing director, and/or responsible executive directors, and indication that each has the competence, efficiency and practical experience.

8. Evidence that none of the founders, board members or executive directors was bankrupt nor a final judgment issued against them to convict them with a criminal offense, a misdemeanor, a breach of trust or any crime referred to in the Central Bank , the banking and money law or the money laundering law.

9. Copy of the management and operation contracts, if any, which have been concluded with any other party or any memorandums of understanding in this regard, attached to it a statement with prior work and experience in the field of inquiry and credit scoring.

10. Sample documents that the company will use in its dealing with others. 11. Provide evidence that the company has the appropriate equipment and technological

means to set up, operate and update the information database, provided that it satisfies the following: a. Appropriate methods of communication to exchange data & information and security system for each communication method b. System to materially secure the database site. c. A documented manual for work procedures. d. A plan to deal with disasters and retrieve information in emergencies to include a secure login system to the information database and an approved disaster recovery center

12. Undertaking to notify the Central Bank with every change in the company’s articles of association, management & operations contracts, and any changes in the information provided at the time the company applied for initial approval or for registration

13. Undertaking to obtain prior approval from the Central Bank's board of directors when activities are suspended or the company is merged with another entity.

The application is to be presented to the Central Bank Board to approve the license for an inquiry and credit scoring company and register it in the special register at the CBE. The company should not start its activity before it is notified with the approval of the CBE's board of directors.




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Benchmark 4.5: Facilitation of the securitization process through the completion of legislative changes. Objectives for Benchmark 4.5

Once a primary mortgage market exists that is able to produce sufficient volumes of package-able mortgages (based on sound underwriting, matched maturities, and standardized documentation), the availability of real-estate finance can be further enhanced by development of a secondary mortgage finance market. The GOE should therefore ensure that facilitating legislation addresses the issues relating to the anticipated secondary market. Recently, a real estate specialized bank announced securitization of a real estate housing loan portfolio worth nearly $100 million, which will result in issuance of asset-backed securities (ABS). This transaction, or a similar approach based on mortgage-backed securities (MBS), provide models that the GOE through its Capital Market Authority will support through the development of facilitative laws, rules, procedures, and standardized documentation for subsequent securitization transactions. The GOE should scrutinize recent legislation affecting securitization to identify any needed refinements.


1. Legislation for securitization enacted as needed to meet the objectives stated above. Means of Verification for Benchmark 4.5

To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following Means of Verification:

1. Official copies of the relevant legislation and implementing regulations and a report verifying that the legal framework meets the objectives stated above.

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Select Articles of the Amended Capital Market Law No. 95 of 1992 According to Law no. 143/2004

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Select Chapter of the Amended Executive Regulations Of the Capital Market Law 95 /1992

According to Ministry of Investment Decree no.46 /2004

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MEMORANDUM

DATE: November 28, 2007

TO: Paul Bruning, USAID CTO FROM: Francois Pepin, EFS COP RE: Commentary on Development Support Program II Benchmarks ________________________________________________________________ Please find below our EFS Commentary with respect to the Benchmark 4.5 regarding the secondary mortgage market, or securitization.


Once a primary mortgage market exists that is able to produce sufficient volumes of package-able mortgages (based on sound underwriting, matched maturities, and standardized documentation), the availability of real-estate finance can be further enhanced by development of a secondary mortgage finance market. The GOE should therefore ensure that facilitating legislation addresses the issues relating to the anticipated secondary market. Recently, a real estate specialized bank announced securitization of a real estate housing loan portfolio worth nearly $100 million, which will result in issuance of asset-backed securities (ABS). This transaction, or a similar approach based on mortgage-backed securities (MBS), provide models that the GOE through its Capital Market Authority will support through the development of facilitative laws, rules, procedures, and standardized documentation for subsequent securitization transactions. The GOE should scrutinize recent legislation affecting securitization to identify any needed refinements.


2. Legislation for securitization enacted as needed to meet the objectives stated above. Means of Verification for Benchmark 4.5

To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following Means of Verification:


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EFS Commentary

The Capital Market Law (CML) was amended in June 2004 by adding a new chapter of nine articles to provide the legal framework for “Securitization” (official copy attached), including the requirements of “true sale” and “bankruptcy remoteness”. The chapter addressed two types of securitization: 1) true-sale securitization, where the portfolio of loans or receivables and its underlying assets are transferred/assigned (“off the balance sheet”) from the originator to a special-purpose vehicle “SPV” (securitization company) to issue bonds to be repaid out of the proceeds collected from the portfolio and its underlying assets; and 2) collateralized bonds, where the originator will issue a bond secured by a segregated portfolio of loans or receivables and its underlying assets.

The two types of securitization provide for bankruptcy remoteness to protect bondholders. Article (41 bis 2) of the Law stated that “funds, documents, securities and commercial papers (constituting the portfolio) deposited with the custodian are owned by the bondholders and will not be included in the property of the securitization company in the guaranty for general creditors of the originator or the securitization company”.

The main difference between these two types of securitization is the recourse of bondholders in case of insufficient proceeds from the portfolio to repay bondholders’ principal and interest amounts. In a true-sale securitization, the portfolio, its underlying assets and credit enhancements, if any, will be the sole source of repayment to bondholders (there is no recourse on the issuer nor the originator). In a collateralized bond, the originator who is the issuer of the bond will remain liable for any deficit in the proceeds from the portfolio.

Following the amendment to the CML in 2004, a new chapter was added to the executive regulations in November 2004 including 14 articles (official copy attached) related to:

• Incorporation and license of a securitization company; • Restriction on shareholding in a securitization company; • Registration of issuance of a securitization bonds; • Prospectus for public offering of securitization bonds; • The case of insufficient subscription in the offered bonds; • Restriction on issuance of other bonds by the securitization company; • Assignment of portfolio; • Depositing the documents supporting the portfolio with a custodian; • Collection of proceeds from the portfolio, depositing proceeds with the custodian

and using proceeds in repayment to bondholders; • Role of custodian; • Continuous disclosure and filings; • Records maintained by custodian; and • Issuance of securitized bonds.

In December 2005, the first securitization bond of LE 140 million of a car loans portfolio was offered to the public, and issued in January 2006 by Contact Securitization Company.

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This first issue of a securitized bond in Egypt revealed two obstacles in the executive regulations to the CML. First; the high minimum capital requirement of LE 5 million for incorporation of a securitization company, together with a restriction of 20% on the maximum shareholding of an originator and related parties in a securitization company. This obstacle made the securitization process not cost-effective and did not encourage companies to go through this process, especially where the sole beneficiary of the securitization is the originator who has no interest in seeking or partnering with other independent shareholders with a 80% stake in the securitization company.

In April 2006, the CMA, with EFS assistance, amended the regulations (official copy attached) to give the CMA Board of Directors the power to exempt the requirement of the 20% maximum on originator shareholding in the SPV. This power was first exercised to exempt Contact Car Trading and enable it to become the majority shareholder in Contact Securitization.

Second, the restriction preventing securitization companies from issuing more than one bond without the approval of the CMA Board of Directors, impaired the efficiency of securitization (given the LE 5 million minimum capital of an SPV).

In November 2006, EFS assisted the CMA develop a set of rules (attached) to allow a securitization company to issue more than one bond using legally and financially segregated portfolios with measures for preventing commingling of funds and full disclosure to protect bondholders. The new rules allowed the SPV Contact Securitization to issue a second bond in January 2007 for LE 159 million, and to apply to the CMA in November 2007 for a third bond issue of LE 225 million.

In addition to the three bond issued by Contact, the Egyptian Arab Land Bank tested the collateralized bond by issuing two bond issues for a total of LE 1.2 billion.

Recently, four housing companies have announced their plan to securitize, in early 2008, their portfolios of installment sale receivables of around LE 1.8 billion.

While all securitizations done so far were assets-backed securities (ABS), the CMA and Mortgage Finance Authority (MFA) are working on standardizing mortgage loans documentation in anticipation of mortgage-backed securities, as mortgage lenders are currently building their portfolios and will look to the capital market for long-term funding of their mortgage lending business. In September 2007, the MFA formed a working group of MFA, Egypt Mortgage Refinance Company (EMRC), mortgage finance companies, and the EFS project, to standardize loan files documentation in preparation for securitization: a first set of standardized documents has been prepared. In parallel, the CMA is finalizing its MBS rules including recognition of MFA-standardized documentation as a requirement for securitization.

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Conclusion

The current legal framework for securitization in Egypt (including the CML, executive regulations and CMA rules) addresses the issues relating to the anticipated secondary mortgage market, and now provides adequate legal foundation to enable the secondary mortgage market to develop.

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Benchmark 5.1: Publish a corporate governance best practice code to generate awareness and encourage companies to comply with the code. Objectives for Benchmark 5.1 The GOE, acting through the Capital Market Authority and the newly created Ministry of Investment, is making a concerted effort to expand financial instruments and services for business investment. On the investors' side, the GOE is supporting measures for transparent and accountable corporate governance along with appropriate public disclosure of information. The GOE supports the creation of an Institute of Directors as well as a code of best practices in corporate governance. The GOE has mobilized assistance for this purpose from sources including World Bank, the European Union, and the Center for International Private Enterprise (CIPE) of the U.S. Chamber of Commerce.


1. The code of best practice in corporate governance is published that meets international standards as indicated by Egypt's international partners.



1. An official copy of the decree or administrative act that issues the code of corporate governance.

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Ministry of Investment

Directors Center

Translation of Decree No. (332) of 2005 by

Head of Board of Trustees of the Directors Center

On issuing the Egypt Code of Corporate Governance: Guidelines and Standards

The Head of Board of Trustees of the Directors Center,

Upon reference to the law on joint stock companies, companies limited by shares, and limited liability companies issued by Law no. 159 of 1981, and its executive regulations,

To Law no. 95 of 1992 on the capital market and its executive regulations,

To Law no. 8 of 1997 on investment guarantees and incentives, and its executive regulations,

To the Presidential Decree no. 51 of 1997 issuing provisions regulating Cairo and Alexandria Stock Exchanges and their financial affairs,

To the Presidential Decree no. 231 of 2004 regulating the Ministry of Investment,

To the Minister of Foreign Trade Decree no. 675 of 2003 on establishing the Directors Center,

To the Minister of Investment Decrees no. 40 of 2004 and no. 188 of 2005 on the Directors Center,

Decides,

Article one

Issuing the attached Corporate Governance Rules and Criteria Guide is approved.

Article two

The executive manager of the Directors Center shall follow the procedures needed for publishing the present Guide, and shall inform joint stock companies, public enterprise companies, and public companies on these rules and criteria, with a view to achieve transparency and rational management practice.

All in accordance with the applicable laws regulating such companies.

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Article three

Competent officials shall execute the provisions of the present decree.

The Minister of Investment

The Head of Board of Trustees of the Directors Center

Dr. Mahmoud Mohei El Deen

Issued on: 10/10/2005

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Egypt Code of Corporate Governance Guidelines and Standards

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Source: http://www.cipe.org/regional/mena/pdf/EgyptCGCodeEnglish.pdf

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http://www.cipe.org/regional/mena/pdf/EgyptCGCodeEnglish.pdf

EFS MEMORANDUM

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MEMORANDUM DATE: November 28, 2007 TO: Paul Bruning, USAID CTO FROM: Francois Pepin, EFS COP RE: Commentary on Development Support Program II Benchmarks ________________________________________________________________ This memo has been drafted to provide USAID with the Egyptian Financial Services (EFS) project assessment, commentary and opinions related to the benchmarks in Policy Area 4 under the Development Support Program II – Financial Sector Reform. This document is restricted to assessment, commentary on GOE progress in achieving the agreed-upon benchmarks in the context of the objectives of the DSP-II Monitoring Plan. It does not provide opinions as to whether financial DSP-II funds should be released. In developing this memo, review of various GOE legal and technical documents, opinions of technical specialists have been incorporated, as has, along with anecdotal information gathered by EFS through its involvement in ongoing activities in these areas. EFS recognizes that the responsibility for formal verification of benchmark achievement rests with the USAID-funded Technical Assistance for Policy Reform II Project.

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Please find below our EFS Commentary and required means of verification attached with respect to the Benchmark 4.1 regarding real estate appraisal standards and certification programs, a national land title registration plan and reducing property fees. For purpose of clarity, the following assessment deals with real estate appraisal separately from land title registration and property fee. Benchmark 4.1 – Real estate appraisal. Issuance of implementing/executive regulations (by 09/30/05) that would:

• Establish national standards for conducting real estate appraisals. • Establish a real estate appraisal and certification program.

Objectives for Benchmark 4.1 – Real Estate Appraisal The People’s Assembly enacted the new mortgage finance law (Law 148/2001) in June 2001. Executive regulations were issued in December 2001 to establish the Egyptian mortgage market. The law and its executive regulations enabled the establishment of the Mortgage Finance Authority (MFA) to regulate the mortgage sector…. After four years of the enactment of the mortgage law and its executive regulations, mortgage finance is still almost non-existent. Major problems still exist that impede the development of the market. Among these problems, two are critical. At present, Egypt does not apply internationally accepted methods of valuing properties. The valuation process is not sufficiently reliable as to be of use to potential buyers, sellers or to mortgage lenders. Appraisers are not legally accountable for their valuations. … In order to promote international best practices in real-estate appraisal as represented by the International Valuation Standards Committee (IVSC) standards, the GOE through its Mortgage Finance Authority (MFA) should promote and set guidance for organizations of real-estate professionals, including private organizations, to set standards of practice, provide training, and certify sufficiently qualified new entrants into the profession. MFA will coordinate promotional and training assistance, including drawing on the resources of U.S. organizations such as the Appraisal Institute and the Mortgage Banking Association. The MFA will also approve training providers and examinations proposed by suitable professional organizations. Terms of Disbursement related to real estate appraisal under Benchmark 4.1

4. The GOE will issue guidelines that ensure that standards for Egyptian appraisal professionals, administered to the extent possible through professional organizations, meet all appropriate IVSC standards.

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Means of Verification related to real estate appraisal under Benchmark 4.1 To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following means of verification:

1. A copy of the guidelines that promote and ensure best practices in the Egyptian property appraisal profession.

EFS Assessment and Commentary The Egyptian Association for Real Estate Appraisers (“EAREA”) is an association established in February 2005, and Chaired by by Dr. Ahmed Anis, Director of the Real Estate Appraisal Center at Cairo University. Dr. Anis also serves as a board member on the MFA Board of Directors, and heads the Appraisal Committee at the MFA. The Appraiser Association Board has seven members, including Chairman Anis. - Developing Comprehensive Appraising Curriculum for Licensing: In February 2005, EFS engaged the U.S. Appraisal Institute (“AI”) to assess existing appraisal programs and offer and recommend training programs needed in the Egyptian market. AI consultants, in coordination with local appraisers nominated by EAREA, conducted the assessment, and subsequently five localized appraisal training programs and course material were developed, and Training of Trainers (TOT) was delivered to forty of the one hundred EAREA members in March 2006 to create a cadre of local trainers to deliver these courses to a larger audience. EAREA is now delivering these courses. EFS presented MFA a copy of all AI material developed, for review and endorsement, as a comprehensive world class appraising curriculum. Along with the proposal, the MFA supports the Appraisers Association’s desire and continuous effort to own the AI comprehensive course material. EAREA owns the AI training material developed for Egypt provided it shares it with other potential training providers to spread the availability of professional appraising training. - EAREA Code of Ethics: Codes of conduct for appraisers were developed, reviewed, and discussed in several events among EAREA members, and were approved by the MFA in 2005. One of the

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workshops developed and delivered by EAREA, in partnership with Cairo University Real Estate Center, where certified appraisers have to attend to obtain license renewals, covers the code of conduct and discusses practical case studies. - EAREA membership in the IVSC: EAREA applied for membership to the General Secretary of the International Valuation Standards Committee (IVSC). It was accepted in 2006. Association application to the committee had been recommended and was supported by the AI.

- Upgrading Professional Levels EAREA led efforts to regulate the profession and upgrade industry standards by submitting a proposal to the MFA for creating professional levels. MFA requested EAREA organize a workshop for MFA board, EAREA members, and mortgage industry stakeholders, to discuss the professional levels proposal. EAREA is organizing a one-day event in mid December 2007. On December 16-17 2007, EFS will present international standards and best practices to all one hundred EAREA members and advise on means to incorporate them into the proposed local model being presented to the MFA.

EAREA also wishes to enhance the knowledge and awareness of its members to new concepts in the profession, such as the latest approaches for commercial appraising, the latest trends in calculating property tax. EFS is assisting EAREA by bringing international experts to hold workshops with professionals to discuss in detail property tax and commercial appraising in December 2007. - Develop and enforce the Egyptian Supplement to the IVS In early 2008, EAREA will develop the Egyptian Supplement for the International Valuation Standards (IVS). Conclusion All one hundred appraisal professionals in Egypt are provided with appraisal guidelines and standards consistent with international standards and best practices compliant with ISVC through material and training provided by the Cairo University, as a requirement to be licensed by the MFA. Such provision of IVSC-compliant standards is also accomplished through EAREA, as a member of the International Valuation Standards Committee, who promotes such standards among industry professionals and holds specific awareness events on, and provides certifying courses incorporating international standards and best practices. Such provision of ISVC-compliant standards is enforced by the MFA, which oversees the contents of

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such courses that constitute a licensing requirement. EAREA is about to formalize guidelines for Egypt, to be issued in 2008 as a Supplement to the ISVC, and administered by EAREA. BENCHMARK 4.1 – LAND TITLE REGISTRATION AND PROPERTY FEE

A. Objective For property registration, the Ministry of Justice, along with the Ministry of State for Administrative Development, should issue an implementing plan to establish a streamlined registration system that alleviates the main obstacles to rapid and inexpensive property registration. Such a plan would reduce excessive regulatory and clerical burdens, re-design the registry system, allow the prompt registration of subsidiary notices, improve the methods for geographic and spatial description of parcels and units, remove the requirements for unnecessarily repetitious surveys, outsource the surveys where appropriate, reorganize local registry offices, initiate model registry offices, and reduce property transfer and registration fees to less than one percent of the transaction price or a fixed fee for covering actual registration costs. The Ministry of Justice will also coordinate assistance to help implement the plan. Terms of disbursement related to property registration under benchmark 4.1

a. The Ministry of Justice will adopt and start implementation of a plan for property registration that meets the objectives stated above.

b. The GOE will issue an official decree to reduce property transfer and registration fees to less than one percent of the transaction price or to cover actual registration costs.

Means of verification related to property registration under benchmark 4.1

a. A copy of the implementation plan for property registration and evidence that it has been implemented.

b. A copy of the official decree that reduces property transfer and registration fees as described above.

EFS Commentary Registration Fees Reduction The progress of GOE in this area is well known, including at the international level through the 2007 publication of the IFC/World Bank Doing Business Report. In 2006

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GOE enacted Law No. 83/2006, which introduced a new scale of fees to replace the previous registration fee of 3% of property value. The new fee is a transaction-based fee, replacing a fee based on a percentage of fair market value.The new fee also has a maximum of LE 2000 for properties with an area of 200m2 or more. In addition to shifting to a transaction-based fee and lowering the registration fees across the board for registering transactions, the Ministry of Finance issued a letter in January 2006 exempting mortgage contracts from the stamp duty tax. This MOF initiative was implemented at the request of the Mortgage Finance Authority. The GOE, primarily through the Ministry of Justice (MOJ) and its Real Estate Publicity Department (REPD), is also currently examining EFS recommendations for further possible fee reductions. These include reducing or removing fees for property claims associated with adverse possession, which currently sits at 1% of property value, and the 0.5% of property value currently levied by the Lawyers’ Syndicate for document authentication. Implementation Plan for Property Registration Program EFS has reviewed the implementation plan of the Ministry of State Administrative Development (MSAD) submitted to USAID by Ministry of International Cooperation in November 2007, which included two reports of progress against its implementation dated January and June 2007. This implementation was prepared and submitted by MSAD as the coordinating authority for the National Urban Real Estate Registration Program. It is the opinion of EFS that the submitted plan outlines implementation of a comprehensive list of activities that address the majority of key issues raised in the objectives section of the DSP-II Monitoring Plan. It should be noted that the implementation plan submitted covers only Phase 1 of the national program. EFS has been aware of the core concept behind the National Urban Real Estate Registration Program since its inception in 2005, which is the conversion from the current deeds registration system to a nation-wide title-based registration environment by 2013. Nevertheless, it is not unreasonable to expect that only the implementation plan for Phase 1 would have been prepared to the level of detail as submitted to USAID with detailed plans for subsequent phases to be prepared incrementally. Phase 1 of the national program consists of many activities connected with analysis of the current environment and design of new procedures, legal revisions, IT systems development, staff training, organizational reform, surveying and mapping, and establishing model title registry offices in nine districts of Greater Cairo.

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The progress reports provided by MSAD detail those activities that have been completed to date and those still pending. Some of the milestone documents referenced have been attached as evidence of their delivery. EFS is not in a position to verify the physical existence or completion of all documents and activities referenced, however based on EFS’ regular dealings with MSAD and the process owners, MOJ/REPD and ESA, EFS reasonably assumes that these have in fact been completed. Although there is only one change in progress between the June 2007 and November 2007 progress reports, EFS is aware of the successful completion of several key initiatives of the implementation plan that should appear in a more recent progress update. For example, it is known that a number of important protocols between affected agencies were signed by July 2007, and the tender for private surveying companies to undertake mapping work in the nine districts is currently underway. As a stakeholder in terms of its advisory role, EFS has assisted the MOJ in some of the activities listed in the implementation plan, primarily those connected with introducing the pilot parcel-based deeds system in Mokattam. Many sub-activities connected with this initiative, some of which are not reflected in the implementation plan, have been completed or are currently underway. Business process reengineering has been approved by Real Estate Publicity Department or “REPD”, (the real property registry office in Egypt), as have the Systems Requirements Specifications for the proposed IT system and the assignment of the model office service area boundaries. Parcel index mapping is underway in Mokattam and relevant REPD and ESA (Egyptian Survey Authority) office spaces are now being upgraded in preparation for deployment of hardware, software, staff and new registry customers. To date, training on registration and cadastral concepts and operations, basic IT skills and customer services, has been delivered to more approximately 50 staff from REPD and ESA. Means of verification: 1- MOJ directive (circulars 1, 60) implementing REPD registration of tripartite mortgage contract, as requested by MFA *** 2- EFS-MOJ-MOI committee list of 34 recommendations to facilitate and simplify the registration of the tripartite mortgage loan contract, and EFS note on “New Instructions” *; 3- MFA-NUCA protocol dated 21 September 2006 and its implementation directive No. 60/2007, permitting registration of units in the name of the investor even if the land is onlyallocated to the developer, and which also deletes the re-allocation fee ***;

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4- Ministerial Decree No. 5424/2006 implementing Law number 83/2006 setting the maximum fixed registration fee *; 5- Minister of Finance letter 13 January 2006 exempting mortgage loan contracts from stamp duty tax, pursuant to MFA request *; 6- EFS memo on number of mortgages on registrable properties in New Urban Communities, pursuant to MFA-NUCA protocol ***; 7- draft Housing and Construction Law (not yet publicly released) including provisions on Inhabitants’ Union (co-ownership rules) to replace current Owners Union Law, and a priority on the legislative agenda of the current session of the Peoples’ Assembly, and EFS note on divided co-ownership and NUCA ** 8- A copy of the implementation plan for property registration*. * pertains to registration ** pertains to divided co-ownership *** pertains to registration and divided co-ownership Conclusion It is the opinion of EFS that the GOE has prepared an implementation plan that addresses most key objectives raised in the DSP-II Monitoring Plan. This implementation plan has been adopted by relevant GOE agencies, MSAD, MOJ/REPD, and ESA, and its implementation is currently underway. BENCHMARK 4.2

A. Objective At present, the absence of legislation relative to the topics of condominium and property subdivision means that registration of ownership rights to subdivided land parcels or housing units cannot be performed until all parcels or units of the whole are registered. This greatly complicates and lengthens the registration of individual ownership rights. As a key innovation for expanding real-estate financing to a broader part of the Egyptian population, a condominium law is needed that facilitates registration of individual units in multi-family dwellings, as well as registration of the property held in common by owners of individual units.

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Terms of disbursement related to property registration under benchmark 4.2

Legislation is enacted to allow owners of units in multi-unit buildings to certify their private ownership of their units and their joint ownership of the land and other aspects of the unit held in common. EFS Commentary Condominium Law Requirement It is the opinion of EFS that opening sentence of the objectives statement is incorrect in its assertion that there is an absence of legislation relative to condominium and property subdivision. One possible source of this misconception is some statements by World Bank consultants in relation to this issue, around the time of initial formulation of DSP-II. With respect to divided co-ownership and subdivision of property, it has long been the opinion of EFS Land Attorneys that, despite numerous shortcomings in its current form, the concepts of ownership of multistory buildings, apartments, and joint ownership of common areas are well-established in Egyptian law. More specifically, these concepts are covered in

• Civil Code – Articles 856-869 • Law No. 49/1977 – Union of Real Estate Owners in Realty Divided in Stories or

Apartments • Ministry of Housing Decree No. 109/1979 As mentioned above, there are shortcomings in the current legal framework and its implementation when it comes to addressing registration of divided co-ownership. The GOE has recognized that problems exist and is taking steps to address these. Below is a summary of some of the areas where problems associated with divided co-ownership and registration in general are being addressed by recent GOE initiatives: The MFA and New Urban Communities Authority (NUCA) signed a protocol in September 2006, which had a primary purpose of permitting the transfer and registration of portions of a larger allocated area. It also allows for the registration of buildings and mortgages of buildings or parts of buildings, where the land upon which the buildings are situated has not been registered. Prior to this Protocol, payment for the entire area allocated had to be made in full in order to acquire title, even to a part such as a lot or unit in a building.

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To support implementation of this protocol, with regards to registration of rights by REPD offices, MOJ/REPD drafted and issued Technical Circular #60 in March 2007. When it comes to registration of mortgage finance agreements facilitated by the introduction of the MFA-NUCA Protocol, Circular #60 directs that REPD to apply provisions contained within Technical Circular #1. This MOJ/REPD circular was prepared and issued in January 2007 to facilitate the registration of mortgage finance agreements by REPD. The introduction of this protocol has directly resulted in stimulated activity in the real estate market within new urban communities, as evidenced by new mortgage loans originating in these communities. Information within Mortgage Finance Companies has proved difficult to get, but EHFC currently holds 73 loans for properties in new urban communities. This accounts for almost 25% of its loan portfolio. As previously mentioned under Benchmark 4.1, GOE through REPD and ESA is showing progress in other key areas related to improving property registration as a whole. In October 2007 REPD approved a series of business process reengineering recommendations developed collaboratively by REPD and EFS. These will streamline and simplify registration processes, which, along with transactions fees, have been key constraints of formal registrations. The process reengineering was undertaken as a first step towards automation of functions with REPD offices, however it was not automation driving the reengineering. REPD has formally signed off the system requirements specifications for software that will be deployed to the model deeds registry office as well those of the title based system that will be rolled out in the nine districts of Cairo. In addition to process reengineering for streamlining and simplification of registration procedures, MOJ leadership has brought about changes to REPD technical instructions and a view to revising Executive Regulations of Law No. 114/1946. At the request of MOJ EFS coordinated a series of multi party stakeholder workgroup meetings to identify reforms to improve REPD technical instructions. The group consisted of representatives from REPD, ESA, MSAD, MFA and NUCA. The working group prepared a list of 34 recommendations for revisions to the instructions with the majority of those being adopted by REPD. These are reflected in draft circulars that are currently with MOJ for formal approval. EFS has also recently held meetings with MOJ and REPD officials to identify possible reforms in the executive regulations that would build on the progress achieved with regards to technical instructions. The GOE has also drafted a new Housing and Construction Law, including provisions on Inhabitants’ Union (co-ownership rules) to replace the existing Law No. 49/1977 referenced above. GOE has identified this legislation as a priority for passage under the current session of the People’s Assembly.

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Conclusion It is the opinion of EFS that concepts and principles of divided co-ownership have long been in existence in Egypt; however the legislative framework and its implementation have faced constraints caused by inefficiencies and deficiencies. GOE, under the leadership of MOJ with support from MFA and NUCA, has undertaken to overcome these constraints by bringing about improvements in the framework for divided co-ownership and registration. Please find below our EFS Commentary with respect to the Benchmark 4.3 Benchmark 4.3. Introduce appropriate legislation and issuance of implementing regulations to enact modern bankruptcy procedures including foreclosure and eviction, procedures that would facilitate joint lender/debtor resolution of outstanding debts. (12/31/05)

Objectives for Benchmark 4.3 The GOE has identified a new bankruptcy law as a priority to provide adequate security to lenders and borrowers, to resolve problem debts, to allay lenders' concerns regarding their ability to recover their capital in the event of default, and thus to strengthen the base for real-estate financing. The Prime Minister has created a public-private national commission for review of commercial law and has made bankruptcy one of the first issues for the commission to consider. In addition, the GOE has mobilized international assistance to design steps it will take to strengthen implementation. Studies have identified as key steps the establishment of practical guidance for judges in applying bankruptcy law and rules for agents of the Ministry of Justice in carrying out judgments. Terms of Disbursement for Benchmark 4.3


Means of Verification for Benchmark 4.3 To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or assist in the provision of) the following Means of Verification.

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2. Official copies of the relevant legislation and implementing regulations. EFS Commentary The EFS project is engaged, with its GOE counterparts, in improving and implementing foreclosure and eviction for default in a mortgage loan under the Real Estate Finance Law of 2001 (“mortgage law”). It is in this role EFS wishes to comment as follows. Previous to 2001, mortgages and foreclosures existed under the Civil Code of Egypt but were not utilized much, and foreclosures could take up to 5 years. However the 2001 Real Estate Finance Law, commonly now referred to as the “Mortgage Law”, provides for more expeditious and better means of foreclosure. The Executive Regulations under the Real Estate Finance Law date back to 2001. They were never enforced with respect to foreclosure, and remained untested until 2006, partly because the judges were unaware of them and of mortgage finance, and partly because there were no foreclosure cases. In December 2005, EFS undertook a review of foreclosure and eviction provisions under the mortgage law, its regulations, amended regulations, the Civil and Commercial Codes, to report on:

- part of the law that is contradictory or unclear, - how the law is implemented in the Courts, - meet with legal experts in Mortgage Financing; - write a final report with recommendations on improvements to the laws and

processes related to foreclosure; and - assess the advantages/disadvantages of passage of a non-judicial foreclosure

law in Egypt. The report concluded:

- the foreclosure law is in place and has components to accomplish foreclosure; - its executive regulations set forth eight (8) specific procedures (unlike the 84

steps of the Code of Civil and Commercial Procedures) in accomplishing the foreclosure within set time frames, as follows:

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Time limit Procedure Ex. Reg. article #

Step #

Not less than 60 days from the day of defaulting

Financer sends a notice to investor before starting enforcement

17 1

Not less than 30 Financer services the investor with the official enforcing notice days from

borrower receiving the notice.

18 2

7 days Financer services the real estate registration office so as to document the event of starting the foreclosure enforcement process at the real estate page.

19,20 3

15 days The court assigns an agent who nominates two appraisal experts determine the value of the real estate

21,22 4,5

15 days The real estate agent develops a list for the terms and conditions for the sale

23 6

AThe real estate agent proceed with the auction

ccording to auction conditions

24 7

Within 3 days of collection

The real estate agent deposits the sale revenue at the treasury of the court

25 8

There have been two recent two developments that are noteworthy in the implementation of the mortgage law foreclosure and eviction provisions. First, there has been significant training of judges. Some 26 new “Economic Panels”, one or two in each governorate of Egypt, have been established within the existing court system: such panels of three judges are specialized in hearing economic cases, including mortgage law cases and foreclosures, in all the courts of first instance.

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Judges on these panels, approximately 100 of them, have been trained in all new and amended economic laws, including mortgage law and foreclosure procedures. EFS, in coordination with the Ministry of Justice, has developed and conducted such training through the National Center for Judicial Studies (NCJS), the judges’ training institute. There are now three ongoing training programs provided by the NCJS: a) a general 10-day course for judges, of which a two-hour session addresses mortgages and foreclosures generally; b) a 1-day course on mortgage and foreclosure for judges on economic panels; and c) a 3-day course on mortgages and foreclosures, which has become a requirement for judges dealing in foreclosures. EFS also developed training courses for mortgage agents, licensed by the Mortgage Finance Authority and appointed by the courts to execute foreclosures and auctions under the judges’ supervision, and for appraisers, licensed by the MFA, to further enhance the foreclosure and eviction process. Second, five (5) mortgage foreclosure cases have recently been brought to the courts under the 2001 mortgage law, of which three (3) were resolved within 6 months, and the other two (2) should be resolved soon, and for which out-of-court settlements are being contemplated. Previously, foreclosure procedures not under the mortgage law took up to five years. Current mortgage law procedures are now being applied by judges to non-mortgage law foreclosures as well. Conclusion Foreclosure and eviction provisions in the mortgage law provide adequate protection to lenders and borrowers to resolve their problem debts and to allay lenders’ concerns regarding their ability to recover their capital. The problem has been with the lack of implementation of the Law and its executive regulations in large part due to judges not being cognizant of the Law. To remedy this, judges, and mortgage agents and appraisers, have been and continue to be trained on mortgage and foreclosure issues. The foreclosure process is now being carried out by judges, foreclosure agents, and appraisers, knowledgeable in foreclosure and eviction, applying clear steps within set timeframes. The benefits of this reform are also being extended to foreclosure cases that are not under the mortgage law and this generally strengthens the base for real estate finance. Please find below EFS Commentary with respect to the Benchmark 4.4 regarding the private-sector credit bureau.

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Objectives for Benchmark 4.4 The GOE through the CBE is supporting the creation of private credit bureaus to help build an adequate system for sharing critical information on credit histories of borrowers. A functioning private credit bureau would provide lenders with up-to-date information on potential borrowers' experience in handling debt, allowing lenders to select creditworthy borrowers without expensive, time-consuming and intrusive investigations. The absence of a credit bureau greatly increases the uncertainty and risks to a bank from lending to small businesses and others that have not developed a long-standing customer relationship with the banking sector. Provisions for consumer protection, regulation of the bureaus and rectification of individual borrower files, as well as implementation of supporting information technology, rating procedures and public awareness campaigns, will have to follow. Terms of Disbursement for Benchmark 4.4

2. Appropriate legislation and implementing regulations for establishing private credit bureaus are enacted.

Means of Verification for Benchmark 4.4 To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following means of verification:

2. Official copies of the legislation and implementing regulations for establishing private credit bureaus.

Commentary and Conclusion The amendment to the Banking Law enacted in 2005 constitutes appropriate legislation for establishing private credit bureaus, by providing for the creation of one or more private sector credit bureaus and mandating the Central Bank of Egypt to supervise them and issue relevant rules. It allows banks and the Central Bank of Egypt to share credit information with the credit bureau. The CBE Board of Directors has adopted such rules in January 2006 which have full force and effect.

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In August 2005, the CBE issued a preliminary license to the credit bureau, initially known as “ESTALAM” and now known as “iScore” established on 3 August 2005, as evidenced by the excerpt from the commercial registry. The CBE rules contain provisions addressing consumer protection, regulation of credit bureaus and rectification of individual borrower files, as well as implementation of supporting information technology. Please find below our EFS Commentary with respect to the Benchmark 4.5 regarding the secondary mortgage market, or securitization.

Objectives for Benchmark 4.5 Once a primary mortgage market exists that is able to produce sufficient volumes of package-able mortgages (based on sound underwriting, matched maturities, and standardized documentation), the availability of real-estate finance can be further enhanced by development of a secondary mortgage finance market. The GOE should therefore ensure that facilitating legislation addresses the issues relating to the anticipated secondary market. Recently, a real estate specialized bank announced securitization of a real estate housing loan portfolio worth nearly $100 million, which will result in issuance of asset-backed securities (ABS). This transaction, or a similar approach based on mortgage-backed securities (MBS), provide models that the GOE through its Capital Market Authority will support through the development of facilitative laws, rules, procedures, and standardized documentation for subsequent securitization transactions. The GOE should scrutinize recent legislation affecting securitization to identify any needed refinements. Terms of Disbursement for Benchmark 4.5

1. Legislation for securitization enacted as needed to meet the objectives stated above.

Means of Verification for Benchmark 4.5 To assist USAID in determining if the Terms of Disbursement have been met, the GOE will provide (or will assist with the provision of) the following Means of Verification:


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EFS Commentary The Capital Market Law (CML) was amended in June 2004 by adding a new chapter of nine articles to provide the legal framework for “Securitization” (official copy attached), including the requirements of “true sale” and “bankruptcy remoteness”. The chapter addressed two types of securitization: 1) true-sale securitization, where the portfolio of loans or receivables and its underlying assets are transferred/assigned (“off the balance sheet”) from the originator to a special-purpose vehicle “SPV” (securitization company) to issue bonds to be repaid out of the proceeds collected from the portfolio and its underlying assets; and 2) collateralized bonds, where the originator will issue a bond secured by a segregated portfolio of loans or receivables and its underlying assets. The two types of securitization provide for bankruptcy remoteness to protect bondholders. Article (41 bis 2) of the Law stated that “funds, documents, securities and commercial papers (constituting the portfolio) deposited with the custodian are owned by the bondholders and will not be included in the property of the securitization company in the guaranty for general creditors of the originator or the securitization company”. The main difference between these two types of securitization is the recourse of bondholders in case of insufficient proceeds from the portfolio to repay bondholders’ principal and interest amounts. In a true-sale securitization, the portfolio, its underlying assets and credit enhancements, if any, will be the sole source of repayment to bondholders (there is no recourse on the issuer nor the originator). In a collateralized bond, the originator who is the issuer of the bond will remain liable for any deficit in the proceeds from the portfolio. Following the amendment to the CML in 2004, a new chapter was added to the executive regulations in November 2004 including 14 articles (official copy attached) related to:

• Incorporation and license of a securitization company; • Restriction on shareholding in a securitization company; • Registration of issuance of a securitization bonds; • Prospectus for public offering of securitization bonds; • The case of insufficient subscription in the offered bonds; • Restriction on issuance of other bonds by the securitization company; • Assignment of portfolio; • Depositing the documents supporting the portfolio with a custodian; • Collection of proceeds from the portfolio, depositing proceeds with the

custodian and using proceeds in repayment to bondholders; • Role of custodian;

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• Continuous disclosure and filings; • Records maintained by custodian; and • Issuance of securitized bonds.

In December 2005, the first securitization bond of LE 140 million of a car loans portfolio was offered to the public, and issued in January 2006 by Contact Securitization Company.

This first issue of a securitized bond in Egypt revealed two obstacles in the executive regulations to the CML. First; the high minimum capital requirement of LE 5 million for incorporation of a securitization company, together with a restriction of 20% on the maximum shareholding of an originator and related parties in a securitization company. This obstacle made the securitization process not cost-effective and did not encourage companies to go through this process, especially where the sole beneficiary of the securitization is the originator who has no interest in seeking or partnering with other independent shareholders with a 80% stake in the securitization company. In April 2006, the CMA, with EFS assistance, amended the regulations (official copy attached) to give the CMA Board of Directors the power to exempt the requirement of the 20% maximum on originator shareholding in the SPV. This power was first exercised to exempt Contact Car Trading and enable it to become the majority shareholder in Contact Securitization.

Second, the restriction preventing securitization companies from issuing more than one bond without the approval of the CMA Board of Directors, impaired the efficiency of securitization (given the LE 5 million minimum capital of an SPV). In November 2006, EFS assisted the CMA develop a set of rules (attached) to allow a securitization company to issue more than one bond using legally and financially segregated portfolios with measures for preventing commingling of funds and full disclosure to protect bondholders. The new rules allowed the SPV Contact Securitization to issue a second bond in January 2007 for LE 159 million, and to apply to the CMA in November 2007 for a third bond issue of LE 225 million.

In addition to the three bond issued by Contact, the Egyptian Arab Land Bank tested the collateralized bond by issuing two bond issues for a total of LE 1.2 billion. Recently, four housing companies have announced their plan to securitize, in early 2008, their portfolios of installment sale receivables of around LE 1.8 billion.

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While all securitizations done so far were assets-backed securities (ABS), the CMA and Mortgage Finance Authority (MFA) are working on standardizing mortgage loans documentation in anticipation of mortgage-backed securities, as mortgage lenders are currently building their portfolios and will look to the capital market for long-term funding of their mortgage lending business. In September 2007, the MFA formed a working group of MFA, Egypt Mortgage Refinance Company (EMRC), mortgage finance companies, and the EFS project, to standardize loan files documentation in preparation for securitization: a first set of standardized documents has been prepared. In parallel, the CMA is finalizing its MBS rules including recognition of MFA-standardized documentation as a requirement for securitization. Conclusion The current legal framework for securitization in Egypt (including the CML, executive regulations and CMA rules) addresses the issues relating to the anticipated secondary mortgage market, and now provides adequate legal foundation to enable the secondary mortgage market to develop.

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Technical Assistance for Policy Reform II BearingPoint, Inc,

8 El Sad El Aali Street, 18th Floor, Dokki, Giza

Egypt Country Code: 12311

Phone: +2 02 3335 5507 Fax: +2 02 3337 7684

Web address: www.usaideconomic.org.eg

http://www.usaideconomic.org.eg/

dsp ii financial sector benchmarks implementation

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