It is widely known that Egypt’s path out of its post-revolution economic crisis lies in attracting foreign investment to develop its infrastructure and launch key projects, to lighten government’s financial burden and reduce the country’s deficit. So far, Egypt has received funding from neighboring Gulf states and has signed an agreement with the IMF for $12 billion in exchange for severe economic reforms. Islamic financing, as a supplement to existing investment, creates long-term credit facilities to spur growth. Inherent to Islamic finance is the belief that money should never be utilized in the presence of gharar (unnecessary, hazardous risk). This quality differentiates it as an investment tool, because it concertizes the aspirations of the funds’ recipients and minimizes the potential for waste and mismanagement.
As such, Egypt continues to pursue Islamic finance agreements as a means of supporting investment initiatives and increasing the participation of the private sector in government led projects. Last week, Khaled Aboudi, the CEO of the Islamic Corporation for the Development of the Private Sector (ICD) signed a Memorandum of Understanding with Sahar Nasr, the Minister of Investment and International Cooperation to aid in the completion of state infrastructure projects. An additional $10 million was gained through an agreement with Bandar Hajar, from the Islamic Development Bank (IDB) to finance the eradication of bird flu in Egypt. Egypt remains an attractive investment destination for Islamic banks, who continue to direct millions in foreign currency towards the country without demanding strict conditions. The Abu Dhabi Islamic Bank (ADIB) alone, has implemented 16 billion EGP worth of deals since 2012.
Islamic banks do not support the Egyptian economy through investment alone. Recently, the ADIB allowed individuals to open bank accounts free of administrative fees during Financial Inclusion Week. More than half of the ADIB’s branches are located outside the primary metropolitan areas of Cairo and Alexandria. The overall approach is a sustainable growth model that incorporates the participation of all segments of society; private and public, wealthy investors and disadvantaged groups.
However, the Islamic banking and finance sector faces difficulties in Egypt as well. Last year Islamic funds’ assets were valued at 1.11 billion EGP. This year, that asset value declined by 3.98% during the first quarter to reach 1.074 billion EGP. Fortunately, this decline is not confined to Islamic banks alone; but is the result of several CBE decisions that have limited the size of money market funds. Furthermore, this decline has occurred for the second subsequent year, and has not affected the eagerness of Islamic banks to invest in Egypt. A reversal of the CBE’s policy might re-ignite asset growth; or banks will develop alternative methods to circumvent the negative externalities caused by that policy. Regardless, Egypt will be able to depend on a steady flow of Islamic financing investment for the next few years.