Egypt: Stability provides base for Islamic investment growth

• Small pool of Shariah funds that post double-digit annual gains
• Key development with launch of Shariah index EGX33
• Regulatory prospects look promising

Overview

While hampered by a huge national debt burden, Egypt’s fragile economy managed to achieve some stability in 2024 – thanks to the mega-city Ras El-Hekma deal with sovereign wealth fund Abu Dhabi Developmental Holding Company (ADQ) and a lifeline from the IMF.

This breather provided room for Egypt to achieve some domestic economic growth last year, setting the path for it to be a modest but promising base for Islamic investments – as the IFN Funds Database tracked double-digit annual rises, with gains as high as 32%.

This positivity was parallel to statistics issued by Egypt’s Financial Regulatory Authority (FRA) – which showed total funding granted through the capital market and non-bank financial activities for January 2024 amounting to EGP69.5 billion (US$1.37 billion), and rising to EGP85.4 billion (US$1.69 billion) for November 2024.

But in a country where the population is about 90% Muslim, much of Egypt’s asset management industry remains conventional rather than Islamic as the national agenda is very much dependent on foreign financial aid infusions at the moment.

Latest assessments from the IMF and the World Bank are hopeful for Egypt, provided its economic activities – which continue to be largely based on agriculture and tourism, plus petroleum and natural gas – generate enough foreign currency to reduce overall national debt levels.

Capital market 

There is no dedicated regulatory environment for Egypt’s Shariah investment industry, which is regulated under the same framework as the conventional market, with the FRA responsible for oversight of the non-bank financial marketplace – which extends beyond the capital market to include insurance, leasing, factoring services.

Some progress was achieved in Egypt’s Islamic asset management front when June 2024 saw the Egyptian Exchange (EGX) launch its first Shariah compliant index, EGX33, with its 33 component stocks selected after screening of EGX100 index companies.

There is no specific treatment for Islamic financial products under Egyptian law. The general tax provisions under Egyptian law would apply, including withholding tax, stamp duties, income taxes and value-added tax.

The other regulatory body is the Central Bank of Egypt (CBE), which recognizes that deep, liquid and well-functioning markets are essential for hedging and funding activities, aside from money and capital market rates themselves serving as benchmarks for bank loan and deposit pricing that directly impact lending rates for businesses and individuals. 

The central bank thus prioritizes money and capital market development through comprehensive regulations, licensing, and various development projects.  These initiatives, undertaken with both internal and external stakeholders, aim to deepen market liquidity, broaden the investor base for government securities, and enhance monetary policy transmission efficiency.

Asset management

The IFN Funds Database currently tracks seven Shariah compliant funds in Egypt, run by three operators, with assets totaling $42.37 million.

Available data shows all seven funds achieved growth in double digits for the year 2024, with the Al Baraka Fund – operated by EFG Holdings’ Hermes Fund Management – leading the pack by returning 32.3%.

Chart 1: Egypt’s Shariah funds by asset class

Table 1: Egypt’s Shariah fund performance 2024

Outlook

Egypt’s Shariah fund management space is ramping up with new EGX33 index funds being introduced by Azimut and CI Capital Asset Management – opening a new horizon while the nation continues its tentative steps towards gaining a stronger economic footing. It will be interesting to see what new directions the FRA and CBE will adopt towards further enhancing the Islamic finance and investments landscape within Egypt.