Egyptian businesses are pressuring the government to backpedal on a new law regulating checks, according to Business Monthly magazine.
Government officials had hoped that a year would be sufficient to phase out non-bank checks and post-dated checks, which were both made illegal under the revised Commercial Law passed in July 1999.
But after intense lobbying by several prominent business associations, President Hosni Mubarak has extended the grace period - during which consumers and retailers are to stop using non-bank and post-dated checks - by another year.
The check law drew fire from representatives of the retail sector in particular. "It's a big problem. It will make us lose a big portion of the people we deal with," Ali Fahmi Tolb1a, chairman of the high-tech consortium Delta Group, said when the draft law first appeared. "We don't want small consumers to lose the chance of buying on credit."
Mamdouh Thabet Mekky, a lawmaker from the ruling National Democratic Party, said that postponing the implementation of the new check legislation "saved the Egyptian market from an economic crisis. He argued that implementing the new law on schedule "would have immediately paralyzed trade."
The new Commercial Law, the longest law ever passed in the history of the People's Assembly, contains 772 articles on an array of trade-related issues, from customs duties to intellectual property rights.
According to Abdallah Tayel, head of the parliamentary Economic Committee, "the Assembly rewrote legislation that was written 114 years ago to ensure consistency with the economic reform process that Egypt is currently undergoing."
But the current law fails to define exactly what a check is and consumers in the middle- and lower-income segments of the economy have come to rely on financial instruments that would never be accepted as checks in most countries. In Egypt, the term "check" is commonly taken to refer to a "grocer's check," a printed form that can be bought at most stationary stores and that broadly resemble bank checks.
Despite their official appearance, these forms are neither issued nor guaranteed by a bank and eventually the consumer pays them off when funds are available. The widespread use of non-bank checks first began in the early 1980s, according to Amal Rashad, assistant general manager of the Export Development Bank of Egypt. At that time, she said, the government wanted to make it easier for people to establish credit, in line with the prevalent infitah (Open Door) economic policy.
Under the new law, anyone caught using non-bank checks will face a fine or a jail term. For a check to be legally acceptable under the new system, it must be issued by a bank and covered by an account there. In addition, the word "check," the bank's name, the account holder's name and the signatory's name must all be clearly printed on the document. Without a bank's guarantee, a check is not simply a method of payment but actually an instrument for taking credit, generally without offering any security.
"Millions who have no collateral sign checks to secure purchases they make on credit," explains Barclay's Bank clearing and bills manager Abdel-Moneim Khalaf.
Post-dated checks have also been used by businessmen to secure or underwrite bank loans to associates who may not have the funds to cover the debt. This practice, though acceptable financially, leaves the door open to default or fraud, Abdel Motaal said.
Given the current shortage of cash in the local economy, he added, many businessmen have reverted to the old practice of issuing "favor" checks to fellow businessmen, who then use them as security for loans. "This practice is, in effect, fraudulent," he explained, "and will have serious repercussions in the wake of the liquidity crisis." – (Albawaba-MEBG)
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