Is the International Monetary Fund loan permissible under Islamic law?
Egypt’s Islamist movements have signaled that this is the case and have gone out of their way to endorse the $4.8 billion package despite more than a year of lobbying that aimed to do the opposite.
But their change of heart has been met with skepticism. Is this loan being structured as sharia-compliant despite the IMF disbursing conventional loans to Islamic countries such as Pakistan? Is Egypt’s government trying to mollify citizens who view the IMF as having a reputation for imposing strict austerity measures? Is this essentially just a move to get voters on side?
The Muslim Brotherhood’s Freedom and Justice Party and the more conservative Salafist Al-Nour Party have argued, for different reasons, that the IMF loan is sharia-friendly.
It is the loan’s interest rate, at an easy 1.1 percent, that has garnered the most debate because Islamic law prohibits the paying of interest.
While the Brotherhood views the loan’s interest rate as merely a “loan processing fee” therefore cancelling the “interest” nature of the loan and replacing it with an “admin fee”, the Salafis have described the loan as “mudtar,” a term used in sharia law to denote the idea of last resort.
Tarek Shaalan, the economist at the Al-Nour party, argues that considering Egypt’s precarious economic position, the interest rate on the loan is far more favorable compared to the level of conventional borrowing Egypt is currently undertaking at a far higher cost. The government is relying on domestic banks to purchase government debt at yields as high as 16 percent to help plug the deficit.
But all these technical details have been undermined by the IMF itself, which has distanced itself from claims that its loan is sharia-compliant. In an emailed statement, a spokesperson from the international bank said: “It is not up to the IMF to determine whether its lending is sharia-compliant.”
Economists say the IMF loan can only become fully “sharia-compliant” if it is specially restructured into an acceptable form under Islamic law, otherwise what would be the point of Islamic finance if all that is needed is some verbal endorsement from a political party?
It raises the question of how Egypt’s Islamist government is trying to marry its religious beliefs with a modern economic framework. Does the IMF loan become sharia-compliant if the country’s president says so?
For some, Egypt’s attempt to lobby for sharia-compliant financing is superficial and just one way of gaining the approval of conservative Islamists. For others, Islamic finance alienates and compartmentalizes Egypt’s finance sector at a time when there should be consensus.
The push for a wholly Islamic approach to the economy is also a giant, unrealistic leap at a time when the majority of the banking and finance structure adheres to conventional banking and legislation is not fully set up to accept Islamic finance (the law that allows issuance of Islamic bonds, or sukuk, has been mooted for several years despite repeated announcements that legislation would be passed “within months”).
Even highly religious states such as Saudi Arabia tap into conventional finance as well as Islamic to raise money.
Finally, the IMF loan and other conventional loans are emerging as a much better option than some fully sharia-compliant financing. If Egypt finally secures the IMF loan, it will borrow at about half the rate Qatar paid for sukuk in July, Bloomberg reported last month.
Egypt’s politicians must make clear to the public that to run a modern, successful economy is unrealistic if it is to fully abide by Islamic law.
That’s not to say politicians and Muslims cannot live their personal lives in a sharia-compliant manner but to subject a weakening economy to tightly bound and narrow economic choices is bound to lead to failure when the country is in desperate need of international support.
In fact, what is clear is that Egypt’s president and his government is trying to convince conservative voters that the nation is moving toward an Islamic-friendly economic culture, when it is not. It is merely using sharia law to persuade citizens that agreements that have to be made (i.e. the IMF loan) are sharia-compliant, when they are not.
Farah Halime is a business reporter based in Cairo and the editor of Rebel Economy, a blog focused on how the region is rebuilding after the Arab Spring.