Egyptian controversy over proposed Islamic bonds law By XINHUA | Thursday, March 21  2013 at  13:54

Egyptians work at the Cairo stock exchange. FILE | NATION MEDIA GROUP 

The approval of a controversial draft law allowing the issuance of Islamic bonds, commonly known as sukuk, has rekindled debate in Egypt over whether it contradicts Islamic law.

According to Egypt's state-run daily al-Ahram, the bill was approved Tuesday night by the Shura Council, the country's temporary legislature.

Three months ago, the cabinet approved a law regulating sukuk dealings but it was rejected by the country's prestigious religious institution Al-Azhar over concerns that the new financial system might allow foreigners to own key state assets as well as suspicions about its fixed interests that are not allowed in Islam.

Sheikh Yousef al-Badri, a member of the Supreme Council of Islamic Affairs, told news agency Xinhua that when the sukuk law is introduced, "most, if not all, Muslim scholars would stand against it given its possible violation of Sharia (Islamic law)."

Sheikh Badri added that if sukuk is similar to government bonds, which in nature is trade of debts, it is forbidden in Islam.

"When a sukuk owner offers it for lending, he expects a profit without doing anything. So, it is rather usury than trade," the Muslim cleric said, stressing that since the law was approved without consultation with Al-Azhar, it was not "purely Islamic" as its supporters claimed.

Hamdy Abdel-Azim, economics professor at Sadat Academy and Cairo University, expressed optimism that sukuk could revive Egypt's economy as it might raise at least $9 billion in the first year.

"Jeddah's Islamic Bank offered to buy $6 billion worth of Egyptian sukuk while Qatar said it will buy some $3 billion dollars worth of it," Prof Abdel-Azim told Xinhua.

Beneficial

If such transactions with Arab banks and corporations go well, the new system is expected to bring Egypt $15 billion in the first year, he added.

The economist said that sukuk was beneficial for the Egyptian economy running short of cash to boost investment or stimulate growth.

Prof Abdel-Azim reaffirmed that all the comments of Al-Azhar were considered before the approval of the bill. "The sukuk law does not allow selling, mortgaging or privatizing key state-owned properties, which was the top concern of Al-Azhar."

As for the fixed interests that could be referred to as "usury," Prof Abdel-Azim said the new law took it into account and would allow the profits of sukuk to float to avoid contradiction with Sharia.

"In addition, a monitoring commission of Muslim scholars and Islamic economists will be formed by the cabinet and approved by the president to make sure that sukuk dealings conform with Sharia," he said, noting that Egypt's ex-mufti Nasr Farid Wasel will be one of its leading members.

The don also pointed out that under the new law, the maximum term for sukuk ownership is 12 years and the bonds must be redeemed.

Conflict

Ibrahim Abdullah, economics professor with the al-Azhar University and the American University in Cairo, said that there was no problem about the sukuk project but the problem was about how it would be carried out.

"There is a conflict inside the Shura Council due to concerns over the possibility of giving up state-owned properties to pay back for sukuk," said Abdullah, who has attended discussions at the Shura Council as an expert.

He recommended that the profits rather than the properties should be the pay-back guarantees for sukuk, arguing that if the government sold sukuk of state assets and was unable to pay back the debt, it might have to let go of the assets to the bond holders.

"The condition for the success of the sukuk system is that it must be separated from the state-owned assets and their surroundings, such as the Suez Canal, because they belong to Egypt's past, present and future generations," he said.

Prof Abdullah lamented that the Shura Council approved the sukuk law without referring to Al-Azhar's Senior Scholars Authority for approval.

"If the law is approved by the president with such blemishes, faithful and honest people will certainly appeal against its constitutionality," Prof Abdullah said.

Some members of Al-Azhar's Senior Scholars Authority also criticized the Shura Council for not consulting Al-Azhar before approving the sukuk law, saying that the establishment of the monitoring commission is a transgression against Al-Azhar.