The Islamic Finance Handbook: A Practitioner's Guide to the Global Markets

Chapter 7EgyptThe Islamic Finance Industry's Growth, Challenges, and Legal Framework

Walid S. Hegazy

Managing Partner, Hegazy & Associates in association with Crowell & Moring

Hussein M. Azmy

Associate, Hegazy & Associates in association with Crowell & Moring

The history of Egypt's Islamic finance industry generally started with the establishment of the Mit Ghamr Savings Bank in 1963, which showed Islamic finance to be an effective and efficient method of financing. The subsequent establishment of Faisal Islamic Bank in 1974 showed further signs of promise for the development of Islamic finance, and the industry's role is expected to gradually increase.

However, the general atmosphere became hostile to Islamic finance with the rise of anti-Islamicization political tendencies after the assassination of former president Anwar El-Sadat in 1981 and the failed experience of investment funds that promoted themselves as Shari'ah-compliant (which augmented the already existing public misconceptions of Islamic finance). For these reasons, the Egyptian legislature avoided regulating the Islamic finance industry, and the economy relied heavily on conventional finance. Islamic banks were authorized in the middle of the first decade of this century, but their market share remained limited (e.g., Islamic finance accounted for only 3 to 4 percent of Egypt's US$193 billion banking industry in 2009), and the official control of compliance with Shari'ah was absent.

An increasing interest in Islamic ...