Egypt approves Islamic bonds seeking to revive troubled economy

Cash-strapped Egypt might raise $15bn in a year after the country’s top religious authority approved Islamic bonds. The move has been opposed as contrary to Islamic law.

The legislation will allow Egypt for the first time to issue Islamic bonds, or sukuk, which adhere to Islamic principles that forbid the payment of interest.

Under the new law, the maximum term for Islamic bond ownership is 12 years and the bonds must be redeemed. Private companies will also be allowed to issue sukuk.

The bill regulating Islamic bond dealings was initially approved Tuesday night by the Shura Council, the country's temporary legislature, on condition that certain articles of the legislation passed by the parliament are amended.

Earlier in March the parliament led by the Muslim Brotherhood's Freedom and Justice Party voted in favor of the law and referred it to President Mohamed Morsi for final approval.

However, the procedure was protested in the country's leading Islamic authority, Al-Azhar. The body was concerned that the new financial system will allow foreigners to own key state assets.

It was also suspicious about its fixed interests that are not allowed in Islam. In addition, Al-Azhar insisted that its top scholars should have been consulted, in accordance with the newly approved Islamist-tinged constitution.

"When a sukuk owner offers it for lending, he expects a profit without doing anything. So, it is rather usury than trade," the Muslim cleric Sheikh Yousef al-Badri said. Back then he stressed that since the law was approved without consultation with Al-Azhar, it was not "purely Islamic" as its supporters assured.

However, despite the harsh criticism, the legislation is expected to be profitable for the Egyptian economy, which is struggling with a soaring budget deficit due to the lengthy period of political and economic instability.

"The sukuk law does not allow selling, mortgaging or privatizing key state-owned properties, which was the top concern of Al-Azhar," Professor Abdel-Azim was cited by Xinhua news agency.

"In addition, a monitoring commission of Muslim scholars and Islamic economists will be formed by the cabinet and approved by the president to make sure that sukuk dealings conform with Sharia," he added.

Meanwhile, the Egyptian government is seeking a $4.8 billion loan from the International Monetary Fund to sure up its ailing economy.

After repeated delays in loan talks with the IMF, Qatar announced Wednesday that it would buy $3 billion worth of Egyptian treasury bonds and provide Egypt with natural gas “whenever necessary.” The funds will be deposited at Egypt's central bank.

Libya also stepped up with an offer to lend Egypt $2 billion that will be interest-free for up to 5 years.  

Two years of political unrest have left Egypt's economy growing at the slowest rate in two decades.

The nation's foreign currency reserves plunged to $13.4 billion last month, more than 60 per cent below the level registered in December of 2010.  

In just the last four months the Egyptian currency has dropped more than 10 percent.