Earlier today we asked: How can a loan from the International Monetary Fund become Sharia-compliant a year after Islamists lobbied heavily against the loan and pushed for alternatives?
One of our readers, Emad Mostaque, strategist at London-based investment bank Religare Noah offered this useful explanation. He emailed Rebel Economy earlier today and distinguished between the Muslim Brotherhood and the ultra-conservative Salafist approach:
There are a few ways to look at this. One is the “severe need” argument put forward by the Nour party wherein the loan would still be “haram”, but permissible as it is better than the alternative (damage to the nation, T-bills at 13%).
The other way, which appears to be the Muslim Brotherhood approach, is for the interest on the loan to be treated as an arrangement “fee”, similar in nature to the arrangement fee on a murabaha transaction. This “fee” would typically have to be fixed over the life of the loan, even if it was late in payment (although some murabaha structures charge penalty “fees” if you’re late in payment and give that to charity).
There are a few other arguments that could be put forward, but these are the most likely (for the record I think the first is better than the second).
All a bit irrelevant at a time when Egypt is issuing conventional bonds and T-bills.
All this is, is a special bond issuance to one purchaser at a vastly lower than normal rate with a payment holiday at the start. The only issue is the political sensitivity around IMF, otherwise it is a bit silly to expect Egypt to be more Islamic than Saudi Arabia, which also issues conventional loans.