In the recent past, Egypt has faced a myriad of economic challenges, ranging from an economic degradation to the popular uprising in 2011 that led to the establishment of new successive regimes. Apart from the political problems, Egyptians are now faced with personal problems that may in the long-run interfere with its social fabric (Bohn). The marriage institution has adversely suffered as a result of all these turmoil.
Since the 1990s to the late 2000s, the average cost of an Egyptian wedding rose by 25%, and it is estimated that the cost will still continue to increase as time goes. Families falling below the poverty line are considering the effect of the increase since the to-be-married couples can no longer have meaningful weddings. Additionally, even the Egyptians in meaningful employment are feeling the impact of these rising costs. The traditional beliefs in the country suggest that two-thirds of the total marriage costs belong to the groom and family. These costs extend beyond the real wedding to include the couple’s house, jewelry for the bride and even household appliances. The wife is expected to purchase far less expensive elements of décor and furnishings (Bohn).
The personal loan we intend to invent will have strict qualification requirements to make it easier for us minimize instances of default in repayment. Understanding the features of the intended loan is an essential element. First, the loan will be unsecured meaning that the to-be-married couples will not require an asset as collateral to qualify for a loan (Andriotis). Hence, if one defaults in repayment, we would not immediately seize any of their properties. However, we would be able to report such instances to credit bureaus, hire a collection agency, or file a lawsuit against the defaulting couple.
Second, the loans will be given in fixed amounts. The fixed sum will range from $500 to $5,000. The amount given will depend on the credit ratings of the couple. Couples with better credit score will qualify for more money as opposed to those with poor credit score. Third, the loan will have a set fixed interest rate. The fixed interest rate implies that the rate will be locked and will not change during the lifetime of the loan (Andriotis). The couples should also note that the interest rate also relies on their credit scores. Hence, couples with better credit scores will be granted loans at lower interest rates. Finally, the loans will have a set fixed repayment period. The time will range from 12 to 60 months. The monthly loan repayment will be lower if the repayment period is longer. However, deliberations will also take place to determine if the interest rate can be tied to the repayment period. This implies that rules may be set to stipulate that the shorter the repayment period, the lower the interest and vice-versa.
After understanding the features of the loan we intend to give, it is important also to understand the sources of financing. In general, getting the money to finance loans may be a significant hindrance. However, the funding structure is wide and extends beyond the banks and the Non-Governmental Organizations (NGOs). The primary source of financing for the loans will be the NGOs, government and donor grants and soft loans, and the banks.
Since ours will be like microfinance to finance the to-be-married couples, our primary source of financing will be from Non-Governmental Organizations and donor funding. Evidently, many organizations have come up to finance institutions that promote micro financing activities worldwide. We identified NGOs as our primary source of funds. Most of the NGOs provide funding in the form of grants and highly subsidized loans. The highly subsidized loans are often referred to as soft loans (Social Fund for Development). When the money for financing the loans comes in the form of grants that shall not be repaid, it implies that the interest rates for the to-be couples would be small. The soft loans are always provided at interest rates of around 1-4%. Such low-interest rates imply that we will have to charge fair rates that are not deemed exorbitant. If we borrow at an interest rate of 1-4%, the loans will be available at an interest rate of 5-8%. While giving the soft loans at low-interest rates, such NGOs always include strict requirements and conditions for usage of such loans.
Additionally banks also offer an excellent source of funding. In this regard, we refer to multilateral banks such as the World Bank and established local banks. Getting financing from multilateral bank like the World Bank may be a daunting task owing the strict requirements in place. However, working with a local bank to secure financing can be beneficial. Since loans are the primary source of revenue for banks, most banks are always willing to advance credit facilities to potential customers. Established local banks are beneficial since they are more likely to grant loans based on credit history. Moreover, such banks will always provide advice on the necessary procedures required to secure financing for such loans.
Unlike the NGOs, most banks charge slightly higher interest rates. The interest rates in Egypt currently stand at between 8% and 10% (Central Bank of Egypt). Hence, this implies that if we borrow the loans at an interest rate of 8-10% from banks, we will have to give the loans to the people at 11-14%. It will be easier to acquire the financing from a bank that we already have an account. In such a scenario, the bank will have a better understanding of our needs. Most importantly, before committing to borrowing the loan, we have to put proper measures to ensure successful repayment.
Since it is an unsecured loan, the real problem lies in the refund process. Unsecured loans in most instances do not require collateral as security. If the to-be-married couples fail to repay the loan, it will be difficult to repossess any of their properties to recover the loan. The process of recovering such loans always involves lengthy and costly legal proceedings. Hence, to find a guarantee that the couple will pay back, there needs to be measures put in place.
First, it will be a requirement for the couples to find at least two guarantors who have a credit history. The guarantors must pledge that in case the couples default in payment, they will accept liability. The guarantors must be people with high credit records and must have not defaulted in loan repayment in the last ten years. Secondly, since unsecured loans pose greater risks, the interest rates should be raised. In essence, when the interest rates are high, those who will manage to borrow will be in a position to repay the loan. Thirdly, there will be a need for insuring the loans such that in case of default, there will be chances of recovering the loan from the insurer.
Works Cited
Andriotis, A. "Unsecured Loans Are Attractive for People With Good Credit." WSJ. N.p., 9 Oct. 2014. Web. 29 Nov. 2014. <http://online.wsj.com/articles/unsecured-loans-are-attractive-for-people-with-good-credit-1412870054>.
Bohn, L. "Egypt's marriage crisis: Sons and daughters too broke to be married, waiting for adulthood." NBC News. N.p., 8 Dec. 2013. Web. 29 Nov. 2014. <http://www.nbcnews.com/news/other/egypts-marriage-crisis-sons-daughters-too-broke-be-married-waiting-f2D11711756>.
Central Bank of Egypt. "Welcome to Central Bank Of Egypt CBE." Central Bank of Egypt. N.p., 2014. Web. 29 Nov. 2014. <http://www.cbe.org.eg/English/Statistics/Monthly+Average+Interest+Rates+%28Retail%29/>.
Social Fund for Development. "National Impact Survey." Social Fund for Development. N.p., 2008. Web. 29 Nov. 2014. <http://www.sfdegypt.org/c/document_library/get_file?uuid=d11593f0-46b6-49d3-b64d-2eab2c0e6f12&groupId=10136>.
