By Daniel Bases
NEW YORK (Reuters) - Egypt has fallen behind in developing and using Islamic finance for investment and capital raising, but Cairo is starting to explore how Egyptian companies can tap this burgeoning market, Investment Minister Mahmoud Mohieldin told Reuters in an interview.
"Egypt was the first country to introduce this. But now we are not really in the lead anymore. We can see more activity in Malaysia and in the Gulf states," Mohieldin said.
"Now we are exploring opportunities under the sukuk business. Incidentally this upcoming weekend we are having a two-day internal discussion with the (Cairo and Alexandria) stock exchange and other regulators to understand the frameworks and to what extent they are supporting them," he added.
Mohieldin was in New York leading a delegation of Egyptian businessmen to meet with investors at the New York Stock Exchange.
Sukuk's, also known as Islamic bonds, are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest.
According to Barclays Capital, last year approximately $30 billion worth of sukuk were issued, of which $10 billion were in U.S. dollars.
The Islamic finance industry follows rules set out under sharia law whereby devout Muslims will not purchase assets that pay interest or earn profits from industries related to gambling, alcohol or pork, among other things. It favors instead a return on investment derived from underlying physical assets.
Mohieldin said the government, while not interested at this time in issuing sukuk bonds itself, is interested in developing it for the corporate market.
Record high oil prices have pumped billions of dollars into the Middle East and Asia where demand for Islamic banking products is highest.
That is prompting governments and corporations worldwide to consider their regulatory framework for dealing with Islamic finance. The products must adhere to sharia law while also, in many countries, complying with the rules of conventional banking.
EGYPT'S APPROACH
Egypt says it is no different.
"Traditional or Islamic, as a regulator and as a government policy, we are open to all lines of business, all lines of product, but please respect the rules of disclosure, monitoring and prudential regulation, and then if you want to call it Islamic and operate as Islamic we have no problem with that," Mohieldin said.
One banker traveling with Mohieldin said Islamic finance is not a main line of business but can be done if a customer requests it.
"If a customer wants to structure the product that makes them feel comfortable we are quite flexible. Yes, we have done them but not many," said Hisham Ezz al-Arab, chairman of Egypt's Commercial International Bank (CIB) (COMI.CA: Quote, Profile, Research, Stock Buzz) (COMIq.L: Quote, Profile, Research, Stock Buzz). Continued...
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