(The author is a Reuters Breakingviews columnist. The
opinions expressed are her own)
By Una Galani
CAIRO, Nov 8 (Reuters Breakingviews) - Egypt may struggle to
meet its Islamic finance targets. The new Muslim Brotherhood
government aims to boost the sharia-compliant share of total
banking assets from 5 to 35 percent within five years. The
potential is undoubtedly big. Egypt is predominantly Muslim and
only 10 percent of the 80 million people have bank accounts. But
the rise of Islamic finance in Egypt might be slow.
Hosni Mubarak, the long-time former president, didn’t hold
back Islamic finance, although he didn’t encourage it either.
However the nascent sector was badly tarnished in the 1990s by a
series of investment scams. Demand was also restrained by a 1989
declaration from a top Egyptian scholar and preacher that some
forms of financial interest on deposits were permissible to
Muslims. Out of Egypt’s more than 30 banks, only three are
full-fledged Islamic institutions.
The government can gain from developing Islamic finance. New
regulatory structures will allow it to tap a new pool of capital
by issuing sukuk, or Islamic bonds. Still, the Brotherhood’s
ambition to grow Islamic banking seems to be mostly driven by
ideology. In a country with so many pressing economic needs and
where the banking sector is in good shape, it seems an odd thing
In any case, the goal looks ambitious. The uptake of Islamic
banking has been gradual in other countries where it co-exists
with conventional finance. Islamic banking assets account for an
average of 25 percent of the total in the Gulf region, according
to Ernst and Young. The International Monetary Fund says it took
Malaysia, now the world’s biggest market for Islamic bonds, six
years and a relaxation of its foreign ownership rules to almost
double its Islamic finance share to 22 percent.
The only way to give Islamic finance a big boost in Egypt
would be to issue new banking licences and offer tax incentives
to institutions managing Islamic funds. For a weak government in
need of more revenue, that hardly sounds like the way to go. The
Brotherhood would be better off spending its limited political
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS:
- Egypt’s Muslim Brotherhood aims to boost the market share
of Islamic banks in the country from 5 to 35 percent within five
years, according to officials from the movement’s ruling Freedom
and Justice Party (FJP). They say that they intend to do this by
increasing the size of the banking sector and not by penalising
- The government is preparing to issue its first Islamic
sovereign bond by the end of the year, according to a person
familiar with the situation.
- The FJP presented parliament with draft amendments to the
country’s central bank law to include a new section on Islamic
banking before the assembly was abruptly dissolved in June 2012.
- Egypt has three fully fledged Islamic banks, Al Baraka
Egypt bank, Faisal Islamic Bank of Egypt, and National Bank for
Development. Fourteen banks in total have licences to operate
Islamic banking services.
- Global Islamic banking assets will cross $1.1 trillion in
2012, according to a study by Ernst and Young.
- For previous columns by the author, Reuters customers can
click on [GALANI/]
(Editing by Pierre Briançon and Katrina Hamlin)
Keywords: BREAKINGVIEWS EGYPT ISLAMIC FINANCE
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