Islamists and the IMF
November 05, 2012
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
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
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
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
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.
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.