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Egypt’s Muslim Brothers And The Right Debt

At a press conference yesterday, Egypt’s bewildered minister of finance, El Morsi El Sayed Hegazy, struggled to compose himself in front of reporters.

The newcomer forgot his predecessor’s name and called the former finance minister Mumtaz Al Sagh instead of Mumtaz Al Saeed.

He also looked worriedly at his Freedom and Justice Party colleagues for reassurance and had to be handed documents detailing the few basic figures on Qatar’s loans to Egypt before he spoke.

The outcome of Hegazy’s confused and anaemic performance was a claim that the new law for Islamic bonds, or Sukuk, is expected to generate $10 billion for the Egyptian government.

A significant sum considering the law for regulating sukuk issuance in Egypt has been talked about for at least two years.

The move to implement one now has gathered momentum after the strong emergence of the Muslim Brotherhood following Egypt’s uprising in 2011, but progress has been slow.

Just last week,  Egypt’s cabinet finally approved a draft law to allow sovereign Islamic bonds as the government searches for new ways to finance an unsustainable budget deficit.

However, for the Muslim Brothers to push for debt, Islamic or not, is a concern for the country’s main religious authority, Al-Azhar.

As Maggie Hyde, at Egypt Independent wrote:

Adopting the Islamic banking law in Egypt has drawn significant scrutiny from civil society and religious figures — an indication of the struggle over Sharia-based laws in the future.  One of the main concerns is that putting the Islamic label on this sort of financing is merely cosmetic, a way to lure investors into a less than attractive market.

Members of Al-Azhar’s Islamic Research Academy rejected the Finance Ministry-backed bill, saying it “violates Islamic Sharia and endangers the state’s sovereignty”: 

The bill would allow foreigners to own sukuk, as well as shares in local factories and businesses, Al Azhar academy member and former Grand Mufti Nasr Farid Wasel told Al-Masry Al-Youm.
“It is like we are selling our properties to foreigners,” he said.

It is a further test of how Egypt’s Islamist government will reconcile religious beliefs with a modern economic framework. The Morsi administration has already faced this dilemma with the IMF loan, as they sought to convince conservatives that the contentious loan was Sharia-compliant.  The IMF distanced itself from this notion, saying instead that the interest rate on the loan is very favourable compared to other forms of financing.

But amid all the confusion during this messy political transition, a push toward tapping Islamic bonds for financing signals that the Brotherhood are promoting the very element of finance that Islamists usually reject – debt.

For the Islamists, this is the right kind of debt. However, they are mistaken on how much it will cost them.

In fact, in Egypt’s case, it will be cheaper to opt for conventional financing rather than sukuk.  To give one example, Egypt will borrow from the International Monetary Fund at about half the rate Qatar paid for sukuk in July.

Perhaps the nervous new finance minister should concentrate on practicing his public speaking before proposing Islamic finance as a credible way out of Egypt’s economic crisis.



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