Many Egyptians are now buying basic necessities on credit. They no longer have cash to buy items such as rice, oil, meat or even medicine; instead, they borrow money to do so.
Debt logbook is a deferred payment system that is becoming widespread in Egypt, especially in the south, where it is one of the most popular instalment systems. Under this system, people get food items, meat, medicine and clothes, and pay for them at the end of each month.
The Egyptians have expanded the items that can be bought on credit, to the point that some are paying for their Eid sacrifices and religious rituals such as Hajj, buying bridal jewellery and other such things on a buy now, pay later basis. The extremely high prices in Egypt, with insane price rises, force retailers and wholesalers to adopt this method with the aim of increasing their sales and breaking the recession cycle.
At the end of each month, and as soon as he opens his grocery store, Abu Ahmed gets the logbook out, to calculate the total value of all goods purchased throughout the month, and the accumulated amount to be paid by each one of his customers. He told me that a group of employees and regular customers get their food from his store without paying until they receive their monthly salaries or pensions at the end of every month. This is now a common practice based on trust and prior acquaintance as a guarantee that he will get paid.
A significant number of Egyptians receive low salaries and pensions, ranging from $50 to $100 per month. This restricts their ability to use cash daily and pushes them to resort extensively to financing systems to live reasonably, albeit while burdened with debt and instalment payments.
A strange announcement was made last month by the workers’ union at Al-Ahram Foundation. Employees were told that the foundation had contracted a butcher’s shop to provide them with meat at the price of 350 Egyptian pounds per kilo ($7.20), provided that 100 pounds (about two dollars) is given as a down payment for the purchase, and the rest is paid over four monthly instalments. Customers have to show photo ID. This was ridiculed and criticised widely on social media.
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Tariq Al-Sayed is a butcher, and he said that there are customers who buy their meat from him using a monthly payment system. Others, however, may have higher debt, and they pay when the harvest season is over, if they are farmers for example, which is a common thing in villages, especially in Upper Egypt in the south.
As a result of the fifth flotation of the local currency against the dollar announced in March, poverty has become even more of a problem. The poverty rate in Egypt was at 32.5 per cent in 2022, up from 29.7 per cent in the fiscal year 2019-2020, according to the World Bank. It hasn’t got any better over the past two years.
The current exchange rate is 48 pounds to the US dollar. Purchasing power has collapsed, and people are no longer able to pay for even their basic needs.
The debt logbook system is also used in small pharmacies in poor neighbourhoods around Cairo, especially by those with chronic diseases, who require regular medication even if their monthly income is not enough to meet such a need.
According to Amr Mohamed, the owner of a pharmacy in the Giza neighbourhood of the capital, he has customers who suffer from chronic illnesses such as heart disease, diabetes and cancer. Their monthly prescriptions are very expensive, so they pay by instalments. His only proviso is that their total debts do not exceed three thousand pounds ($62.50). He has had to stop issuing prescriptions for some of his customers until they pay everything that is owed.
Living on instalment payments is no longer limited to the sick and the poor. It has also affected other groups and classes of society whose salaries do not keep pace with inflation and whose purchasing power has thus declined. Many were obliged to pay for their Eid sacrifices in instalments. Last month, charitable organisations advertised that they would slaughter sacrificial animals in exchange for cheques of 10,000 pounds ($208) to be paid over 12 months. Moreover, government banks, in cooperation with some popular stores, allowed their customers to pay for Eid cakes and sweets over 12 months without interest.
Credit is even being used to perform Hajj, the pilgrimage to Makkah which has to be performed at least once in a person’s lifetime if they can afford to go. This latter condition is being ignored, and some Egyptians are paying 30 per cent of the cost in advance, with the balance paid over three years and an interest rate of up to 15 per cent attached, according to reports in local newspapers. Interest is forbidden in Islam, and if you don’t have the money to go, Hajj is not incumbent upon you, and yet this riba-based system is being used by some pilgrims.
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The Bank of Egypt is currently providing loans to cover education fees for an entire academic stage. The maximum loan is 500,000 pounds (over $10,000) over a period of up to 84 months, provided that the borrower’s employer can transfer the monthly instalments to pay off the debt.
Loans are also used to buy furniture, electrical appliances, cars, residential units and gold jewellery for brides, as well as instalments to cover building and construction costs for contractors who offer the instalment system.
From food to medicine, and from education to construction, Egyptians are increasingly turning to instalment systems. Even non-essentials such as holidays are being made possible by instalment payment systems.
Financial expert Muhammad Omar told me that food accounts for the largest proportion of consumer spending, followed by telephones and electronic devices. There is an increasing number of financing companies, and more people are ordering online. This trend has been supported by intensive advertising campaigns that play on people’s emotions, thus raising the amount of spending and creating an illusion of strong purchasing power.
Last year, consumer financing in Egypt witnessed an increase of 60 per cent, with a total value of 47.3 billion pounds (about $980 million) compared with 29.8bn pounds (about $625m) in 2022, according to official data issued by the Financial Regulatory Authority (EFSA).
Consumer financing activities benefited 3.128 million customers who obtained financing worth 43.3bn pounds ($896m) by the end of last November, with a growth rate of 22.8 per cent in the number of customers and 61.4 per cent in the value of financing.
Purchases through the instalment system jumped by about 100 per cent during 2020 and 2021, under the influence of the economic crises that hit Egypt, the high rates of inflation, and the collapse of the local currency. All of this has been during the rule of President Abdel Fattah Al-Sisi, who assumed power in June 2014.
There are more risks stemming from the increasing possibility of customers defaulting on repayments. More and more Egyptians are being imprisoned for unpaid debts; more people are signing blank trust receipts or cheques as a guarantee for shop owners that they will be paid, in exchange for customers getting whatever electrical appliances or other items they want.
Financial analyst Mustafa Al-Masry told me that estimates indicate that at least 60 per cent of people with loans are unable to pay them back. This raises the number of default cases at banks and finance companies and has serious social repercussions. These include marital discord and divorces and broken families because of the imprisonment of the head of the family who is unable to repay their loans, or is being pursued by debt collection agencies and prosecuted.
According to Al-Masry, it is likely that the collapse of the local currency, the decline in purchasing power and the high rates of inflation that the country is witnessing will cause more people to default on loan repayments. More people may resort to recycling their debt and make temporary payments to avoid late fines, interest and so on, without paying the principal amount of the loan, which means exposing their financial positions. They risk the default of their payments and even bankruptcy.
Over the past year or so, inflation rates in Egypt have reached unprecedented levels, hitting the highest level ever last September, with 38 per cent. On an annual basis to May it had decreased to 28.1 per cent, according to the Egyptian government’s own statistics.
There is no official count of the number of borrowers in Egypt, but charitable foundation Misr Al-Khair revealed earlier that it has helped more than 86,000 borrowers pay their debts since 2010. That’s just one charity.
Default groups, which are widespread across Egypt on Facebook, post tragic incidents of people who have been subjected to default and bankruptcy because of buying electrical appliances, or paying for overly-extravagant weddings, for example. The bitter end of all this credit is usually either a life in debt and the burden of regular instalments or going to prison. Buy now, pay later — maybe. It’s a vicious system that can all too easily spiral out of control.
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