Debate reopens in Egypt after London endorses Islamic securities

Debate has been renewed about “Islamic securities” following the decision by HM Treasury in London to issue “Sovereign Securities compliant with the Islamic principles in an unprecedented step outside the Islamic world that will bolster London’s position as an Islamic Finance base.” Many people have recalled the battle waged by President Mohamed Morsi when he was in office to pass a law regarding this matter. At the time, Al-Nour Party stood in the way while secularists launched a vicious war of words against the first elected president of Egypt, claiming that it would pose a threat to national security. They accused Morsi of beginning a process to sell the Suez Canal and Sinai through the sukuk (securities) scheme. This, of course, was proven to be a lie.

At the beginning of May 2013, Morsi ratified the Law of Sukuk. The first security was supposed to be issued after August 2013. However, the coup and the fears of those opposed to the scheme hindered the passing and enactment of the law. The Shura Council approved the draft law that organised the issuing of securities for the first time in Egypt after taking into consideration the observations made by the scholars at Al-Azhar University. The cabinet of Prime Minister Hisham Qandil also approved the Islamic Securities Law, although the name was changed to “The Law of Sukuk”, omitting the word “Islamic”. The government during Morsi’s time was preparing to issue the executive bill for the law and to form the committee of Islamic law experts whose responsibility would have been to supervise the process of issuing the securities. Qandil’s government had intended, at the time, to rely on the securities to fund several projects, including the development of the Suez Canal area. It also intended to compensate for the deficit in the budget through the securities scheme.

Under Morsi, the sukuk were highlighted as one of the significant Islamic finance tools that would attract investment funds. The government expected that the scheme would bring to Egypt $10 billion per year. Nevertheless, the post-coup provisional government claimed afterwards that the articles of the law that was ratified by the Qandil government would be a threat to national security, despite the fact that the project was explained in detail to the public. The media onslaught on the project never ceased, noted Rasd News Network, just as happened with the “smart cards” project for the distribution of petroleum projects, the IMF loan, the energy subsidy cards and the Suez Canal development.

Britain as a hub for Islamic Finance

HM Treasury announced that the government has bolstered Britain’s position as a Western hub for Islamic finance after becoming the first country outside the Islamic world to issue sovereign securities. “I hope that the success of this government issuance of securities will encourage the private sector in the United Kingdom,” said George Osborne, the Chancellor of the Exchequer. He added that the securities issue has enabled the treasury to raise £200 million.

A coup version of the sukuk project

The head of financial control in the Central Bank of Egypt, Sharif Sami, said in May that the final securities draft law had been referred to the bank for revision prior to submitting it to the cabinet for ratification in June. In press statements, Sami said that the law was subjected to some amendments so as to become consistent with the Egyptian finance market which is considered to be “the father of the law” of investment in Egypt. In March, Finance Minister Hani Qadri said that he would reopen the frozen file of the Islamic securities law in order to study it in a bid to diversify the means of government borrowing after the general domestic debt had exceeded 1.7 trillion Egyptian pounds ($245 billion) by the end of 2013. The former deputy prime minister and minister of international cooperation in the provisional cabinet praised the Islamic securities law that was issued during the time of President Morsi. He stressed that, despite some flaws, the law could contribute to attracting foreign investment.

What are Islamic sukuk?

Sukuk are monetary papers that are issued in accordance with Islamic regulations with guarantees from investment projects. They generate income and are fixed assets. These securities act like property ownership, lease shares or mortgages of project assets. Islamic securities allow those possessing them to take part in industrial, agricultural or service projects where they have the right to dispose of them by selling them on the securities market. They are subject to profit or loss dependent on the profitability of the project in which the securities’ holder participates.

The Islamic securities system exists in a number of countries around the world, notably in Malaysia, which alone issues 60 per cent of the total Islamic securities issued globally, estimated to be worth $200 billion. A number of other Arab and European countries also have such a scheme.

Egypt has seen a lot of debate over the past three years because of the attempt to pass a law that would regulate the issuing of securities for the first time in the country. Every time this was tried there were fears that state assets might be used as guarantees for the sovereign securities and that eventually they would be lost in cases of insolvency. Experts have said that Egypt needs to rush through the issuing of securities in order to fund the escalating deficit in the budget since the January 2011 revolution and in order to start new projects that may defuse public anger at the economic crisis