The development of Islamic finance: Egypt as a case study

Purpose - The purpose of this paper is to analyze the political and economic dilemma that Islamic finance (IF) poses on some Muslim Governments of either encouraging or restraining this global phenomenon; in spite of their awareness of the developmental role that IF plays. Egypt, in this concern represents a peculiar example where government's policies apparently determine the performance of Islamic financial institutions. Design/methodology/approach - The paper begins with an overview of IF and the momentums that catalyzed the development of IF in general and in Egypt in specific. It then analyses the policies of the Egyptian Government towards Islamic financial institutions since its inception in 1963 until 2007, with a specific focus on Islamic banks and Islamic companies. This is followed by a discussion on the current practices of these institutions in the Egyptian economy. Finally, the paper presents a prospect vision of the future path of Egypt in the field of IF. Findings - The paper finds that the shares of IF in the Egyptian economy are modest at local, regional and global levels. Such backward position could be justified in the light of the governmental policies and their manipulation over the legal, economic and religious institutions in a way that restrain the performance of Islamic financial institutions. However, the responsibility is not solely the government's; Islamic financial institutions share part of such retreat due to their practices that divert them from their mission. Practical implications - The paper concludes that the nature of the Egyptian Government's attitudes towards IF stems from its tendency to maintain the stability of its economic system besides its suspicion to the nature of Islamic financial institutions and their links with Islamist groups. In addition, Islamic financial institutions suffer from administrative and legal problems that shape their practices and reveal their divergence from their Islamic and developmental role that they are supposed to play. Originality/value - In the final analysis, the paper offers an insight into prospective development of IF in Egypt on both local and external levels.