The political party of Egypt’s Muslim Brotherhood, which has the biggest bloc in parliament, is proposing changes to the banking law with the goal of boosting the market share of Islamic banks to 35 percent in five years from 5 percent now, a party member said.
Ahmed al-Najjar, a member of the Freedom and Justice Party’s economic committee, told Reuters that the proposals envisaged a new Islamic banking section being added to the law, which now has no specific regulations covering Islamic banks.
Draft amendments to the law have been presented to parliament but no date has been set to discuss them, he said.
Bankers say last year’s revolt which toppled President Hosni Mubarak, whose regime neglected or discouraged Islamic finance for ideological reasons, has cleared the way for growth of Islamic finance in the Arab world’s most populous nation.
They say the business needs a regulatory framework before it can grow but that the nation of 82 million people, who are overwhelmingly Muslim, offers an attractive market. Islamic finance obeys religious principles such as bans on the payment of interest and pure monetary speculation.
According to a copy of the proposals obtained by Reuters, each Islamic bank would be required “to form an independent sharia (Islamic law) authority” with no less than three sharia experts who were registered with the central bank. Each expert would be allowed to serve with a maximum of two banks in Egypt. These sharia boards would supervise the banks’ activities.
Islamic banks would be requested to create sharia-compliant instruments and a money market for surplus cash, according to the draft amendments.
One article states that Islamic banks must “insure customer deposits according to takaful Islamic insurance while not violating Islamic sharia rules”.
The proposals also outline steps which conventional banks would need to take in order to open Islamic banking windows, keeping those accounts separate from their conventional accounts.
More than two decades ago, Egypt was a pioneer in Islamic finance, before development was slowed by a scandal over money management firms that touted Islamic investments at returns above prevailing interest rates.
Egypt now has 14 Islamic banking licenses. Operators include three full-fledged Islamic banks, such as Faisal Islamic Bank of Egypt, and several with Islamic windows, including National Bank of Egypt and Ahli United Bank, part of Bahrain’s Ahli United Bank group, experts say.
The roughly 200 branches and 120 billion Egyptian pounds ($19.9 billion) of assets in Egypt’s Islamic banking industry are dwarfed by Egypt’s conventional banks. Total assets of the entire banking sector are about 1.3 trillion pounds, the latest central bank data show.
By comparison, Islamic banks account for over a quarter of assets in the Gulf’s commercial banking market, according to an estimate by consultants Ernst & Young.