Egypt continues to gradually realize its Islamic finance aspirations. Each year brings a significant new market or regulatory development. The value of the Islamic banking market rose 12.2% to hit its zenith of EGP390 billion (US$24.76 billion) this June, a third of which is concentrated in Faisal Islamic Bank. The rate of corporate Sukuk issuances seems to have slowed, but a sovereign Sukuk issuance is on the horizon. The Egyptian government is eager to employ Shariah compliant financing structures to diversify available incentives that could attract foreign direct investment.

Review of 2021
Egypt’s passage of the Sovereign Sukuk Law created a framework for Shariah compliant government bond issuances. The Ministry of Finance is authorized to establish joint stock companies as SPVs to manage such issuances. The Financial Regulatory Authority (FRA), the primary regulator for corporate Sukuk, has an advisory role vis-à-vis government Sukuk.

The Sovereign Sukuk Law provides for the creation of a separate two-tiered regulatory system comprised of the Oversight Committee and the Supreme Valuation Committee. Sovereign Sukuk can be issued in local or foreign currencies. All funds will go directly to the state budget and then be allocated to specific ministries or government entities in accordance with their needs.

There were fewer corporate Sukuk issuances than 2020. Only Sarwa Sukuk Holding and EFG Hermes were licensed by the FRA to issue Sukuk. Sarwa Sukuk Holding issued EGP2.5 billion (US$158.71 million) in Sukuk Mudarabah with a seven-year tenor. The proceeds will fund the expansion of the issuer’s parent company, Contact Financial Holding. Middle East Ratings and Investment Service rated the Sukuk an ‘A minus’.

The International Islamic Trade Finance Corporation (ITFC), a subsidiary of the IsDB, has continued its long-standing tradition of providing key financial assistance to support Egypt in its economic recovery.

This year, the Ministry of Planning signed a protocol agreement to receive a combined US$1.1–400 million for the General Authority for Supply Commodities to ensure Egypt’s ability to meet its import needs, and US$700 million for the Egyptian Petroleum Corporation. In total, Egypt has benefited from US$12.5 billion in ITFC financing since 2008.

In a similar vein, the Islamic Corporation for the Insurance of Investment and Export Credit, the IsDB’s vehicle for Islamic insurance policies, issued US$4.84 billion in insurance coverage and policies for Egyptian banks, importers and exporters.

The government preceded its upcoming sovereign Sukuk issuance with a three-year US$2 billion syndicated loan, bifurcated into green and Shariah compliant tranches.

The country’s Islamic banking sector remains strong. Banque du Caire and Banque Misr are conventional banks with Shariah compliant windows through which they handle their Islamic finance transactions. They led a six-bank consortium in extending EGP3.3 billion (US$209.49 million) in Shariah compliant Mudarabah financing to Al Marasem International for Development, one of Egypt’s largest contractors building a residential district in the New Administrative Capital.

Finally, Abu Dhabi Islamic Bank–Egypt (ADIB Egypt) partnered with Masria Digital Payments and Khazna to create a Shariah compliant prepaid card called Khazna-Meeza, similar to those offered by National Bank of Egypt and Alex Bank.

The target segment is the unbanked population, which the World Bank estimated to be 67% of Egyptians and which remains woefully underserved by conventional banks. ADIB Egypt previously launched Meeza, a prepaid card for its existing customers.

Preview of 2022
Although the Executive Regulations to the Sovereign Sukuk Law have yet to be passed, the Ministry of Finance has indicated that the first sovereign Sukuk issuance will be in 2022 and will be valued from US$1.5–2 billion. Egypt is projected to require US$68 billion in loans and financing in 2022.

Another significant development is the IsDB’s decision to hold its 2022 annual meetings in Egypt, bolstering the country’s position as Africa’s new Islamic finance epicenter. As the Islamic banking sector expands in Egypt, the number of banks with Shariah compliance licenses is expected to grow. Currently, there are 14, three of which are exclusively Islamic banks.

There may also be some new corporate Sukuk issuances on the horizon. ADIB Egypt issued a board of directors resolution to establish a subsidiary Sukuk issuance company with an authorized capital of EGP100 million (US$6.35 million). The bank plans to issue more than EGP1 billion (US$63.48 million) in Sukuk through the new company once it obtains its FRA Sukuk issuer license. Four major real estate development companies, including Wadi Degla, Palm Hills Developments and Amer Group, may also issue Sukuk in 2022.

Conclusion
It seems that Egypt’s Sukuk market has finally emerged from its decade-long inchoate stage. The regulatory environment promotes Islamic financial structures in the private and public sectors. International investors will be drawn to upcoming Sukuk issuances in the financial and real estate industries.

The country’s credit rating is ‘B2’ with a stable outlook, which should affirm investor confidence in the market. Internally, Islamic financial institutions are tailoring their offerings to suit SMEs and disenfranchised segments of the population. Islamic finance will likely have a larger role in the future.

Dr Walid Hegazy is the managing partner at Hegazy & Partners. He can be contacted at [email protected]