Egypt May Sell Foreign-Currency Sukuk, Deposit Certificates

Jan. 18 (Bloomberg) — Egypt may issue an Islamic bond or alternatively certificates of deposit in foreign currency for Egyptians abroad, the finance minister said.

“We are studying issuing sukuk,” or Islamic bonds, Mumtaz el-Saeed said today by telephone in Cairo. “We are comparing the benefits of issuing certificates of deposit with those of sukuk for Egyptians abroad,” adding that his preference is for the certificates. The government hopes to issue one or the other during the current fiscal year ending June 30, he said.

Egypt is struggling to recover from a year of unrest in the wake of the uprising that ousted President Hosni Mubarak last February. The economy grew 1.8 percent in the last fiscal year, the slowest pace in at least a decade, as income from tourism and foreign investment dried up. Tourist arrivals fell 33 percent in 2011, while international reserves are at the lowest level since March 2005.

The government formally requested a $3.2 billion loan from the International Monetary Fund on Jan. 16. An agreement is expected “within weeks,” Fayza Aboulnaga, minister of planning and international cooperation, told reporters.

Egypt turned down a similar arrangement with the fund in June, with officials saying they didn’t want to burden future governments with debt. Foreign currency reserves dropped 32 percent in the following six months while yields on all treasury-bill maturities rose this quarter to the highest since Bloomberg started tracking the data in 2006.

‘Sound Fundamentals’

El-Saeed said today the government would prefer not to increase the amount it requested from the IMF.

The economy “despite its solid and sound fundamentals,” faces challenges that have to be addressed by an economic program that safeguards stability and “creates conditions for a strong recovery,” the IMF’s mission said in an e-mailed statement today.

A program drafted by the Egyptian authorities is being discussed “with emerging political parties to ensure broad political support,” the IMF said. The mission met with the economic committee of the Muslim Brotherhood’s Freedom and Justice Party, and also talked to members of other parties and with the civilian body advising the ruling military council, it said.

The Brotherhood’s party gained the most votes in elections for the lower house of parliament, which is due to convene on Jan. 23, two days before the anniversary of the start of the uprising that led to the ouster of Mubarak. It is still unclear what authority the assembly may have. Activists have called for mass rallies on Jan. 25 to call on the country’s ruling generals to hand over power to civilians immediately.

‘Historic Transition’

The IMF’s meetings this week “provided us with a cross- section of views about Egypt’s current economic and political situation, and possible avenues to address the challenges facing the economy,”the fund said. “It also gave us an opportunity to explain the role the IMF could play in support of Egypt’s historic transition.”

Iran's Finance Minister World Economy Should Shift To Islamic Finance

WASHINGTON (Dow Jones)–The international economy should shift toward new models like Islamic finance to avoid periods of instability like the European debt crisis, Iranian Foreign Minister Seyed Shamseddin Hosseini said Friday at an International Monetary Fund meeting in Washington.

“The current architecture of the world’s economy, due to inconsistency between the financial and the real sectors, creates unavoidable periodical instabilities,” Hosseini said.

Hosseini also criticized sanctions against Iran as unfair and said the IMF only “pursues the political will of some certain shareholders.”

Hosseini also said Iran is making changes to foster greater economic productivity including changing its constitution to give the private sector and non-governmental organizations a greater role. Iran is also making changes to customs rules, taxes, currency denominations and the banking system, Hosseini said.

–By Jamila Trindle, Dow Jones Newswires; 202-862-6684; [email protected]

Islamic banking thriving

Islamic banking has emerged as one of the most rapidly expanding sectors of the global financial industry, with expectations that it will play a growing role in the years to come.Banks and financial institutions that comply with Islamic law (sharia) showed impressive resilience during the financial crisis that hit the world economy at the end of 2008, knocking out dozens of conventional banks, particularly in the United States.

Islamic banking thriving

Islamic banking thriving

This encouraged even countries with Muslim minorities, such as Britain, Germany, the US and France, to add Islamic banks to their conventional banking industry.The size of the global Islamic banking industry is believed to have grown from about 820 billion dollars at the end of 2008 to more than 1 trillion dollars in 2010.

Latest studies indicate that the steadily growing Islamic banking system could reach 1.5 trillion dollars in 2012 and 3trillion dollars by 2015.

“I believe Islamic banks stand to gain more ground in future, thanks to the confidence they have come to enjoy during the financial crisis,” Jordanian economist Jawad Anani told the German Press Agency dpa.

He attributed their recent successes to the abundant liquidity that they managed to secure in spite of the financial meltdown.

“The successful performance of Islamic banks during the world crisis enabled them to attract funds from foreign conventional banks, which hurried to open windows for Islamic finance and bonds,” said Anani, who runs an economic consultancy bureau in Amman.

Islamic banks play a similar role to those performed by conventional banks. But there are fundamental differences.

The underlying concept in Islamic banking and finance is justice, which is accomplished through the sharing of risk. Stakeholders are under obligation to share profits and losses and to refrain from dealing with exorbitant interest rates, which Islam consider tantamount to usury.

The Islamic financial system emerged more or less unscathed from the global financial crisis, mainly due to its strict prohibition of investments in risky instruments like toxic assets and derivatives, which have adversely affected their conventional competitors.

“The Islamic financial system has proved to be the least affected by the fallout of the global crisis, thanks to its strict management of financial instruments, its focus on financing real operations and keeping away from speculation,” Kholoud Saqqaf, deputy governor of the Central Bank of Jordan said in early December during a conference in Jordan to assess the success of the Islamic financial system.

Not only rich countries were impressed by the performance of the Islamic finance. Cash-stripped states have also shown interest in the fledgling system.

Jordanian Finance Minister Mohammad Abu Hammour said recently that his government was mulling the issuance of hundreds of millions of dollar-denominated sukuk Islamic bonds “as a new window of borrowing on the basis of the Islamic sharia.”

According to a recent study by the International Monetary Fund (IMF), Islamic banks “contributed to financial and economic stability during the crisis, given that their credit and asset growth was at least twice as high as that of conventional banks”.

The IMF attributed this growth to the Islamic banks’ “higher solvency, and to the fact that many Islamic banks lent a larger part of their portfolio to the consumer sector, which was less affected by the crisis than other sectors in the countries studied.”

Despite the strong growth displayed by Islamic banks in the first year of the crisis, they suffered a significant decline in profitability in 2009, mainly due to what economists describe as a weakness in risk management.

“I believe one of the challenges facing Islamic banks is innovating methods for developing the management of risks that face the application of Islamic law to the financial industry,” Anani said.

“If Islamic banks fail to develop such mechanisms, I think they will continue to attract deposits but will be unable to lure clients and investments, particularly when global interest rates go up with an economic upturn,” he added.

Anani, a previous cabinet minister and economic advisor to the Jordanian government, detected another shortcoming for the Islamic financial industry – a failure by Islamic banks to improve understanding with central banks regarding certain issues.

“A problem still exists with the insistence of central banks to treat Islamic banks as ordinary commercial banks that should abide by their monetary policy rules,” he said. – Sapa-dpa.