– Prime Minister’s Decree No. 17 of 2018 was promulgated on 14 March 2018 and entered into effect on 15 March 2020 to amend particular provisions of the Capital Market Law No. 95 of 1992 (“Capital Market Law”), including detailed provisions for Sukuk (“Sukuk”) whereby followed by many decisions issued by the Board of Directors of the Financial Supervisory Authority (the “Authority”), in addition to the issuance of a guidebook approved by the Authority in the context of the desire to work, develop and raise the efficiency of non-banking financial markets.
– Prime Minister issued Decree No. 1760 of 2020 to add a new provision to the Executive Regulations of the Capital Market Law, which related to Sukuk, and added five new types to Sukuk contracts to the current four types. Therefore, Sukuk contracts now become nine types as follows: “Istisna’a, investment agency, Salam, Muzaraa, and Musaqat, Murabaha, Ijara, Musharaka, and Mudaraba.”
– Sukuk have great importance in financing companies, entities, and public juristic persons. In addition to providing financial approaches to investors on the other hand, which is reflected in strengthening the financial market, keeping pace with international changes in the financing markets field, and creating added value for the national economy.
– Sukuk have more than one competitive advantage over other financing approaches. Most notably, financing through Sukuk are the least burdensome, in addition to sharing in profits, as the issuing company sets a specific return for the Sukuk holders to be paid for the duration of the Sukuk. They also share the loss if the project suffers losses, so it is a balanced financing instrument between stocks and bonds, in addition to its compatibility with Islamic Sharia which represents an advantage that attracts a wide range of investors who prefer this type of investment.
– Also, the issuer of Sukuk have the advantage of separating its financial performance from the new project funded through Sukuk. This means that the issuing company may not have a good financial performance, however, the company has strong and successful feasibility studies to issue it. Sukuk is based only on the feasibility studies and credit ratings of the issuance and not the company, unlike bonds and other financing instruments. So Sukuk are very attractive to companies, especially in the public business sector.
– As for the investors, Sukuk are more secure than stocks and bonds. As stocks are famous for their high risk. However, Sukuk give the holder regular returns according to the expected cash flows from the issuance based on the feasibility study. Moreover, the Sukuk holder is considered a partner in the transaction which includes participating in profit and loss, so it is compliant with Islamic Sharia. We believe that this helps to secure financing apart from bank loans, either through increasing current loans to companies or aiming to diversify sources of financing due to the lack of liquidity in companies, especially the real estate sector, as a result of the current Coronavirus crisis.
– On the other hand, there are many investment funds, especially foreign ones, that prefer to subscribe to such financial instruments, in addition to the availability of an element of flexibility compared to bank loans.
– Sukuk are distinguished from bonds in their evaluation, supervising, and follow-up by more than one party, starting with the Central Committee for Sharia Supervision, the Sharia sub-committees, the Authority, and the Egyptian Stock Exchange.
– Despite the activation of Sukuk as a financing instrument since 2018, the interest in them clearly began during the current and preceding period, which justifies the extent to which companies need new liquidity methods in the light of the Coronavirus crisis.
– Law No. 17 of 2018, which was followed by the issuance of Prime Minister Decree No. 2479 of 2018 concerned with amending some provisions of the Capital Market Law and its Executive Regulations, enacted the rules and provisions governing the legal framework and contractual formulas for issuing Sukuk, the parties to the issuance process, their roles, provisions for issuing and procedures for Sukuk.
As a complement to the legislative framework governing Sukuk, several resolutions were issued by the Authority’s Board of Directors regarding Sukuk, which dealt with the following:
- Resolution No. 50 of 2019 regarding the terms and conditions related to the beneficiary that wishes to issue Sukuk by itself, determining the minimum and maximum value of the Sukuk issued by the authorized entities, the conditions and procedures to be followed to approve the issuance of Sukuk to international and regional financing institutions, the conditions and rules for registering Sukuk that offer a private subscription on one of the stock exchanges in Egypt, and the terms and conditions of trading of Sukuk outside stock exchanges.
- Resolution No. 61 of 2019 regarding the regulations of the formation and membership of Sharia supervisory committees for issuance of Sukuk compliant with the provisions of Islamic Sharia.
- Resolution No. 188 of 2018 regarding accounting standards for companies issuing Sukuk and beneficiary companies, including auditing standards that are adhered to by auditors.
- Resolution No. 176 of 2018 regarding the requirements for establishing and licensing of Sukuk company.