Cairo: The Islamic Finance industry in Egypt seems to have bright future in the country as the new government led by an Islamist, President Mohamed Morsi, has been taking keen interest to promote Islamic finance since it has taken the public office.
The world’s first Islamic bank was opened in Egypt in 1963 by Ahmed El Naggar and it seemed that Egypt would lead the world in Islamic Finance but it could not happen. Absence of tight regulations or laws have left Egypt far behind from other countries having rapidly growing Islamic finance industry.
However, since the Egypt's first Islamist President, Mohammed Morsi, has taken the helm of affairs, the country's Islamic finance fortunes are beginning to look up.
Morsi’s party, Muslim Brotherhood, is keen to enhance the market share of Islamic banks to 35 percent in next five years from 5 percent now. It is also willing to add an Islamic banking section to the country's banking law, which currently has no specific regulations covering the sector.
According to the analysts, the draft amendments, although delayed by the dissolution of parliament, hint at an opportunity to expedite the pace of Islamic finance development in Egypt.
The Executive Director of Metropolitan, Shahinaz Rashad, said, “The Arab Spring opened the door to Egypt's re-entry into Islamic finance in the coming six months and the pace is going to be quicker with Islamists in power.” Metropolitan is a financial consultancy firm that has also worked on carrying out Shariah-compliant transactions.
She said, “Islamic finance could be one alternative to hugely unpopular taxes and cuts in government spending to reduce budget and balance of payments deficits inflated by a year of political and economic turmoil.”
The Egyptian government announced in February that it was preparing to raise $2 billion through its first issue of Sukuk to help to plug the deficit gap, which is equivalent to 8.8 percent of GDP. Soon after this, the country's regulator said that it was finalizing regulations that would allow local companies to issue sukuk, a much-awaited move expected to boost market liquidity.
The new Egyptian government also signed an agreement this month with the Islamic Development Bank, based in Saudi Arabia, which will provide $1 billion to finance energy and food imports.
Rashad said, “The finance, which is part of a previously announced agreement to provide Egypt with $2.5 billion, signals that Egypt must operate some of its financing in a Sharia-compliant manner.”
An investment banker based in New York and the Chief Executive of Codexa, Douglas Johnson, stated, “There is no accepted benchmark for the sukuk business in Egypt …so for a company in Egypt to issue a sukuk instrument and be in a position to have an investment grade instrument is pointless because nobody would buy it.”
“The next government in Egypt is going to have to prioritize getting the economy back to shape before restructuring and, to be brutally frank, Islamic finance probably has to stand in line,” he concluded.