CAIRO, (Reuters) – Egypt’s Freedom and Justice Party is consulting with other political parties and the financial industry about the possibility of introducing rules allowing the issue of sukuk (Islamic bonds), a party official said.
“We started weeks ago to discuss details of how to permit the issuance of sukuk, instead of submitting a full bill that would need to be approved by parliament,” Ahmed al-Najjar told Reuters on Tuesday.
Najjar is a member of the economic policy committee of the FJP, which won the largest number of seats in this year’s parliamentary elections. The FJP is the political arm of the Muslim Brotherhood, which won the presidency of Egypt with the election of Mohamed Mursi in June.
The FJP wants to promote the issuance of sukuk, which were neglected for ideological reasons during the regime of Hosni Mubarak, who was ousted last year. Government officials have said Egypt may issue a sovereign sukuk, and that Egyptian companies could use the instruments as a source of finance.
However, issuance has been held up by the lack of legislation covering sukuk. Parliament was dissolved by Egypt’s former military rulers in June, and the next parliamentary elections may be several months away, meaning it is not clear when the body will be able to pass legislation.
Najjar said that instead of waiting for the next parliament to be installed, political parties could seek to amend current laws to permit sukuk issuance. Last month, Mursi issued a decree that transferred lawmaking powers from the army to the presidency.
The FJP is considering proposals for sukuk rules with parties including the Salafist Nour Party, another Islamist group that took a large number of seats in the last parliamentary elections, Najjar said.
Because of Islam’s ban on interest payments, sukuk pay returns earned from pools of assets. This gives them complex structures that may involve special-purpose vehicles, while multiple transfers of assets during their life can expose them to heavier taxation than conventional bonds; the proposed rules would cover these matters.
Najjar did not say when the FJP hoped the issuance of sovereign or corporate sukuk in Egypt might begin. But he said the party was keen to accelerate the process if possible because of strong demand for sukuk among Islamic funds globally, which has allowed issuers to issue cheaply this year.
“There is a large gap between supply and demand for sharia-compliant financial instruments…and major investors are hungry for Islamic investments from Egypt,” he said. “Why wait?”