- MB News
- May 7, 2011
- 5 minutes read
Egypt’s MB Plan to Close Budget Gap with Sukuk
Egypt’s Freedom and Justice Party, set up by the Muslim Brotherhood to contest up to half the seats in a parliamentary election scheduled for September, is proposing the government sell Islamic bonds for the first time to help plug the country’s deficit.
Ashraf Badr el Din, a member of the MB committee that wrote the party’s economic platform, argued that a high percentage of the Egyptian people have reservations about charging interest and that such a financing tool would encourage these people to invest their money.
Egypt’s last three treasury-bill sales failed to raise the full amount sought by the government as investors demanded higher yields, following a popular revolt that ousted the president. Egypt is rated Ba3 by Moody’s Investors Service, the third-highest junk rating, on March 16.
Egypt’s Finance Minister Samir Radwan expects the budget for fiscal year 2011/12, which starts on July 1, to record a deficit of 9.1% of the country’s gross domestic product (GDP).
Egypt, where more than 70 million Muslims live, hasn’t sold sovereign or corporate bonds that comply with Islam’s ban on interest.
"We’ve been working with the government for years to get them to sell dollar- denominated Islamic bonds, known as sukuk, so when it happens we will certainly participate in the sale," Adnan Ahmed Yousef, chairman of Al Baraka Bank Egypt, a unit of Bahrain-based Islamic lender Albaraka Banking Group, said.
Global sales of sukuk, which held by financial institutions that comply with Sharia law climbed to $5.2 billion in 2011 compared with $4.4 billion in the same period last year, according to data compiled by Bloomberg.
The Muslim Brotherhood, Egypt’s largest opposition group, has been officially banned since 1954 and had to register its candidates as independents in election, established the Freedom and Justice party in April and hopes to gain as much as 50 percent of parliamentary seats in September.
“The banking system in Egypt will not be converted to the Islamic system,” the Brotherhood’s Badr el Din said.
Egypt has three Sharia-compliant banks, Al Baraka, Faisal Islamic Bank of Egypt and National Bank for Development.
"The untapped demand for Islamic financial services is potentially quite significant” in Egypt, Aamir Rahman, a Dubai-based managing director at Fajr Capital, an Islamic investment firm, said. "Allowing customers to use Islamic financial services may prove beneficial in attracting deposits from Egypt’s under-banked population, which will help boost the country’s economy.”