Economy

Are Your Investments Sharia-Proof? Islamic Banking Starts Cashing In

Check out Islamic banking
Check out Islamic banking
Amira Salah-Ahmed

CAIRO - The economic stagnation of the past year and a half has taken a toll on many businesses, but a fleet of Islamic investment banks in Egypt sees opportunity in the emerging new order.

Ridge Islamic Capital, one such investment bank, has found a niche in the finance sector and made plans to capitalize on it. It offers Sharia-compliant investment banking, asset management and wealth management services to a market that experts say is primed for Islamic finance.

Launched in late September, the firm is among a slew of banks offering, or planning to offer, Islamic investment products.

Officials have repeatedly touted the resilience of Islamic finance, with the new government keen on broadening the industry. Officials said Egypt would introduce sukuk, or Islamic bonds, in a bid to ease the funding crisis brought about by diminished foreign reserves and a widening budget deficit.

The government is looking to raise the market share of Islamic finance to 35% from 5%, according to a Bloomberg report.

Egypt Independent sat down with the director of Ridge Islamic Capital, Ahmed Rizkallah, to discuss the bank’s mission and plans in Egypt, and why he thinks Islamic finance could help solve the speculation ills in the world economy.

First set up in May, Ridge Islamic Capital is the Islamic financial arm of Dubai-based regional investment company Ridge Solutions International Holding, which is part of the Angola-based Ridge Solutions Group.

In Angola, the conglomerate financed projects in the aquaculture, agriculture and industry sectors, amid the country’s real estate boom. At the peak of the financial crisis in 2008, though, the bank saw a new opportunity in the weaknesses of traditional free-market finance.

“Our chairman had a vision of capitalizing on the sustainable and resilient Islamic banking and finance industry,” said Rizkallah.

Bank officials saw over-speculation as one of the main causes of the financial crisis and saw Islamic finance as an antidote.

Less speculation means fewer market distortions.

“We believe that Islamic finance, in essence, is a very sustainable system,” he said.

An untapped market

The initial plan was to open an Islamic commercial bank in the region, Rizkallah said, but after some fine-tuning, the company decided to get into the specialty of Islamic investment banking.

In 2011, bank officials flagged Egypt as an ideal place for this expansion because of its “strong fundamentals.”

“For us, Egypt is the anchor of the region,” he said.

There was also room for expansion. Despite being the region’s most populous country, it is only seventh in terms of Islamic banking assets. The smaller Gulf nations have a much larger array of Islamic financial products.

It is estimated that less than 10 % of Egypt’s population uses banks. There are only three full-fledged Islamic financial institutions operating in Egypt, and 11 with Islamic banking operating windows, Rizkallah said.

It is an environment poised for growth, many experts say.

Angus Blair, founder of the Signet Institute, a Cairo-based think tank on Middle Eastern and North African economies, said some institutions have offered Islamic forms of products to clients, but not on a large scale. Previously, he said, a number of offshore companies offered services, but these transactions are now limited due to capital controls.

These customers will now have to go to local Islamic finance institutions for their banking and investment needs.

In comparison, there are more than 30 conventional banks in Egypt.

“The banking segment of Egypt is small but growing — there’s still a cash-based mentality — and Islamic banks have a niche they’ve been leveraging,” said Rizkallah.

It certainly seems the high rate of growth will continue. The Islamic financing industry — still nascent, compared with conventional banking — has expanded considerably in recent years, with experts putting the annual growth rate between 10 and 15%.

“Islamic banking is considered the fastest growing segment in the global financial system,” Jose Ramos, chairman and executive president of Ridge Solutions Group, said in a statement.

Islamic banking assets are about 5–7%, compared with banking assets in general in Egypt, according to Rizkallah.

“The theme is modern Islamic services,” he said. “By saying Islamic, we are not alienating anyone. It’s not about stereotyping or segregating investors, it’s about showing that we have a different way of offering services.”

The firm plans to launch a regional fund of funds soon, with a target size of $150 million. This has already been approved by the Central Bank of Bahrain.

“We’ll screen the Sharia-compliant funds in the region,” he said. Other products allow investors to put money in the stock market, in a Sharia-compliant way, using fixed-income securities.

Changing perceptions

Locally, there’s a negative perception of Islamic finance due to previously unregulated attempts in the market to provide these services. In the 1990s, the sector was marred by several scams, which gave the niche market a bad name.

“The result was that people divided into two groups: people who want Islamic because of religious reasons, without caring about the impact and regardless of the bank’s modernization or lack thereof,” said Rizkallah. “The other group is completely against it, thinking it’s just an emotional and sentimental sort of a business.”

He said residents in the Gulf, Europe and Asia have a better approach.

“People look at what you’re offering them and giving them in return,” he said. “They just care about how this is going to affect their wealth.”

On the political level, Rizkallah is confident that the people in power will continue to promote Islamic finance.

“After the revolution, politicians realized that we need to be open to everything,” he said. “We should accept anything that might benefit the country.”

This story originally appeared in Egypt Independent's print edition.

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Geopolitics

"The Truest Hypocrisy" - The Russia-NATO Clash Seen From Moscow

Russia has decided to cut off relations with the Western military alliance. But Moscow says it was NATO who really wanted the break based on its own internal rationale.

NATO chief Stoltenberg and Russian Foregin Minister Lavrov

Russian Foreign Ministry/TASS via ZUMA
Pavel Tarasenko and Sergei Strokan

MOSCOW — The Russian Foreign Ministry's announcement that the country's permanent representation to NATO would be shut down for an indefinite period is a major development. But from Moscow's viewpoint, there was little alternative

These measures were taken in response to the decision of NATO on Oct. 6 to cut the number of personnel allowed in the Russian mission to the Western alliance by half. NATO Secretary-General Jens Stoltenberg said the removal of accreditations was from eight employees of the Russian mission to NATO who were identified as undeclared employees of Russian intelligence." We have seen an increase in Russian malicious activity for some time now," Stoltenberg said.


The Russian Foreign Ministry called NATO's expulsion of Russian personnel a "ridiculous stunt," and Stoltenberg's words "the truest hypocrisy."

In announcing the complete shutdown in diplomacy between Moscow and NATO, the Russian Foreign Ministry added: "The 'Russian threat' is being hyped in strengthen the alliance's internal unity and create the appearance of its 'relevance' in modern geopolitical conditions."

The number of Russian diplomatic missions in Brussels has been reduced twice unilaterally by NATO in 2015 and 2018 - after the alliance's decision of April 1, 2014 to suspend all practical civilian and military cooperation between Russia and NATO in the wake of Russia's annexation of Crimea. Diplomats' access to the alliance headquarters and communications with its international secretariat was restricted, military contacts have frozen.

Yet the new closure of all diplomatic contacts is a perilous new low. Kommersant sources said that the changes will affect the military liaison mission of the North Atlantic alliance in Moscow, aimed at promoting the expansion of the dialogue between Russia and NATO. However, in recent years there has been no de facto cooperation. And now, as Foreign Minister Sergey Lavrov has announced, the activities of the military liaison mission will be suspended. The accreditation of its personnel will be canceled on November 1.

NATO told RIA Novosti news service on Monday that it regretted Moscow's move. Meanwhile, among Western countries, Germany was the first to respond. "It would complicate the already difficult situation in which we are now and prolong the "ice age," German Foreign Minister Heiko Maas told reporters.

"Lavrov said on Monday, commenting on the present and future of relations between Moscow and the North Atlantic Alliance, "If this is the case, then we see no great need to continue pretending that any changes will be possible in the foreseeable future because NATO has already announced that such changes are impossible.

The suspension of activities of the Russian Permanent Mission to NATO, as well as the military liaison and information mission in Russia, means that Moscow and Brussels have decided to "draw a final line under the partnership relations of previous decades," explained Andrei Kortunov, director-general of the Russian Council on Foreign Affairs, "These relations began to form in the 1990s, opening channels for cooperation between the sides … but they have continued to steadily deteriorate over recent years."

Kortunov believes the current rupture was promoted by Brussels. "A new strategy for NATO is being prepared, which will be adopted at the next summit of the alliance, and the previous partnership with Russia does not fit into its concept anymore."

The existence and expansion of NATO after the end of the Cold War was the main reason for the destruction of the whole complex of relations between Russia and the West. Today, Russia is paying particular attention to marking red lines related to the further steps of Ukraine's integration into NATO. Vladimir Putin's spokesman Dmitry Peskov previously stated this, warning that in response to the alliance's activity in the Ukrainian direction, Moscow would take "active steps" to ensure its security.

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