After lengthy debate and weeks of delay, the final version of the law regulating the issuance of sukuk, or Islamic bonds, was approved by the cabinet and sent to the Shura Council's economic committee this week for discussion and endorsement. In a press conference on Sunday, Minister of Finance Al-Morsi Hegazi sought to assuage public concerns that the new law could open the door to selling public assets. Hegazi stressed that Article 3 of the new law prohibits the selling or mortgaging of state propriety, instead allowing the “utilisation” of such assets. In addition, Article 5 of the law bans the issuing of sukuk bonds backed by public assets such as the River Nile, the Suez Canal, the Pyramids and others. Hegazi said that sukuk bonds were a financial instrument that could be used to finance certain projects but would not be substituted for other instruments. He cited an example of how sukuk bonds could work under the new law. If EgyptAir, the country's national carrier, wanted to buy additional aircraft, for example, this could be financed through issuing sukuk bonds without involving any of the company's other assets. “Sukuk bonds will allow investors to participate in buying the aircraft and having a share in the profits until the sukuk bond's duration ends,” Hegazi said. “Afterwards, ownership is transferred to EgyptAir.” He said that issuing the bonds on the Egyptian market aimed at encouraging investment that would in turn create jobs and help alleviate unemployment. He added that investment growth would need to reach 30 to 35 per cent of GDP in order for the country to solve its unemployment and other fiscal challenges. Sukuk bonds aimed at increasing production and export activities that would ramp up foreign currency revenues, Hegazi said. This type of Islamic bonds would spare the government the burden of borrowing at soaring interest rates of up to 16 per cent, adding to the country's debt bill, he added. Hegazi noted that sukuk bonds would be used primarily for financing infrastructure projects such as roads, power stations, and petroleum storage plants. They would also be used to finance grain storage facilities, as large amounts of grain are currently lost due to inappropriate storage. The minister was hopeful that the country would see the first sukuk issuance in July, with the government hoping that yields would range from $10 to $15 billion a year. The Shura Council's economic committee started its discussion of the government's sukuk law on Monday, and it has also been studying another bill on the same subject proposed from within the committee. “There is a slight difference between the two bills, perhaps in the order of 10 per cent of the articles,” the finance minister's advisor on sukuk matters, Ahmed Al-Naggar, told Al-Ahram Weekly. Al-Naggar added that the new law covered all types of sukuk, including sovereign sukuk, issued by the government, and corporate sukuk offered by private companies and banks. The law has stirred a lot of controversy over recent months. In December, the government prepared a law on sovereign sukuk bonds that was rejected by the Islamic Research Academy of Al-Azhar in January on the grounds that it violated Sharia law and posed a threat to state sovereignty. The law was referred back to the Ministry of Finance to amend the controversial articles. However, according to Walid Hegazi, secretary-general of the Egyptian Islamic Finance Association, the controversy was due to a lack of knowledge about Islamic finance in Egypt, which was being introduced for the first time. He told the Weekly that Islamic bonds were financing tools that were more flexible in securing funds without increasing the borrowing burden than regular bonds. Hegazi said that some parties were exaggerating the role sukuk could play, but he said the bonds could benefit the Egyptian economy if the economic climate improved to attract investors. Sukuk bonds were in demand worldwide, he said, with many investors wanting to have Islamic bonds in their portfolios. Egypt's mufti, Ali Gomaa, has also said that sukuk bonds could be a solution to the country's ailing economy on condition that it they are introduced in an appropriate way. According to Abdallah Shehata, advisor to the minister of finance for economic affairs, the country's budget deficit reached 10.8 per cent of GDP in 2011/12 and 90 per cent of this was financed by issuing treasury bills and bonds that in turn absorbed huge amounts of liquidity. Directing banking sector liquidity to treasury bills instead of productive projects wasted opportunities for development, he said. “The solution is to offer alternative financial tools and trim the budget deficit so as not to borrow from the local market,” Shehata said during a press conference. He added that sukuk bonds could attract the savings of Egyptians who do not deal with banks. “Offering sukuk bonds could attract this money, which could be used to finance various projects,” Shehata said. According to Reuters, the global demand for sukuk bonds will increase from $140 billion in 2012 to some $420 billion by 2016. Among the countries that are expected to issue sukuk bonds soon, Reuters said that Egypt could be the largest market.
