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A new chance in Egypt for Islamic finance
Islamist influence seen promoting Islamic finance; Seen growing to draw Gulf funds for rebuilding; Egyptians wary of past corruption scandals
April 23, 2011 8:00 by Reuters
“Egypt is a religiously sensitive country. There are a number of families and small savers who wouldn’t want to use the conventional system,” he said. “If there’s a movement towards interest-free banking, that would draw deposits.”
Grassroots support is already emerging among conservative Muslims. Manal al-Moursi, another bank customer at Al Baraka Egypt Bank, said Egyptians are turning to Islamic finance, in part, to show their support for the Muslim Brotherhood.
The Muslim Brotherhood, founded in 1928, was long persecuted as the main challenger to the ruling National Democratic Party in parliament and was one of the most vocal protesters during the demonstrations that toppled Mubarak on Feb. 11.
With the dissolution of the NDP and growing acceptance of the Muslim Brotherhood in mainstream politics, experts say Islamists will have increasing influence in the new Egypt and Islamic finance will serve as one way to propagate Islamic values and gain supporters.
“The Muslim Brotherhood are for Islamic finance because it is related to religion,” said Mohasseb Refaat, deputy manager at Bank of Alexandria. “They will promote the idea so long as it is in their benefit.”
Refaat said the industry is likely to gain more footing in Egypt if the Brotherhood secures a significant number of seats in the 508-member parliament in September. One leading Brotherhood figure said the group could field candidates for as many as 49 percent of the seats.
Even secularists calling for less religion in society may make a pre-emptive attempt to promote Islamic finance ahead of elections to reach a wider group of constituents.
“Secularists will see supporting Islamic finance as a way of stealing the thunder of the Islamists by giving people an outlet to express their religiosity,” Warde said. “We’ve seen that strategy in other markets such as Iraq and North America. Even groups that were opposed to political Islam looked to Islamic finance as a way of preventing extremism.”
Britain and France, for example, have changed regulations to accomodate Islamic transactions. And Malaysia, with its thriving dual system of conventional and Islamic finance, has been the biggest success story in the industry, serving as a model for new markets looking to offer Islamic products.
Decades of lost growth, however, have left Egypt lacking proper financial regulation to accommodate Islamic financial instruments such as Islamic bonds, or sukuk.
The head of the Egyptian Financial Supervisory Authority (EFSA) said last year Egypt would issue its first regulations governing sukuk in the second half of 2010 and later delayed further to the first quarter of 2011. That deadline has passed as well as the government restructures and plans now appear in limbo.
Experts say the government will need to issue debt guidelines for sukuk issuance and remove tax barriers that make Islamic transactions commercially unviable in order to draw foreign investment from oil-rich Gulf countries.
And the revolution may spell a willingness among Egyptians to embrace alternatives, particularly if they can derive benefit from it for some of the social ills that sparked the protests.
Under the Mubarak regime, critics said the rich benefited from lending and other business opportunities while the poor were plagued by unemployment and low wages. Malik said Islamic finance with its focus on interest-free financing and ethical investments would appeal to the common man.
“I think the revolution gave a good push for Islamic finance to become the banking alternative in Egypt.”
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