Islamic banking experts have called on the Central Bank of Egypt to tailor its policies regarding Islamic banking services to be more in line with those of Islamic banks themselves.
The call came during the fourth annual conference of the Egyptian Islamic Finance Association, during which the association launched its index of shares compatible with Islamic law, measuring the performance of those shares traded on Egypt’s stock exchange by their compatibility with Sharia standards.
Muhammad Al-Beltagy, chairman of the association, said in a statements on Tuesday that such an index was not a new invention and has been used in a number of countries. The association would monitor the release and implementation of the index in accordance with the current circumstances of the market, after spending time reviewing the Quran and Sunnah. Experts in Islamic finance, including Hussain Hamed Hussan, chairman of the Board of Trustees for the Egyptian Islamic Finance Association, would also seek to cooperate with the IFA international investments firm before releasing the index.
Mustafa Ibrahim, forensic audit manager for the National Bank for Investment, said the index was unique in that it was founded upon Sharia standard number 21, released by the Accounting and Auditing Organisation for Islamic Financial Institutions, which spells out regulations related to the trading of securities. Most stock indexes deemed compatible with Islamic law throughout the Arab world are not rooted in this law.
He added that until now, many had been reluctant to invest in Egypt’s stock exchange, however the release of this latest index would encourage them to buy and rent stock.
Ibrahim reinforced the importance of promoting Islamic financing tools, either through banks or Islamic bonds, asking that the central bank moderate its policies and legislative instruments to align with Islamic banking standards.
Ahmed Ramzi, an economic researcher and member of the Egyptian Islamic Finance Association, stated that the index employed a number of Sharia law based restraints. The index chooses stocks that it seeks to participate in based on the activities of the specific company and the circumstances for its creation. Stock that employs more than 30% interest on net asset values, or more than half the value of participating stock groups during the financial period, will be deemed a violation of Islamic law. Interest on cash deposits cannot exceed more than 30% of net asset values, or more than half the value of participating stock groups during the financial period. The amount of gross revenue reaped as a result of participation in activities not in accordance with Islamic law could not exceed 5% of all company revenues. Upon learning of the existence of ownership of stock that is incompatible with Islamic law, companies must immediately do away with such stock. Notables, benefits and rights of stock may not exceed 30% of company assets (which include notables, benefits, rights, cash and debt).
Former prime minister Abd Al-Aziz Hagazi noted the importance of Islamic finance instruments, whether operated through banks or Islamic bonds, asking that the central bank alter its policies with regards to Islamic banking to make them more compatible with Islamic banks themselves.
Walid Higazi, secretary general of the Egyptian Islamic Finance Association, pointed to the legal and legislative importance of developing and spreading strong Islamic law foundations throughout Egypt, asking that the central bank amend Law 88 passed in 2003, and release a new law related to Islamic banking.
He stated that the country’s Islamic bonds law was a step in the right direction towards implementing a strong foundation for Islamic finance law, pointing out the necessity to pass additional legislation to strengthen Sharia law precepts in Egypt.
Kothar Al-Abja, an accounting professor and vice chairman of Beni Suef University, called on leading figures in the Islamic banking sector to help draft new Islamic finance laws. A positive legal environment is needed for Takaful insurance companies, he said, in addition to raising awareness of the activation of the country’s Islamic bonds law.
She further stated that it was necessary to increase the role of the Islamic endowments society, which estimated that “hundreds of billions in funds” have been squandered as a result of bad management. She further called on additional instruments and institutions to be activated and created to help gather Zakaat (charity) funds and administer them for the benefit of society.