Wednesday, August 27, 2008
Islamic Banking in Egypt
Lahem al Nasser
Riyadh, Asharq Al-Awsat- Egypt, the land of the Kinana Tribe, is the country that paved the way for Islamic banking through Dr. Ahmed El Najjar (may God rest his soul). It is the country in which this idea first practically came into existence in the form of Mit Ghamr Savings Bank in 1963, which at one point had 53 branches. The Islamic banking experience then shifted from Egypt to other parts of the Islamic world by the early founding fathers such as Dr. Ahmed El Najjar and Dr. Isa Abdu whose efforts were combined with those of businessmen interested in Islamic values.
Private Islamic banks such as the Dubai Islamic Bank (DIB) in 1975, the Kuwait Finance House [KFH] in 1977 and the Faisal Islamic Bank of Egypt in 1979 were established. Today, the number of Islamic financial institutions is estimated at approximately 396 throughout 53 countries with a growth rate that ranges between ten and 15 per cent.
But let us look at Egypt’s input since it is the pioneer of Islamic banking. One would expect that the number [of Islamic banking institutions] in Egypt would reflect this fact however the truth is that Egypt abandoned this field a long time ago. There are only two Islamic banks in Egypt: Faisal Islamic Bank of Egypt and the Egyptian Saudi Finance Bank, in addition to some of the Islamic outlets of conventional banks.
Moreover, there are no more than 128 Islamic branches out of thousands of active branches meaning that only 28 divisions have been opened since 1981.
In Egypt, Islamic banking is on the decline since the first merger took place between an Islamic bank (the Islamic International Bank for Investment and Development) and two conventional banks (the United Bank of Egypt and the Nile Bank). Together they constitute one financial structure working conventionally under the United Bank, of which 99.9 per cent is owned by the Central Bank of Egypt.
Perhaps some pardon the state for this merger since it aims to protect the rights of depositors by not announcing bankruptcy. However, the government could have acquired the bank without merging with conventional banks in order to preserve the identity of the Islamic institution in the same way that Dubai’s government dealt with the Dubai Islamic Bank crisis.
Through its behaviour, the Egyptian government gives off the impression that it does not encourage this kind of investment in contrast to the government of Dubai that sought and continues to seek to transform Dubai into the most important financial centre of the Islamic banking industry since it sees the opportunity in this industry to diversify its sources of income and to attract investment. It has been very successful in this endeavour so far.
Today, Dubai is considered one of the most important financial centres of the Islamic banking industry and home to international financial institutions that seek to profit from the gigantic leap that the industry has taken in this region. A number of Western and Asian cities and countries are also pushing to gain a foothold in this industry including London, Hong Kong, Singapore, Malaysia and last and not least, Japan.
So what is preventing Egypt from becoming one of the most important financial centres of this industry and the pioneer that it once was, especially that it has the potential to do so considering its professional competencies and human capacity in addition to genuine economic diversity?
There is no doubt that the funds of this industry that pour into Egypt as a result of its encouragement towards investment through enacting laws, facilitating procedures and creating supportive institutions, would contribute to solving many of the country’s financial and social problems, most notably, unemployment.
Furthermore, it would provide microfinance, leading to an improvement in the level of income per capita. In addition the nature of Islamic investment means that it accepts high risks; therefore, large amounts of capital would be available to Egypt to invest in technology and micro-industries that are in need of this kind of investment, helping to accommodate technology and reduce the flight of human capital to developed countries.
Will the decision makers in Egypt take the opportunities that this industry offers and that the Egyptian economy is in dire need of into account? I certainly hope so.
* Lahem al Nasser is an Islamic banking adviser.