CAIRO – Setting out the first glimpses of their financial policies, the Muslim Brotherhoood’s newly established Freedom and Justice Party is planning to focus on Islamic finance to revive Egypt’s economy.
“Speculative instruments have caused great trouble for the Egyptian economy,” Abdel Hafez El Sawy, an economist for the Freedom and Justice political party, told Al Bawaba website on Monday, July 4.
Although Egypt is considered the birthplace of Islamic finance, its growth has lagged due to past corruption scandals.
Under toppled president Hosni Mubarak’s 30-year rule, the country sought to enforce a more secular financial system.
According to a 2009 report by consulting firm McKinsey, Islamic banking only accounts for 3 to 4 percent of Egypt’s $193 billion banking industry. That compares with 46 percent in the United Arab Emirates.
Currently, the Egyptian economy is based on the use of financial instruments such as derivatives and futures, which are contracts for delivery of commodities, currencies or shares of a company.
Such instruments, according to El Sawy, violated the teachings of Islam.
“We will start off by communicating that some of these acts are not in compliance with Shari`ah. But if we feel that these acts are harming the economy, they will be clearly prohibited,” El Sawy said.
The Freedom and Justice Party seeks to focus on reviving the Egyptian economy to offer better opportunities for the poor, support growth and create jobs.
It would also focus on increasing spending for education, healthcare and job creation.
To achieve these goals, El Sawy said they will try to create an official zakat fund under the finance ministry that would collect the 2.5 percent mandatory payment from Muslims and spend it to help the poor and improve education.
This fund is expected to raise about 18 billion Egyptian pounds in a year and would be used to help any citizen in need, regardless of religion.
Applying these methods, the party official believes Egypt could become a center of Islamic finance to rival Bahrain and Malaysia.
“People want this. When they go to the bank, they want access to products that are Shari`ah-compliant,” he said.
Analysts, however, criticized the Brotherhood party’s intentions to apply Islamic finance as a step backward.
“It’s much more problematic than what I had expected,” said Dr Magda Kandil, the executive director of the Egyptian Center for Economic Studies in Cairo.
The Egyptian expert said this move would isolate Egypt from global financial markets by barring the use of some financial instruments that could harm growth.
“I thought they would be a little more mainstream,” she said.
“There is a downside risk to a more isolationist approach to the economy that closes doors to investors and alienates it from the international financial markets.”
Kandil also criticized a recent decision by Finance Minister Samir Radwan to reject a $3bn from the International Monetary Fund (IMF) or the World Bank, because the budget deficit could be covered locally and from foreign aid.
She described Radwan’s decision as a sign that the interim leadership was afraid of being seen to agree to conditional deals with foreign lenders, even though the interest on the IMF loan was below market levels.
“It was a cheap loan, and it would have been a catalyst for the international community,” she said.
John Sandwick, an Islamic finance adviser in Switzerland, agrees.
He believes that introducing more Islamic finance would not necessarily solve the country’s economic problems.
“Shari`ah is a method of doing business that doesn’t stop speculative frenzies and impractical or unethical behavior, as we’ve seen all too clearly,” he said.
Islamic banking, which began almost three decades ago, has made substantial growth and attracted the attention of investors and bankers across the world.
With estimated 300 Islamic banks and financial institutions worldwide, the industry expands by 15-20 percent a year and entered recently new markets from Australia to South Africa.
Western financial institutions, including Citigroup, Deutsche Bank, HSBC and UBS, are increasingly offering Islamic products.
Islamic banking operates by sharing profit or loss between the bank and its clients, instead of interest, which is forbidden.
Islam forbids Muslims from receiving or paying interest on loans.