A recently drafted law on how the government will issue sukuk (Islamic-sanctioned bonds) has drawn criticism from religious figures and financial scholars alike, although state officials tout the bonds as the way out of the nation's financial crisis.
The sukuk, which would ostensibly help finance the country's growing budget deficit, represent the first serious step taken to promoting Islamic banking practices since President Mohamed Morsy came to power.
Sukuk have become a common financial option in many Islamic countries and several European countries, such as France and Germany.
But adopting Islamic banking law has drawn significant scrutiny from civil society and religious figures — an indication of how the president and Parliament may struggle over Sharia-based laws in the future.
Members at Al-Azhar's Islamic Research Academy rejected the Finance Ministry-backed bill, saying it "violates Islamic Sharia and endangers the state's sovereignty."
The scholars voiced their opposition during an urgent meeting held in late January, led by Al-Azhar Grand Sheikh Ahmed al-Tayyeb.
The bill would allow foreigners to own sukuk as well as shares in local factories and businesses, academy member and former Grand Mufti Nasr Farid Wasel told Al-Masry Al-Youm.
"It is like we are selling our properties to foreigners," he said.
The academy did not specify which aspect of the bill violates Sharia, but said it consulted Al-Azhar University economic experts before declaring a position on the proposed legislation, which aims to secure financial liquidity for economic development projects.
In Islam, interest is forbidden, as are other banking practices that are deemed "usurious," or as taking advantage of a person’s financial need. Though interpretations of what is acceptable Islamic banking vary — with many transactions resembling widely accepted practices — profits in alcohol, pork and entertainment featuring scantily clad women are unanimously considered prohibited.
In a press conference on Thursday, financial authority and banking officials tried to explain the legal nature of the bonds to a group of professors, bankers and journalists.
Experts said that the bill, set to go before the Shura Council for approval, only pertains to government-issued sukuk. Foreign ownership should pose no problem, as it is common practice for most international governments to issue bonds on their debt.
But Al-Azhar's disapproval also worried some in the crowd. One audience member asked how the law could go forward after the country's religious authority had already refused it.
Ahmed Naggar, member of the Brotherhood's Freedom and Justice Party Economy Committee, responded by saying that because of their Islamic nature, most sukuk buyers would be Egyptian or Arab, so it is unlikely to become a sovereignty issue.
The bonds would be governed by an independent body, and would be guaranteed as Sharia-compliant by an appointed official, said Ashraf al-Sharqawy, chairman of Egypt's Financial Supervisory Authority.
He said it was good that in the text of the law, the writers had decided to take the word "Islamic" out of the description.
"It's not about whether this is halal or not," he said. "Our role is to organize Islamic tools, and this is about investing in line with Islam."
Naggar said he was hopeful about the law being passed and implemented soon. He emphasized sukuk as a real solution to capital shortage for businesses, and their potential to help the economy move forward.
"It has been an international success," he said. "But hopefully we will have many more meetings like this to discuss it."
But it certainly doesn't seem like the law will pass without great discussion.
"This law is so controversial because it's related to two issues," Halat Saeed, chairperson of board of the Egyptian Center for Economic Studies that hosted the conference, told Egypt Independent. "One, it will decide what is Sharia-compliant; and two, because it's dealing with public assets."
