Crisis looms between Egypt’s central bank, parliament over Islamic banking

The Egyptian central bank’s refusal to issue a license for the establishment of new Islamic banks could incite a crisis between Egypt’s top monetary authority and the pre-dominantly Islamist parliament.

The Egyptian parliament, mostly consisting of members from the Freedom and Justice Party, the political wing of the Muslim Brotherhood, and the Salafi al-Nour party, objected to the Central Bank’s decision on Thursday.

The People’s Assembly, Egypt’s lower house of parliament, announced the parliament’s intention to discuss the possibility of modifying the rules that restrict the establishment of new Islamic banks, said Sami Salama, deputy chairman of the Economic Committee at the Assembly.

The central bank said its decision aims at protecting the banking market in Egypt and added that it will, however, allow already-existing banks to open Islamic banking departments, according to Egyptian newspaper al-Shark al-Awsat.

But the central bank stipulated that those new Islamic banking departments abide by all the rules of Egypt’s monetary authorities.

“As long as those banks will abide by the central bank’s rules and observe a risk-free policy, they can all open Islamic departments, but establishing separate banks for Islamic banking is rejected,” Gamal Negm, deputy governor of the central bank, said in a parliament session.

But banking expert Ahmed Adam says the central bank is committing a grave mistake because it does not realize the importance of establishing new Islamic banks.

“Those Islamic banks will play a major role in boosting the Egyptian economy especially through pumping in new capital,” he said.

Adam explained that Islamic banks, especially international ones that can obtain a license in Egypt, are capable of attracting new investments that can be estimated at one trillion U.S. dollars.

In response to the Central Bank’s approval of establishing Islamic banking departments in existing banks, Adam said that it is not the same.

“The banking system that Islamic banking departments are following are not in line with the rules of Islamic banking.”

Adam suggested that a commission be formed to monitor the work of Islamic banking departments and compare it with fully-fledged Islamic banks.

The establishment of a new Islamic bank was part of the political platform of the Salafi al-Nour party during Egypt’s parliamentary elections. However, the project was postponed owing to the restriction imposed by the central bank as well as the high costs.

(Translated from Arabic by Sonia Farid)