الهيئة العامة للرقابة المالية

Islamic finance refers to the provision of financial services for both banking and non-bank financial activities in accordance with the principles, rules, and provisions of Islamic Sharia. The key characteristics of Islamic finance include the following:

• Linking financing to productive investment activities expected to generate profit, thereby directing funds toward real economic investment.
• Prohibiting investment in activities and businesses that are not permissible under Sharia.
• Sharing profits and losses and bearing risks among the parties involved.
• Avoiding prohibited transactions such as Riba (interest/usury), gharar (excessive uncertainty), maysir (gambling), and fraud.
• Prohibiting hoarding, injustice, and the unlawful appropriation of others’ wealth.
• Upholding ethical financial conduct in transactions, guiding individuals toward virtuous and responsible behavior.
• Adhering to Sharia rules governing financial exchanges in Islamic finance (such as “profit is justified only by bearing risk,” the prohibition of combining loan and sale contracts, the prohibition of two sales in one transaction, and the prohibition of selling what one does not own).
• Complying with established Sharia legal principles, including: “no harm and no harassment,” “gain accompanies liability,” “matters are judged by their objectives,” “custom is authoritative,” and “entitlement follows responsibility,” among others.

Diversity of Islamic Financing Methods

Islamic finance encompasses several financing mechanisms, including:

1. Charitable and benevolent instruments, such as benevolent loans, voluntary charity, zakat, and waqf.
2. Partnership-based financing structures, including diminishing partnership, mudarabah, musaqat, muzara‘ah, and mugharasa.
3. Credit-based financing methods, such as deferred sales, salam contracts, istisna’ contracts, and both financial and operating leasing.

Islamic finance also safeguards the right to private property while allowing voluntary transfer of ownership through donations. Moreover, it aligns with the objectives of sustainable development and social responsibility.

Growth of the Islamic Finance Industry

The Islamic finance industry has experienced rapid growth in recent years. Global Islamic finance assets increased from approximately USD 200 billion in 2003 to around USD 1.8 trillion in 2013, reaching nearly USD 3.75 trillion in 2023.

The values, ethics, and principles consistent with Islamic Sharia constitute the foundation of Islamic finance. These principles contribute to stabilizing the relationship between the parties by financing transactions and ensuring balance in contractual arrangements through robust legal and regulatory frameworks characterized by transparency, ultimately supporting the financing of the real economy.

Segments of the Islamic Finance Industry

Islamic finance comprises several key segments, most notably Islamic banking, which accounts for approximately 60–70% of the total value of Islamic finance globally.

Moreover, Sharia-compliant non-bank financial activities include Islamic sukuk, Islamic investment funds, takaful insurance, Islamic microfinance, and Islamic products offered by companies operating in non-bank financial sectors. Among these, sukuk represent the largest segment of Islamic finance after Islamic banking.

Regulatory Framework in Egypt

In this context, the Financial Regulatory Authority (FRA) has been keen to establish a comprehensive legal framework governing Islamic finance within the non-bank financial activities under its supervision.

This framework was strengthened through the issuance of the Sukuk Law No. 17 of 2018 and its Executive Regulations, which amended Capital Market Law No. 95 of 1992, also regulating the legal framework for investment funds.

Additionally, regulatory rules governing takaful insurance were issued for implementation in the Egyptian market pursuant to FRA Board Decree No. 23 of 2019, which replaced the earlier regulatory rules issued in 2004. Subsequently, FRA Board Decree No. 42 of 2019 was issued to regulate the formation and membership requirements of Sharia Supervisory Committees for sukuk issuances compliant with Islamic Sharia principles.

The FRA later expanded the regulatory framework for Islamic finance operations by amending Decree No. 42 of 2019 through FRA Board Decree No. 176 of 2022, which established governance rules for the formation and membership requirements of Sharia Supervisory Committees overseeing both sukuk issuances and Sharia-compliant non-bank financial products.

Accordingly, a Central Sharia Supervisory Committee for Non-Bank Financial Activities was established to approve sukuk issuances and Sharia-compliant non-bank financial products, promote the development of Islamic financial instruments and products, and set the general Sharia standards, frameworks, and guidelines governing these activities.