National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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4.2. Egypt
The first Islamic finance experiment, MitGhamr Bank (MGB), was initiated in 1963 to provide
interest-free financing to micro and small enterprises. As MGB grew in size and opened nine
branches, the government decided to close it down in 1967 (Wilson 2011). Thereafter, the
Nasser Social Bank was established by the government in 1971 with similar operational
features to MGB (Mayer 1985). After President Sadat opened up the economy (infitah) for
more private sector involvement in the economy, several financial institutions were
established. The passage of Law No. 48 of 1977 led to the incorporation of the first privately
owned Islamic bank in Egypt, Faisal Islamic Bank, which started operations in 1979 (Mayer
1985; Faisal Bank 2016).
During the regime of openness, the country witnessed the growth of Islamic finance in the
1980s with the emergence of Islamic money management companies. These institutions were
considered a part of the informal sector and are not regulated by any regulatory authority
(Mouawad 2009). The companies were able to attract large amounts of funds from people as
they claimed to be Shariah compliant and also because of their promises of giving high returns.
However, some of these organizations were structured as Ponzi schemes and collapsed in late
1980s resulting in losses to investors and damaging the reputation of Islamic finance (Wilson
2011).
Other than full-fledged Islamic banks, commercial banks can also have Islamic windows. Bank
Misr was the first commercial bank to open its Islamic branch in 1980 (Mouawad 2009).
Currently, Egypt has 14 banks with Islamic licenses; three banks of those are full-fledged
Islamic banks (IFC 2014). The ratio of Islamic banking is estimated to be 8% of the country’s
total banking assets. Egypt witnessed a growing interest in Islamic banking after the GFC as
reflected by the growth of assets from USD 5.1 billion in 2007 to USD 11.5 billion in 2012 and
deposits from USD 4.7 billion in 2007 to USD 10.4 billion in 2012 (IFC 2014).
While the first insurance company was established around the year 1900, Egypt’s first takaful
company, Egyptian Saudi Insurance House, started operations in 2003 (Akoob 2015). The
takaful industry has grown in Egypt with gross contributions increasing from EGP 378 million
(USD 53.39 million) in the year 2009-2010 to EGP 1.202 billion (USD 169.77 million) in 2013-
1014 (Noor 2015). At present, there are 8 takaful companies operating in the market (Nowar
2013) and the takaful segment accounts for 13% of the total insurance market (Akoob 2015).
There are 12 Islamic funds in Egypt managed by both Islamic and conventional banks with
Islamic windows. Furthermore, the first Islamic index was launched by the Egyptian Islamic
Finance Association in 2013 (Tan 2015).
4.2.1. Legal Infrastructure
Supporting Islamic Finance Laws
Although Islamic finance has existed in Egypt for decades, the laws have not evolved to support
the sector. The first Islamic bank, Faisal Islamic bank was established under a special law No.
48 that was passed in 1977 (IFC 2014; Faisal Bank). The regulations were silent on certain
issues which allowed Islamic banks to include provisions for Shariah fulfillment in their own
Articles of Association (IFC 2014). For example, article 3 of the Faisal Islamic Bank’s rules
states that the prohibition of riba and the obligation of paying zakat are key to its operations