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Islamic sukuk and the new constitution - ASHARQ AL-AWSAT English Archive
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No sooner had the Egyptian constitution been adopted, than it was made clear that modifying it was a real possibility. This is probably why even before the constitutional referendum began, President Mohamed Mursi decided to have the opposition and experts prepare a list of the articles they believed to be defective and in need of revision by the legislature, then put to another referendum.

Sukuk or Islamic bonds are issued by the Egyptian Finance Ministry, which according to Article 4 of the Constitution needs to consult al-Azhar University, which in turn would consult Article 2, which states that the principles of Islamic law are the main source of legislation. These ‘principles’ are defined in Article 219 as those in line with authorized Islamic schools of thought and jurisprudence. Based on all this, and after consulting the Supreme Council for Islamic Affairs and senior economic experts from al-Azhar, the final decision was that these bonds do not comply with Islamic law.

The idea of Islamic bonds is not a new one, nor does this necessarily have an Islamic frame of reference. Bonds are similar to deeds or stocks, in the sense that they represent the value of a public asset. Dealing in bonds is beneficial for the customer, who receives interest because the profit generated by each bond is divided amongst its owners and for the community, particularly as bonds create a saving fund that absorbs a percentage of public money into the market. Bonds, therefore, reduce monetary demands and eliminate one of the main reasons for state inflation. As for the public asset in whose name the bonds are issued, whether we are talking about a factory or farm, this receives money that enables it to expand and invest in new assets. Consequently, growth is achieved without burdening the community or state.

Thus, the idea of bonds is beneficial for several parties, and is considered one of the many ways in which all, or some, public assets can be privatized. This worked perfectly in the Czech Republic, but failed miserably in Russia, because in the second case all the money went to the rich. As for Egypt, the idea was discussed a decade ago by then-Minister of Investment, Mahmoud Mohieldin, who saw it as the best way to get rid of public sector companies that are either losing money or nor generating enough profit for the state to support them. At this time, there were 314 public sector companies in Egypt, which constituted 18 percent of the country’s public economy. Of these 314 companies, 149 were privatized, either sold to one investor or the workers, or subject to an Initial Public Offering. The remaining 165 companies remained as they were. The idea of ‘public bonds’ was seen as the solution, but the initiative was opposed by several entities, including ones affiliated to the state. This state entity retained its socialist character and rejected all sorts of privatization and the capitalist transformation of the state. On the other hand, other entities were staunch capitalists that believed the entire public sector in Egypt was on its way to being dissolved as a percentage of total local revenue, so therefore there was no point in creating futile disputes. The project eventually failed, and the minister who initiated it resigned and took a senior position in the World Bank.

This time, it is no longer ‘public bonds,’ rather we are witnessing ‘Islamic bonds’ following the same trend. Those who are keen on implementing the project in the Ministry of Finance possibly assumed that inserting the word ‘Islamic’ would render the idea legitimate, and offer a solution for a large part of Egypt’s financial crisis through offering public assets in the form of bonds that would provide funds to the rundown public treasury. The last thing the ministry expected was for the objection to come from al-Azhar itself!

Al-Azhar’s objection came in an unexpected way, for it was based on two Islamic rules: firstly, that it is not permitted, according to authorized Islamic schools of thought, to sell public Islamic assets in the form of bonds; and secondly, that foreigners might be able to buy public Egyptian assets of extreme strategic importance, such as the Suez Canal, for which generations of Egyptians sacrificed their lives.

I am not an expert in jurisprudence in order to judge the degree of the project’s compliance with Islamic schools of thought, but there can be no doubt that there is a problem. Egyptian assets are already dealt with via the country’s stock market, and the problem is that they are very difficult to sell due to the current circumstances being experienced in Egypt. What makes the matter more complicated is that it is not known which religious matters al-Azhar would be consulted on. What would have happened had the Ministry of Finance overlooked al-Azhar’s advice? Following this, would it be possible for pious Egyptians to still purchase bonds that have been labelled ‘illegitimate’ by al-Azhar.

There are many questions. Most public assets that can now be sold in bonds did not exist in the early Islamic era so no accurate comparison can be made in this regard. We know that cattle and palm trees were private property, and pasture and grass were public property. However it was probably different in the Nile valley, and those of the Tigris and Euphrates, where agriculture and other forms of crafts were practiced. In spite of this, the differences between one era and another are huge, and perhaps the Egyptian Consultative Assembly will manage to bridge the gap. When jurists study the matter thoroughly, they will either find a way that makes the selling of Islamic bonds legitimate, or admit that it is not worth the hassle. In any case, perhaps the Muslim Brotherhood’s Freedom and Justice Party are aware of the correct interpretation.

Abdel Monem Said

Abdel Monem Said

Abdel Monem Said is the director of Al-Ahram Center for Political and Strategic Studies in Cairo.

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