Local banks in the North Africa region are still “slowly familiarizing” themselves with Islamic finance and sukuk markets as a creditable financing alternative, according to an report by international ratings agency Standard and Poor’s (S&P) published 18 February.
Following uprisings in Egypt and Tunisia, new governments are more inclined to cooperate with Gulf countries and have increased their interest in the development of Islamic finance “compared with previous regimes that turned more toward western powers and conventional banking,” S&P wrote.
With four Islamic banks, five takaful companies and twelve Islamic funds, Egypt’s Islamic banking assets total $11.6bn.
“We believe that Islamic finance in this region has yet to demonstrate its economic added value beyond enabling products abiding with Islamic law,” the report’s authors concluded. “Such added value could materialise through creating access to a new class of investors or customers or by offering Sharia-compliant [Islamic law] products at costs comparable with their conventional counterparts.”
Islamic banking remains unpopular in Egypt, according to a recent Gallup survey. Only 3% of adults use the service and only 49% have even heard of it.
The survey also predicted an increase in demand for both conventional and Islamic banking in the Middle East and North Africa, the region with the “largest share of unbanked adults worldwide”.
Takaful companies are cooperative insurance firms that abide by Islamic law. Members contribute a certain amount of money in order to guarantee each other against damages and losses.