Legislative and regulatory frameworki Legislative and regulatory regime
Egyptian law does not have a codified definition as to what constitutes Islamic finance or an Islamic financial instrument, as the Egyptian Civil Code is meant to be compliant with Islamic shariah. However, the following points are worth mentioning:
- Banks can offer corporate or retail products denominated as 'Islamic' upon obtaining a relevant licence from the Central Bank of Egypt (CBE) (e.g., an ijarah licence or a sukuk licence). Only licensed banks can request these licences from the CBE.
- Takaful insurance is also regulated by the Financial Regulatory Authority (FRA) and there are licensed takaful insurance companies operating in Egypt. It is expected that a new version of Law No. 10 of 1981 (the Insurance Law) will be issued to take takaful insurance into account. Non-banking financial activities are generally subject to FRA supervision with the FRA board regulating said activities by way of decrees and FRA board resolutions.
- Sukuk are the most specifically regulated Islamic financial instruments, by virtue of Law No. 95 of 1992, as amended by Law No. 17 of 2018 (the Capital Markets Law), which covers all envisaged sukuk types, the issuance regime and redemption rights, with FRA being the competent regulator. Note, however, that as a matter of practice there has been no major sukuk issuance to date. It is also worth noting that Law No. 148 of 2001 (the Real Estate Finance Law), as amended, recognises ijarah as a method of financing real estate and defines it as the leasing of real estate ending with ownership. The Capital Markets Law prescribes different structures, including, inter alia, sukuk murabahah, sukuk istisnah and sukuk ijarah. In addition, the Real Estate Finance Law allows for all types of ijarah in relation to real estate in Egypt.
The two main bodies competent to regulate and supervise Islamic finance activities are (1) the CBE, which is the entity competent to grant licences to Egyptian banks seeking to offer Islamic finance products; and (2) FRA, which grants licences for takaful insurance activities (in addition to its general competence to oversee financial non-banking activities, including those activities that are structured or branded as Islamic). Only banks registered with the CBE can request the licence mentioned at (1) and such banks must have established a competent shariah board, as a matter of standard market practice based on best international market practice.
Regarding financial non-banking activities, FRA Board of Directors' Resolution No. 8 of 2014 provides that an investment fund or a takaful provider that offers products marketed as 'compliant with shariah provisions' must establish a board to ensure compliance with shariah principles (i.e., the shariah board, similar to the board established by banks offering 'Islamic products'). Takaful companies as such are subject to shariah audit by FRA. The board's members must be chosen from a list of scholars and professionals registered with FRA, in a special register made for that purpose. FRA also has its own shariah board, which, as a matter of practice, serves to provide supervision and follow-up to the FRA board on products deemed Islamic.