Egypt’s newly-elected Islamists say they want to introduce an index of companies that comply with sharia law as part of a wider move towards an Islamic economy.
Officials from Freedom and Justice, the political arm of the Muslim Brotherhood, and from Nour, a party of ultraconservative Salafi Islamists, argue that such an index would encourage a slice of investors who, they allege, have shunned the bourse for fear that it might somehow contravene religious law.
Finance experts from the two parties say they envision the creation of an index of sharia-compliant companies as part of a new Islamic economy, with banks and insurance companies that adhere to Islamic principles working alongside conventional institutions.
Under Hosni Mubarak, the president ousted by a popular uprising last year, the Egyptian authorities looked askance at Islamic finance and severely limited its expansion, probably associating it with attempts by its political opponents in the Muslim Brotherhood to enhance their influence in society
The FJP and Nour together occupy some two-thirds of the seats in Egypt’s new parliament, and are expected to emerge as the winners in elections for the Shura council, the upper chamber in the country’s bicameral assembly. Staggered Shura elections started on Sunday and will continue until the end of February.
“We want to reassure people that we want to increase the number of investors on the bourse,” said Tarek Shaalan, a member of Nour’s economic committee. “But how can I attract foreign investors to the Egyptian stock exchange when locals stay away from it? One reason why Egyptians don’t invest in the market is because they want halal[religiously acceptable] investments.”
Mr Shaalan, who teaches economics at the American University in Cairo, says he has researched “a cluster” of Egyptians who worked abroad and built up savings. He found that they had five times as many investments outside the country than at home and that compliance with sharia was a reason they preferred stock markets in Gulf countries.
“We [Islamists] represent 75 per cent of the population,” he said. “That’s what the population wants. These are actual needs and this system will do no harm to other [forms of investment]. Already many Egyptians do not want to work in banking because they consider it a usurious sector.”
But Mr Shaalan said the introduction of the index would have to wait until there were enough sharia-compliant companies on the exchange. The conditions range from the nature of a company’s business to whether it pays interest on credit from conventional banks.
Mohamed Gouda, an official of the FJP said that an Islamic index would draw more investments from the Gulf Arab region. He said an “Islamic supervisory authority” working with the bourse would set the standards for sharia-compliant companies. “Through presence in the market, [Islamic financial instruments] will be able to impose themselves, and customers will . . . consider them better than what already exists,” he said.
Egyptian brokers, however, are sceptical that significant demand exists for Islamic instruments. Hisham Tawfik, who heads Arabeya Online for Securities Brokerage, said some brokers had already devised their own indices of sharia-compliant companies, but that in his experience investor interest was “tiny”.