In recent years, Egypt’s Islamic banking sector has witnessed remarkable growth, marking a transformative shift in the country’s financial landscape. By 2024, the total assets of Islamic banks in Egypt soared to an impressive LE 1.14 trillion, capturing around 5% of the overall banking market. This notable rise, as highlighted by Mohamed El-Beltagy, Chairperson of the Egyptian Islamic Finance Association (EIFA), represents an astounding 68% growth from December 2023.
Islamic deposits reached LE 738 billion by the end of 2024, accounting for 7.3% of the banking sector’s total deposits, an increase of LE 290 billion from the previous year. Sharia-compliant financing also saw a substantial leap to LE 807 billion, constituting 6% of the total loan portfolio, with a 64% growth rate over 2023.
The Egyptian market continues to innovate with over 65 Sharia-compliant financial instruments available today, ranging from savings plans to investment products. However, El-Beltagy emphasizes the urgent need for further innovation in Islamic financial solutions across various banking sectors including corporate, public, and SME banking.
Islamic banking differs fundamentally from traditional banking by adhering to Sharia principles, which prohibit interest and emphasize risk-sharing and ethical investments. This approach has attracted a diverse range of investors, particularly in products like Sukuk (Islamic bonds) and Takaful (Islamic insurance).
Recent statistics from the Islamic Financial Services Board (IFSB) indicate that global Islamic banking assets have surpassed $2 trillion, with expectations to reach $3 trillion in the next five years. Egypt, with its burgeoning market, plays a significant role in this growth narrative.
As of 2024, 15 banks in Egypt are licensed to offer Islamic banking services, with four operating exclusively under Islamic finance principles. Among them, Abu Dhabi Islamic Bank – Egypt (ADIB) leads the sector, boasting a business volume of LE 258 billion and a 24.5% market share. Faisal Islamic Bank of Egypt and Banque Misr’s Islamic Transactions Unit closely follow, capturing substantial portions of the market.
The Islamic financial sector’s expansion extends beyond banking, with the Sukuk market reaching LE 100 billion in issuances, reflecting heightened investor interest. The sector is further bolstered by 17 Islamic investment funds and seven Takaful companies, alongside burgeoning real estate and microfinance sectors that adhere to Sharia principles.
As we look to the future, Egypt’s Islamic banking sector is set to thrive over the next five years, buoyed by a rising demand for ethical and Sharia-compliant financial solutions. Nevertheless, the sector must navigate certain challenges, such as the need for improved regulatory frameworks and the continuous innovation of financial products to cater to ever-evolving market demands.
To capitalize on the sector’s promising trajectory, fostering cooperation between Islamic and conventional banks could be transformational. By integrating their strengths, these institutions could develop hybrid financial solutions that cater to a wider range of clients, from corporate giants to public entities and small-to-medium enterprises (SMEs). Such collaborations could lead to the creation of innovative financing structures that uphold Islamic principles while offering the flexibility and familiarity that conventional banking provides.
Potential projects might include joint ventures that focus on sustainable development and infrastructure, leveraging the ethical investment perspective of Islamic finance with the broad market access of conventional banks. These partnerships could also explore tailored financing packages for SMEs, combining risk-sharing models inherent in Islamic finance with the scalability offered by traditional banking resources.
Additionally, public sector collaborations could focus on developing sovereign Sukuk and other Sharia-compliant government bonds to fund large-scale national projects, ensuring financial inclusivity and ethical investment practices.
As Egypt’s appetite for ethical financial solutions surged past 60% in 2024, the blending of Islamic and conventional banking practices presents an opportunity to enrich the financial landscape. This strategic alliance has the potential to redefine Egypt’s financial sector, providing both local and regional investors with a compelling proposition to engage with a market that is dynamic, inclusive, and forward-thinking. By embracing these opportunities, Egypt can position itself at the forefront of financial innovation in the region.
