Analysis / Egypt’s economic and religious dilemma
Debt-ridden Egypt is in dire financial straits, but loans with interest are prohibited according to Islamic law. So how can President Morsi and his Muslim Brotherhood party solve the problem?
Egypt's enormous economic difficulties are well known. With a budget deficit of $28 billion, and a national debt of $230 billion (on which Egypt is paying $21.3 billion a year in interest), the majority of President Mohammed Morsi's effort is directed towardsgathering grants and loans from anyone willing to give them.
Egypt is currently conducting tough negotiations with the International Monetary Fund over a $4.8 billion loan application. In his meeting with U.S. President Barak Obama scheduled for the end of September, Morsi will ask him to increase the extent of American aid, support Egypt's request to the IMF and grant Egypt an exemption from part of its $3.6 billion loan from the United States.
But it suddenly became clear to Morsi, a member of the Muslim Brotherhood who in the past opposed every loan from the IMF, that he was liable to commit a serious religious offense. Loans bearing interest are prohibited under Islam, so a "religious representative" like himself would be unable to commit such a transgression.
But Islam is a flexible religion, and when necessity demands, good Islamic solutions can be found to realistic problems. A religious ruling issued by a Salafi sage, Yasser Brahimi, determines that "obtaining a loan from the IMF with an interest rate that does not exceed 2 percent is not considered prohibited interest, but rather payments for loan management expenses."According to his explanation, "a loan of this size requires writing forms, collections management, and other expenses for which payment in permitted in accordance with religious [law]."
Even clerics of Al-Azhar – the most important institution of religious law in Egypt and the Middle East – support this ruling. Under former President Hosni Mubarak's rule, Al-Azhar also permitted the establishment of a system of housing loans for young couples that included interest.
Not all religious scholars agree with this ruling. According to some, Egypt should first try to obtain grants and interest-free loans from other Muslim countries before turning to the IMF. But they also recognize the difficulty of receiving gifts: The $2 billion deposited in Egypt’s banks by Saudi Arabia and Qatar are not grants but rather deposits that can be withdrawn at any time.
It's not only religious scholars who are engaged in this explosive dilemma. Left-wing groups who oppose the Muslim Brotherhood have been attacking Morsi precisely over the issue of the interest. Mohamed Abdel Aziz, who coordinates youth activities in the protest movement Kefaya, reminds Morsi that "whenever we discussed the economy, I argued that you, the Muslim Brotherhood, are capitalists just like the tycoons Ahmed Ezz [the businessman due to stand trial following the fall of the Mubarak regime], and the Christian billionaire Naguib Sawiris. You thought you were supporting an Islamic economy. When I laughed and asked 'what exactly is the Islamic economy?' you answered: 'We oppose interest.' Today I'm asking you what the opinion of the Islamic economy is with regards to the loan from the IMF."
Abdel Aziz reminds Morsi that the terms of the IMF loan include invasive interference in the Egyptian economy and society, and the reduction of subsidies for gas and fuel. "We said, and keep on saying, that the Muslim Brotherhood's economic policies are no different to those of the previous regime,” Aziz says. “If in the past they adopted the slogan 'Islam is the answer,' they're now saying 'interest is the answer."'
Not that the Egyptian left has any better solutions. But when attacked by the Muslim Brotherhood, they can use the religious violation of interests – which the regime will apparently allow – as ammunition against them.
The interest dilemma in Egypt and discussion over "the Islamic economy" strengthens the significance of the Islamic financial sector which, according to estimates, manages worldwide capital of $1.1 trillion – approximately 14 percent of banking capital worldwide. This is in the banking sector alone.
Dozens of banks and hundreds of branches of Islamic banks over the world are operated according to religious laws, which were adjusted over the last forty years to suit the advanced financial market. More and more Muslims prefer to manage their accounts through 'halal' banks, to the point where even Western banks operating in Islamic countries started opening special bank accounts for observant Muslims. Islamic bankers and scholars have founded important study departments and developed new products to meet the needs of both business and private customers who wish to manage their finances in accordance with Islamic law,while circumventing interest bans.
Egypt does use the Islamic banks' services, but a loan of $4.8 billion is a risk these banks are unwilling to take. Morsi will have no other option but to ask for Allah's forgiveness and seek the best advice of religious scholars. After all, they need to survive as well.