Interpreting Middle East Economic News and Analyzing Market Trends

Al-Azhar in power-grab with Brotherhood over Egypt’s proposed sukuk law

Egypt is the largest Arab and Muslim country in the Middle East, yet it never allowed for the establishment of Islamic banking rules and regulations.  Thank Mubarak for this.  One of the first item’s on newly elected President Muri’s agenda was the implementation of Islamic banking laws in Egypt.  It was especially critical to have these new laws in place in order for Egypt to tap the Islamic capital markets, which include the rapidly growing sukuk market (Islamic bond equivalent).

The country has been locked in a stalemate with the IMF over a proposed $4.8 billion loan, and it is currently locked out of international markets to finance in budget gap.  Being able to issue sukuk would alleviate some of this pressure since Egypt will have a better chance at finding investors in the region willing to invest in their sukuk.  Egypt’s upper house of parliament approved the new sukuk law only to come under fire by Al-Azhar University’s Senior Scholars Authority.  Al-Azhar is one of the oldest universities in the world dating back over 1,000 years, but has never been involved in state affairs until now.

 

Egypt’s leading Islamic authority Al-Azhar said on Thursday its clerics must be consulted on a law allowing the state to issue Islamic bonds, setting it at odds with the Muslim Brotherhood which drove the legislation through parliament last week.

It marks the first time Al-Azhar, a thousand-year-old seat of Islamic learning, has said its Senior Scholars Authority should be consulted on issues pertaining to Islamic law as set out in Egypt’s new, Islamist-tinged constitution.

Al-Azhar’s intervention could set a precedent for clerical oversight of other affairs of state. The Salafi Nour Party has said Al-Azhar must also approve an agreement Egypt is seeking with the International Monetary Fund because it includes a loan upon which Egypt will pay interest.

The Islamic bond, or sukuk law, will allow Egypt to issue debt compliant with Islamic principles, allowing the state to tap a new area of finance as President Mohamed Mursi’s administration grapples with an unaffordable budget deficit.

The sukuk law has been a source of friction between the Brotherhood, whose Freedom and Justice Party leads the upper house of parliament, and more hard-line Islamists who say it should first have been approved by Al-Azhar.

At a meeting on Thursday, Al-Azhar’s Islamic Research Institute chaired by Grand Sheikh Ahmed al-Tayeb said it shared the view that the law should have been referred to the Senior Scholars Authority, in line with the new constitution.

“The Institute is of the opinion that the draft should have been referred to the Senior Scholars Authority for discussion and so it could give its legal opinion, in line with its duty,” it said in a statement.

It criticised the law approved by parliament last week, saying it empowered the prime minister to form the body entrusted with issuing the Islamic bonds. It said this “disregarded the Senior Scholars Authority of the noble Azhar”.

The Nour Party, a hard-line Salafi group, had demanded the upper house of parliament refer the law to Al-Azhar before MPs voted on it. But the FJP used its majority to pass the law despite a fierce row with Nour Party members during the session.

The law must now be ratified by Morsi.

Abdullah Badran, head of the Nour Party’s parliamentary bloc, said in a phone interview the group was now urging Morsi not to ratify the law without first presenting it to the Senior Scholars Authority for review. The Nour Party believes Al-Azhar must sign off on a deal Egypt is seeking with the IMF because it includes a $4.8 billion loan on which Egypt will pay interest. The payment of interest is deemed as impermissible in Islam.

Al-Azhar’s role in affairs of state is embedded in article four of the new constitution. It says the Senior Scholars Authority must be consulted on all matters pertaining to sharia.

It does not, however, say whether Al-Azhar’s view is binding on the government, nor does it make clear the scope of Al-Azhar’s role – ambiguity which critics say will cause future political and legal conflict.

Read the full story from Ahram Online.

 

Yesterday, under pressure, President Muri sent the draft law over to Al-Azhar’s Senior Scholars Authority for their review.  It’s not certain whether or not they will approve it, nor is it certain whether or not Mursi would implement any of their proposed changes should they have any.  What is certain is that Al-Azhar is in a power grab with the Brotherhood in order to make itself relevant again.  Throughout the rise of Islamic finance in the 1970s little if any scholars from Al-Azhar were to be found consulting and advising Islamic financial institutions.  There are a few prominent Shariah scholars today that advise Islamic financial institutions who were also trained at the famous university, but in no way did the university itself play a role in the rise of Islamic finance.  For Al-Azhar to wake up now and try to claim a stake in Islamic finance as well as Egyptian politics is a little late in the game.

 

I know that Al-Azhar managed to get itself hard-coded into the new constitution, but this in no way should force the Egyptian government to rely on its input when drafting Islamic financial laws, especially since the university wasn’t involved in much of the development of the industry over the last four decades.  The Egyptian government would be better off seeking the advice from scholars who have been active in Islamic finance not from a university that has been asleep at the wheel.  The fact that Al-Azhar has a constitutional right to consult on these matters and the way it is phrased in the constitution will only create problems down the road for Egypt.

 

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