Entries in English and Malay (Bahasa Melayu)

Saturday, 21 July 2012

Egypt: Shariah-friendly banking boost

With President Mohamed Mursi, a former member of the Muslim Brotherhood, in office, Islamic banking is expected to grow rapidly and acquire a larger market share, competing with its conventional counterpart.

Islamic banking refers to a financial system that is consistent with the principles of Islamic Sharia law, which prohibits interest through lending, gambling and investing in businesses that are related to goods or services considered against Islamic principles, like alcohol and tobacco.
However, experts believe that there is a number of obstacles that might stand in the way of expanding an Islamic-law compliant financial system.

Among these obstacles, according to Rashad Abdu, a financial expert, is a conflict between Sharia law and the Egyptian law under which banks operate based on interest. "This is not compliant with Sharia which is based on profit sharing," he explained.

Another problem Islamic banks face, according to Abdu, is that they follow the rules and regulations of the Central Bank of Egypt (CBE), which forces banks to issue treasury bonds with interest. Besides, he added, present banking law, issued in 2003, doesn't have any provisions to regulate the work of Islamic banking.

Islamic finance offers an alternative to interest: sukuk, an Islamic bond that is not interest bearing. Sukuk gives the investor a share of an asset and commensurate cash flow and risk.
A further challenge is that there are no professional certificates in Islamic finance. "The problem here is the lack of the proper specialty. These managers have to know everything about Islamic economy."

Islamic finance, Abdu added, suffers from the absence of a model Islamic bank. "Some banks claim they are Islamic, but they don't apply some of the principles of Sharia," he noted, adding that some just make interest rates lower than in conventional counterparts, claiming that this is Islamic.

"There should be an awareness campaign for the public to inform them about the Islamic finance system," Abdu said, adding that conventional banks that have Islamic finance branches might use the money deposited in activities and investments that are not consistent with Sharia law.

Former director of research at Abu Dhabi Bank, Ahmed Adam, identified another problem that faces Islamic banks. "These banks find difficulties in dealing with the private sector as a client because companies have to do an annual estimated budget that cannot be done if they are not sure of the interest rate of their deposit in Islamic banks," he said, adding that commercial banks offer additional interest rates to companies, unlike Islamic ones.

However, Adam pointed out that an Islamist presidency and an expected Islamist majority in the coming parliament means that the Islamic banking sector is set for a boost, because many people are interested in dealing with Islamic banks.

The recently dissolved parliament, led by the Freedom and Justice Party of the Muslim Brotherhood, was planning to introduce new legislation especially drafted for Islamic finance. The legislation had not been approved before the parliament was dissolved.

Realising the potential of the Islamic finance sector, many conventional banks have applied to the Central Bank of Egypt (CBE) for licences to open Islamic finance branches. According to the CBE, about 15 licences have been issued. The current number of such branches across the country is 211, out of a total of 2,360 branches practising conventional banking. There are only three fully-fledged Islamic banks operating in Egypt. Although the first Islamic bank was established in 1963, the Islamic banking trend remained on the sidelines.

Islamic banking has started to receive a positive reputation worldwide after the economic recession of 2008, when the world discovered that economies that survived the crisis -- like Malaysia -- applied the principles of Islamic finance.

The Egyptian Association for Islamic Finance issued a report recently showing that Islamic finance, by the end of March 2012, represents 7.3 per cent of the total volume of the banking market, with LE94 billion compared to LE1.3 trillion.

According to the report, Islamic banking transactions are expected to grow from 10 to 15 per cent annually due to increasing demand for Islamic finance.

(Al-Ahram / 21 July 2012)

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Bank Muamalat (Malaysia) Inks MOU with Bank of Shi Zui Shan (China) to Develop Islamic Banking

KUALA LUMPUR: Bank Muamalat Malaysia Bhd and Bank of Shi Zui Shan (China) today signed a Memorandum of Understanding (MoU) for a partnership to develop Islamic banking in Yinchuan, China.
Bank Mualamat Chief Executive Officer Datuk Mohd Redza Shah Abdul Wahid said following the collaboration, the group hoped to work together with Shi Zui Shan Bank, and set up an Islamic bank in China over the next two years.
He said for a start, the group will share its expertise and conduct training on Islamic banking.
"In this partnership, Bank Muamalat and Bank of Shi Zui Shan have agreed to develop Islamic banking training and commence with the setting up of Islamic banking counter in Shi Zui Shan bank."
He was speaking after the signing of the MoU, witnessed by Deputy Minister of FinanceDatuk Donald Lim.
Mohd Redza Shah said the group will set up a window in 23 of Shi Zui Shan's bank branches in the province within the next 12 months.
"With the setting up of these Islamic banking counters, it will allow us to gauge and test the response to Islamic banking in Ningxia, based on the plan to set up an Islamic bank in China," he added.
Meanwhile, Lim said the collaboration is in line with the government's continuous efforts to encourage Islamic banking.
He said Bank Mualamat has agreed to train five staff of Bank of Shi Zui Shan and the training fees would be borne by Bank Muamalat.
He added that Bank Muamalat will also provide consultation services to Bank of Shi Zui Shan in the development process.
He said China has a Muslim population of over 30 million and most live in Ningxia, a city in Yinchuan.
There is a huge potential market there and I hope both parties will take advantage of it to achieve their common goal," he added. - BERNAMA

Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook


Alfalah Consulting is NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be from Alfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is If you've received an email from, that's NOT from us. Be cautious!