Egypt is betting on the potential of Islamic finance

Islamic finance and Islamic banks have been growing exponentially around the world in recent years, spreading to more than 75 countries. With a growth rate of between 15% and 20% at present, the sector is seeking to continue to expand through its promotion. To this end, they are increasingly trying to reach out to the global society through communication plans that teach the principles by which they are governed and demonstrating their benefits compared to traditional banking.

The first bank that followed the current principles of Islamic banking was founded in Egypt in 1967 through the Mit Ghamr Savings Bank. With its foundation, Mit Ghamr became the first financial institution to be governed by the Shariah in its financial transactions.

Unlike traditional banking, such banks do not make profits through interest rates as this type of tool is forbidden in Islamic precepts as "immoral". 

However, this is not the only aspect that differs from Islamic banking. For this reason, and in order to raise awareness of the current situation of this type of finance, Casa Árabe, in collaboration with the Observatory of Islamic Finance (SCIEF), has organised a webinar focusing on the expansion of Islamic finance in Egypt, a country which, although it was the forerunner of this type of finance, is currently lagging behind the rest of the countries in the region, as it is home to only 2% of the world's total Islamic assets. Under the title "The potential of Islamic finance in Egypt", the webinar was attended by experts in the sector such as Rania Abdelfattah, Mostafa El Eskandarany, Nourhan El Sharkawy, Mohamed Shousha and Abdallah Kenawy, moderated by Professor Fatiha Talahite (CNRS & Paris Nanterre University) and Olivia Orozco.

In this way, the experts discussed relevant issues related to the keys that should be promoted in order to encourage the growth of this financial sector in the country.

For Professor Rania Abdelfattah, "Egypt is one of the most important countries in the financial sector in the region. The sector has undergone reforms and continues to develop very fast with a 12.2% growth rate (...) of the 38 banks operating in the country, 14 offer Islamic banking products". 

Although Egypt, compared to other countries, does not have a large number of Islamic banks, according to Abdelfattah "the Egyptian government is making great efforts to develop the sector" and is offering "many opportunities to invest through Islamic banking in infrastructure, consumption and cooperation".

However, the Finance professor points out that "the number of Islamic banks grew from 2015 onwards offering different alternatives compared to traditional banking" although this "growth has remained slow from 2020 onwards".

Among these alternatives, the expert highlighted the difference in lending and the fact that Islamic banking is characterised by the fact that it is "a public bank". 

According to the Sharia - the law governing this type of entity - it is forbidden to impose interest rates and accept money, as well as to finance projects that go against the values of Islam, such as the alcohol and tobacco markets or non-halal meat industries.

Another major difference is that both banks and customers share financial risk and share in profits and losses so that "the whole community can benefit". Therefore, financial advisor Mustafa El Eskandarany points out that one of the main benefits is "financial inclusion through poverty reduction with this type of initiative". 

He points out that today, "millions of people prefer to engage in Shariah-compliant finance" as they also "collaborate with development institutions, support equality and invest in public projects".

Nourhan El Sharkawy, Deputy Director of Corporate Finance, points out that Islamic banks represent a "good opportunity for economic growth" because of the options they offer so that each customer can "customise projects for each need".

Among them, he highlights "microfinance projects, which are in high demand, especially among women, as well as plans that take into account short and long-term needs".

El Sharkawy also believes that another sector in which investments are being made is "in agriculture, one of the main economic sectors in Egypt".

On the other hand, for financial advisor Mohamed Shouha, "Islamic finance is a good value for the economy" and is currently "gaining ground" because "Islamic finance is a very good opportunity to realise big projects for development". 

Another of the characteristics that differentiate Islamic banking from traditional banking is that part of the profits made are distributed to social and public works, following the precepts of "achieving benefits for the whole community", in addition to promoting "new developers who need money in the New Administrative Capital (NA) and urbanisation projects".

He also claims that there are currently "changes in the management of Islamic finance" due to a greater "increase in Islamic brands themselves" as well as in "profit trading".

In addition, he asserts that it is necessary to make up for the lack of Islamic banks in Egypt by "covering with new financial institutions the new places that are being built in the country".

In this sense, and in accordance with the current situation, Abdelfattah concludes that "Islamic finance could see further growth in Egypt provided that decisive steps are taken by the different parties to respond to the current challenges".

One of the main challenges is that "the demand for Islamic finance instruments is relatively low". To fill this gap, she proposes that "Islamic banks should improve the quality of the services and products they offer to consumers" by making "major marketing efforts aimed at eliminating/reducing the strong negative consumer perception of Islamic finance".

Furthermore, "education and communication of these types of projects play a key role in the growth of the industry" and "consumers and institutions alike should be educated on the real differences between conventional and Islamic finance instruments".

Along these lines, all the experts invited to the panel agreed that Islamic finance in "the Egyptian market is not yet mature, although we are on the way".

"There are many industries that can benefit, such as agriculture and trade. In this way, they insist that "communication" and publicity are key to ensuring that Islamic entities are established in the same way as conventional ones, so that "the whole community can benefit".