20 December 2012

Egypt: Gov't Approved Islamic Bonds

The Cabinet at a meeting on Wednesday 19/12/2012 under Prime Minister Hisham Qandil approved in principle a draft law on using Islamic bonds.

The new financial instrument (Islamic Sokouk) will be referred to the Legislative Authority so that the draft will pass into law. The new mechanism is a tool for financing and investment.

The logic behind introducing "sokouk" in the Islamic world is that any form of interest [riba] derived from investments is prohibited.

Islamic finance works from the premise that both the individual customer and bank should be at equal risk upon investment; any possible profits or losses should be equally divided between them.

The proposed bill regulates provisions and measures of issuing such kind of bonds (finance, rental and investment bonds) and organizes the authority to be in charge of issuing and managing these bonds, and registering them in the stock exchange. The bill suggests the establishment of a fund called Investment Risks Fund which is financed by the owners of these bonds.

A statement said the Cabinet also agreed to exempt entrepreneurs and the insured citizens from the additional sums which are not paid from subscriptions during the period from 1-2-2012 until 30-11-2012. The statement said this exemption emanates from the government keenness to ease the burden of entrepreneurs and the insured who were unable to pay their subscriptions to the National Organization for Social Insurance in the light of the recent circumstances which faced them and from the government desire to support them so that they may recover their economic and productive capacities.

As for the economic situation, the Cabinet said Egypt is currently passing through economic and political situation adding current spending rates are higher than the volume of increase in resources which have eroded as a result of the drop in investments and the impact of demonstrations and protests on the progress of work and production.

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