By Asmaa Nabil
When the Supreme Council for the Armed Forces, which has ruled the country for the last 16 months, decided to dissolve parliament, the ramifications of the decision were not limited to the political arena, but also encompassed Islamic banking which had begun to benefit from the rise of Islamist political currents.
The parliament, in which Islamists controlled 70% of the seats, created powerful pressures on the Central Bank to allow more freedom to banks to provide Islamic Banking services. It also encouraged a greater number of banks to apply for licenses in order to provide such services. Such requests had been automatically rejected in previous years.
Mohamad el-Beltagy, the President of the Egyptian Islamic Finance Association, said that the dissolution of parliament and the subsequent political events will delay the formation of the necessary supervisory bodies for Islamic Banking in Egypt. He did not, however, rule out suggestions that Islamic Banking would soon move from the arena of study and into the arena of implementation. He said that Islamic Banking supplements the economy and the banking sector regardless of any religious or political considerations,
adding that the existence of diverse options for banking and finance would bode well for the development of the economy.
A few days before parliament was dissolved, the Freedom and Justice Party, which had represented a plurality in the People’s Assembly, had proposed a new law to amend current regulations of the Central Bank. The new law would have put in place a regulatory system for Islamic Banking and made it easier for banks to obtain licenses for offering Islamic financial instruments with the goal of transforming the system, in part and in whole, into an Islamic one.
El-Beltagy said that Islamic Banking one of the most important economic activities that still requires a regulatory framework to be set up. He pointed out that the sector had witnessed growth, even if it had been slow, recording a rate of 7%, compared to 5% during the previous period. El-Beltagy said that the Central Bank had begun to set up a supervisory administration for Islamic Banking and to issue licenses to Islamic and traditional banks wishing to offer Islamic financial services prior to the seating of parliament. He added, however, that the Islamist political currents brought great pressure to bear on the Central Bank to expedite its efforts.
The head of the Islamic Branches division of a tradition bank said that the previous period saw noticeable interest by banks and the dissolved parliament in expanding the field of Islamic Banking. He expects that the Central Bank will continue its efforts to facilitate Islamic Banking despite the changes that have occurred in legislative authority with the decision of the Supreme Constitutional Court to dissolve parliament. He said that the attitude towards Islamic Banking should be informed by economics and not by politics or religion, highlighting the spread of such services in several foreign countries, most notably the United Kingdom and France. He said that those countries rely on Islamic Banking to support economic activity there.
He said that the agreement between the legislative and executive authorities had previously represented a significant support for the quick growth of the Islamic Banking sector, but that the dissolution of parliament does not necessarily mean that support for the sector will disappear.
Mohamad El-Dakdouky, the previous head of the Islamic Transactions division of Al Watany Bank of Egypt, said that parliament had been bringing tremendous pressures to bear on the Central Bank to set regulations for Islamic Banking, pointing out that its dissolution will negatively impact the Islamist current’s efforts to quickly establish such a system. He said that the demand for Islamic financial
services is not dependent on Islamist control of the parliament, but on the needs of the market.
El-Dakdouky pointed out that the Central Bank is still searching for the necessary mechanisms to support the Islamic Banking sector regardless of the political situation. He expected large growth in the sector, especially if the political and economic situations stabilise in the coming period.