By Asmaa Nabil
A number of Islamic banks and financial institutions are awaiting the passage of a new legislative reform package to regulate the sector in the coming year.
The goal of the package is to create an environment conducive for Islamic banks to operate by making available the necessary tools for growth without contradicting the values and practices of Islamic banking.
One such reform would include amendments to Egypt’s current law, which does not distinguish between Islamist and non-Islamist banking institutions. This would force non-Islamist banks to comply by the same standards of Islamist ones.
The new amendments are expected to increase the amount of Islamic services provided by Egyptian banks. The Central Bank’s (CBE) current policy prohibits granting licenses to traditional banks seeking to provide Islamic services to its customers.
The package also includes amendments governing accounting methods with regards to Islamist bank budgets, in addition to other laws regulating both Islamist and non-Islamist banks.
Ahmed Mohamed, president of a public bank branch, said that 2012 saw the rise of Islamic banking and finance in Egypt and that he expected new laws regarding the creation of regulatory agencies for Islamic banks to be passed by the CBE in the coming year.
Another piece of new legislation will create a new channel for funding and recruitment through the use of Islamic bonds. It is expected that this law will help increase Islamic banks’ shares of the loan market after these bonds are made available.
Mohamed added that political stability was needed for these laws to have a positive effect on Egypt’s economic growth. He added that the CBE was considering making more licenses available for Islamic banks; however, this would be conditional on the establishment of a regulatory agency for these banks.
Mohamed also said a number of laws were waiting to be passed this year. According to him, the most prominent was regarding Islamic bonds, which he considers a turning point for the Islamic banking sector. This law, in addition to amendments regarding accounting standards and practices, Mohamed said, would serve as a new recruitment tool for both the government and private sectors.
He added that a clear vision was needed that would spell out the role of Islamic banks in all economic sectors, saying there must be new standards in addition to new legislation for Islamic banks, especially in regards to accounting and stamp taxes and other factors in the costs of legal proceedings, that would be appropriate for Islamic banks.
Mahfouz Mohamed, an official from the Faysal Islamist bank, said the second half of this year, after discussions regarding private and sovereign bonds, would see the passing of new laws and amendments regulating Islamic banking institutions.
He added that amendments regarding accounting and regulation would be passed, but doing so, he said, would be contingent on stability in Egypt and the election of a new parliament. To Mahfouz, this exempted the passage of bond laws expected soon to be passed by the Shura Council that would help generate liquidity and spur development in the short term.
He added that laws governing Islamic banks needed to be different than those of traditional banks, considering their different banking practices. This would help Islamic banks achieve record levels of growth that would help spur economic development, according to Mahfouz. The difference, he said, is Islamic banks relied on the trade of real goods to create capital, whereas traditional banks spend capital to create goods and machines.
He said that an Islamic economy and Islamic banking in particular was the best way to help guide Egypt through its current crisis, adding that care needed to be taken when coming up with laws and new standards in order to help banks achieve the highest possible return on their investments.