Why momentum is still slow within Egypt’s Islamic investment landscape

Despite the gap of over a century since Egypt wrested independence from the British in 1922, the European colonialism legacy still holds sway over much of its commercial practices – creating a legal morass that its indigenous Islamic investment landscape is finding hard to push aside.

Adding to the confusion is the entrenched constitutional Article 2 that not only establishes Islam as Egypt’s national religion but also states that Shariah rules “are the principal source of legislation”, noted Mohamed Gamal NourEldin, associate legal consultant at the Harasani and Alkhamees law firm.

“This situation has led many Egyptians to believe that their investment dealings are already Shariah compliant without having to obtain a certificate. As long as their contracts don’t violate applicable provisions in Egypt, the assumption is that Islamic principles have been followed.”

Because this Cairo law firm shares some operations with its Saudi bases in Riyadh and Jeddah, Mohamed said a quick comparison can show that many contractual clauses would not be considered Shariah compliant outside Egypt.

Among the main issues would be to ensure that the investment is not tied to any benefits. “We have to also make sure that it's a proper partnership or profit-sharing deal, without guaranteeing the capital return.”

Mohamed said there is a growing awareness among Egyptian entrepreneurs and investors that many commonly-used contract templates – largely adapted from European sources – are not Islamic, due to courts being able to issue judgments with accruing interest for defaults in Egyptian civil law cases.

However, Shariah regulations in Egypt are not seen as mature enough to replace conventional contract clauses. This is largely due to the Egyptian constitution’s Article 2 not directly stating that promulgated laws should implement Shariah principles. Mohamed said this has been interpreted to instead mean principles of fairness and being equitable – which allows for the application of existing civil law practices.

To overcome this hurdle, Mohamed suggested having hybrid contracts – where applicable laws and even adjudication can be linked to Saudi Arabia. This suggestion could emulate the practice in nations which have multiple legal systems applied, like France or Malaysia.

While the proposal can be a quick compromise until Egypt has a better set of Shariah compliant regulations, this request must come from the client, noted Mohamed, as legal advisers have to ensure there is no conflict of interests involved – especially due to various domestic sensitivities.

“Based on what we have seen so far, it is possible to have Shariah structures for investment deals and offerings without incurring extra costs because it is already acceptable that extra certification is not needed in Egypt for contracts to be viewed as being Islamic.”

Should such extra certification be necessary, Mohamed said the authorities need to increase awareness campaigns for Shariah compliance among the entire financial community – from asset managers to bankers.

“From a professional standpoint, there are many Shariah experts who can quickly be available to help enhance the Islamic investment landscape in Egypt because of the common culture and language across the Middle East.”