Banking & Finance 2019 Second Edition

Last Updated September 10, 2019


Law and Practice


Matouk Bassiouny & Hennawy is a full-service independent law firm based in Cairo, Egypt, with offices in UAE and Sudan. The firm specialises in advising multinationals, corporations, financial institutions and governmental entities on all legal aspects of investing and business in Egypt and the region. The team of 18 partners and over 145 lawyers are trained both locally and internationally and fully conversant in English, Arabic, and French. The Finance and Projects Group’s primary goal is to provide our clients with legal advice on the banking and finance sector in Egypt as well as on the strengths and weaknesses of security available to lenders in the Egyptian market. Headed by Mahmoud Bassiouny, managing partner, the Finance and Projects Group maintains close relationships with Egyptian financial institutions, enabling first-hand knowledge of commercially acceptable solutions for the major institutions involved in large-scale deals.

In the recent years, the Egyptian economy started to show symptoms of recovery after a period of stagnation and recession. The recent decrease in inflation rates and the rise in economic growth rate has once again revitalised the loan market and provided an appetite for all stakeholders. The loan market had a trend of increased reliance on international financial institutions and multilateral development agencies which showed a greater appetite, offered competitive interest rates and supported the availability of foreign currency during years of relative hardships.

The economic stability, as well as the policies, in currency exchange and regulations for managing inflation rates have incentivised the loan market and led to a steady development. The majority of transactions now are infrastructure projects such as those seen in the energy and construction sectors. These include financing the construction of power station projects, investments in the New Administrative Capital, and deals that aim at renovating the public services and utilities.

Egyptian banks operate under regulations from the Central Bank of Egypt to manage any default risk and undertake ongoing measures for screening the creditworthiness and financial health of borrowers. This has limited the high-yield market to foreign non-institutional lenders and other alternative forms of trade financing offered by foreign traders. Thus, the high-yield market operates in different conditions that do not interpolate with the mainstream institutional lending whether under Egyptian or foreign institutions.

The loan market has recently seen an increased reliance on international financial institutions and multilateral development agencies compared to previous decades and macroeconomic projects. These institutions are taking a bigger role in the local loan market as they offer convenient solutions that have a competitive edge over Egyptian commercial banks. Foreign commercial banks have also followed suit in financing mega infrastructure projects on several transactions according to syndicated loan structures.

Such lending transactions are, by convention, based on English law or the laws of the State of New York. Foreign commercial banks usually rely on the documentation of the Loan Market Association, while each international financial institution relies mostly on its own standard set of loan documentation. The reliance on standard documents is an advantage that streamlines the loan documentation process, nonetheless, the application of foreign law on lending transactions in Egypt proved to be a burden on transaction costs in several instances.

There are certain techniques that firms and commercial banks are currently relying on to mitigate the risk of their portfolios. In light of the highly leveraged corporations and sovereign debt borrowers, hedging arrangements or a sovereign guarantee is the trend to provide a safe harbour against the potential risk. There are also several mega project transactions that involved the participation of an insurance agency to mitigate any default risk.

In addition, borrowers are concerned about the interest rate risks and the volatility of interest rates. This has led to the increased reliance on selection notices to have the option to choose between variable and fixed interest rates at certain points throughout the lifetime of the loan.

The Central Bank of Egypt has recently decreased the overnight interbank lending rate two consecutive times in one month by 250 basis points as a response to the steady decline in inflation rates during the second and third quarters of 2019 and the similar international trend in minimising interest rates. This development is expected to revitalise the loan market in Egypt and provide a competitive edge for Egyptian commercial banks over foreign lenders and international financial institutions.

The new Microfinance Law also provides an alternative for low income companies to have access to financing through methods other than banks and NGOs. Any company that is established under the Microfinance Law and holds a relevant license from the Financial Regulatory Authority may operate as a microfinance lender within certain parameters provided by the Microfinance Law. 

Commercial lending activities in Egypt are subject primarily to the Banking Law, which defines a banking activity that would require a licence from the Central Bank of Egypt as any service provided customarily by banks in Egypt on a recurring basic. For a bank to operate in Egypt it must have a licence from the Central Bank of Egypt and comply with all the regulations of the Central Bank of Egypt. There are currently 38 banks licensed and operating in Egypt.

Other non-banking financial services are regulated under the Capital Market Law and are regulated by the Financial Regulatory Authority in Egypt. This includes types of financing such as factoring, invoice discounting, securitisation, margin trading, investment banking. A relatively recent Microfinance Law has been issued in Egypt, whereby companies that are licensed by the Financial Regulatory Authority can provide micro financing to businesses with a ceiling of up to EGP100,000 for each loan. There are currently nine microfinance companies licensed and operating in Egypt.

The Banking Law defines banking activities as those that involve accepting deposits and providing loans to companies and individuals. These are the main activities of commercial banks in Egypt and would require the entity that practices these activities to have a licence from the Central Bank of Egypt. The Banking Law includes an explicit restriction on any entity not licensed to practice such activities. This restriction, although broad and explicit, is faced with the reality that many foreign commercial banks provide loans to companies in Egypt, including governmental and public entities, on a non-recurrent basis. It is also common practice to have intra-group and shareholders loans without considering such transactions caught by the Banking Law restriction.

These practices have led to a development in the construction of the rule regarding the Banking Law restriction, so that the acceptable interpretation is deemed to catch lending activities by an entity which is recurrent, continuous and offered on a non-solicited basis to potential borrowers in Egypt. The settled position then, is that competent authorities close their eyes to foreign lenders providing loans to Egyptian entities as long as such lending is not advertised or offered to the public and is not considered a significant part of the lending activities of the foreign lender.

Egyptian law is clear on restricting foreign lenders from taking security in relation to certain types of collaterals, while in certain other types there is a disparity between theory and practice. The law does not exclude foreign entities from being a security beneficiary except under the Mortgage on Commercial Establishments Law, which regulates the pledge granted on movable assets of companies, including intangible assets and their registration. The beneficiaries under said law must be a bank registered in Egypt or otherwise any approved non-banking financial institutions.

In relation to the Movables Collateral Law, which regulates the granting of for securities such as pledge over bank accounts, future assets and movable assets, including intangible assets; the law requires the entity benefiting from the security to be licensed as an Egyptian bank, a financial leasing company, or other Egyptian companies licensed to provide credit solutions. This means that the Egyptian Collaterals Registry is limited to Egyptian entities which have the (exclusive) online accessibility to the register.

In relation to real estate mortgages, Egyptian law does not include any general restriction on foreign lenders from being a mortgagee under a mortgage contract. However, there is a disparity between the legal rule and its application. The offices of the Notary Public in Egypt, being the competent authority responsible for real estate mortgage registration, do not, as a matter of practice, accept any mortgage registration with a foreign entity as a beneficiary. It is yet to be clarified whether such practice is based on internal regulations or a common practice developed throughout the years.

The pledge on shares in a joint stock company is executed in the form of an agreement that has to be registered with Misr for Central Clearing, Depository, and Registry (MCDR), the authority responsible for central depository of all shares in joint stock companies, in order to block any trading on the shares in the registers of MCDR. One of the requirements for MCDR to register such pledge, is that the pledgee must be coded on the Egyptian Exchange to be able to sell the shares in an enforcement scenario. This coding system on the Egyptian Exchange is available for foreign as well as Egyptian entities and individuals.

There are no specific restrictions, controls or other concerns on and regarding foreign currency exchange. Foreign currency exchange is permitted through banks registered with the Central Bank of Egypt and licensed foreign exchange bureaus.

There are no specific restrictions on the use of proceeds ptian law that no contract shall be made for the reason of anything contrary to public policy or public morality.

In Islamic finance transactions, the general rules of Sharia’a apply and as such the proceeds cannot be utilised in activities such as gambling, activities relating to alcohol, or arms trading.

The concept of trust is not recognised under Egyptian law. Agency is recognised and regulated under Egyptian law and security agency is commonly used in syndicated financing and for the purposes of holding security for foreign lenders. Whether the security agency relationship is drafted as a trusteeship or otherwise, there is a wide consensus among legal practitioners to characterise trust agreements as an agency agreement.

The transfer of a loan between lenders can be made by way of an assignment that is subject to the Civil Code. The assignment agreement is executed between the existing lender and the new lender without the necessity of having the borrower as a party. The notification to the borrower, however, is required to make the assignment effective towards him.

Security interests can also be transferred by way of a Civil Code assignment from a theoretical perspective. However, it is recommended in many cases to cancel the security interest and create a new security interest in favour of the new lender. This is especially relevant in cases where the existing security interest does not include all favourable terms for the new lender or otherwise there are practical considerations that impede the transfer of security process.

There are no specific restrictions on debt buy-back by the borrower or sponsor.

There are no rules regarding “certain funds” with respect to public acquisition finance transactions. The usual set of documentation is commonly used in these transactions. All information on loans and other financings taken by the bidder must be disclosed in its subscription bulletin.

Interest payments to entities that are non-resident in Egypt by entities whom are resident or have a permanent establishment in Egypt are subject to withholding tax at a rate of 20%, whether paid directly or indirectly, without any deductions, and subject to any double taxation treaty which may provide for a lower withholding tax rate or an exemption from tax, to the extent the tenor of the loan or credit facility is less than three years.

Interest payments to any offshore lender in connection with a loan or credit facility with a tenor of at least three years are exempt from withholding tax. Withholding tax must be remitted to the Tax Authority during the first 15 days of the month following the month in which the withholding has occurred.

Pursuant to the Egyptian Stamp Duty Law No. 111 of 1980, the stamp duty rate over loans is 40 basis points levied annually on the highest debt balance under the facility, loan or borrowing provided by banks during the financial year. The stamp duty is split equally between the lender and the borrower and is payable in quarterly instalments by the lender. The burden of this tax may not be shifted by contract. Pursuant to the principle of territoriality, stamp duty is not applicable to a facility, loan or borrowing provided by foreign banks that are not registered in Egypt.

Under the Egyptian Civil Code, to the extent that interest payable by an Egyptian entity would exceed 7% per annum, including compounding or capitalisation of interest, or interest exceeding the principal, such excess is unenforceable. It may be argued that the calculation and determination of interest is subject to Article 50 of the Commercial Code, which allows such rate between merchants to a contractual maximum of the rate declared by the Central Bank of Egypt from time to time. This restriction does not apply to banks licensed and registered in Egypt to undertake banking activities, which banks are entrusted to freely set interest rates subject to the nature of the banking activity according to the Banking Law No. 88 of 2003.

Egyptian law recognises various forms of security over assets including real estate mortgage, tangible and intangible movables mortgage, pledge of bank accounts, pledge of shares, security on claims and receivables such as accounts receivables and rights under contracts. The security takes the form of an agreement between the pledgor and the pledgee.

Perfection of the security will vary subject to the nature of the same. In order to perfect a real estate mortgage, it shall be notarised with the Notary Public, while perfection of a possessory mortgage entails transferring the possession of the movables subject of the mortgage to the pledgee in order for the pledge to take effect. The Egyptian Collateral Registry has been recently established to register security interest over movable assets. In case of a share pledge, the relevant security interest must be registered with MCDR. Unregistered security interests would carry the risk of unenforceability toward third parties.   

The fees for registering securities will vary according to the type of the security and, in certain instances, subject to the amount of the loan. Egyptian banks benefit from a maximum ceiling of EGP100,000 in relation to Notary Public fees payable for the registration of real estate mortgages where the value of the loan exceeds EGP30 million.

Floating charges are not explicitly regulated under Egyptian law. However, under the Movable Collaterals Law, a pledge may be granted over future assets and registered with the Egyptian Collateral Registry. Security interest may also be granted to secure a future debt, an overdraft, or a revolving line of credit.

Corporate guarantees including downstream and cross-stream are generally permissible subject to the existence of corporate commercial interest. Upstream guarantees are permitted to the extent that the parent company is not represented on the board of directors of the guarantor. The Companies Law further prohibits any company from guaranteeing the obligations of its board members. Thus, if any subsidiary is guaranteeing the obligations of its parent company the parties must confirm that the parent is not represented on the board of the subsidiary during the lifetime of the financing.

There is no explicit legal provision restricting the target from granting security in the context of the acquisition of its own shares. In practice, the acquirer grants the shares of the target as security for the financing of its transaction. In this regard, we note that the target may not provide a guarantee in relation to liabilities of any of its board members, and hence the acquirer may not be represented in the board of directors of the target.

Generally, no further consents are required. Please refer to 5.1 Assets and Forms of Security. From a practical perspective, registration of in rem security interests may trigger significant survey fees subject to the nature and size of the land, and as determined on a case by case basis.

Security release mechanics vary depending on the type of security, but security interests are typically released upon the instructions of the pledgee following the complete repayment of the debt obligations by the pledgor.

Regarding the pledge of shares, the termination instructions by the pledgee must be notified to MCDR to release the block placed on the shares. For other forms of registrable securities, the release will have to be also effected in accordance with instructions from the pledgee to the authority responsible for the registration of the pledge.

Regarding the priority of competing security interests, certain creditors enjoy a general or specific lien created by virtue of the law over all or part of the assets of the debtor. For example, the law determines a priority ranking of a lien for judicial expenses and tax obligations then any other debts. Other than lien rankings provided by the law, different lenders have the right to secure their debt and subordinate contractually their rights between themselves and/or other creditors, such as in the case of subordinating a shareholder loan to a creditor. In case there is no subordination contractually, the rank of each security interest is determined pursuant to its date of the registration and perfection, whereby former registration takes precedence over the later.

Any contractual subordination executed prior to bankruptcy procedures will survive. However, the borrower shall not undertake any action contradicting the reconstruction plan (eg, granting securities) prepared in light of its potential bankruptcy which will affect the lenders’ interests. Accordingly, the contractual subordination concluded after the re-construction plan may not survive, subject to the discretionary power of the competent court. In case the competent court declared the bankruptcy of the borrower, it shall not administrate or dispose its assets and hence the contractual subordination will not survive.

The enforcement of security under Egyptian law is generally completed through selling the asset by public auction through courts. Certain laws expressly set forth simpler enforcement procedures, such as the Banking Law in relation to the enforcement of a share pledge registered in favour of Egyptian banks and the Movables Collateral Law in relation to a pledge over bank accounts. A general overview on enforcing security in Egypt is as follows:

  • Immovables (ie, lands and buildings): an “execution order” is issued by the competent court upon the request of the creditor and annotated in the competent Notary Public. The creditor shall notify the debtor of the execution order and grant a period of 30 days to the debtor to make the due payment. If the debt is not paid, the property will be sold in public auction under the supervision of the enforcement judge.
  • Movables: the creditor has the right to request from the competent court the sale of the pledged property in whole or in part following the lapse of five days from the notification to the debtor with the due payment.
  • Share pledge: following serving a notification to the debtor with the due payment, the creditor may enforce its rights over the shares in accordance with the Egyptian Exchange sale and purchase rules.
  • Bank accounts and cash deposits: a set off is usually executed between the pledged accounts/deposits and the amounts owed by the debtor.

The choice of foreign law as governing law of the contract is valid to the extent it does not contravene Egyptian public policy or public morality. The submission to a foreign jurisdiction is generally a valid and enforceable choice, subject always to private international law rules. The Egyptian law in certain matters provides for the exclusive jurisdiction of local courts.

Waiver of immunity from lawsuits in the Arab Republic of Egypt is upheld. However, public assets (ie, assets owned by public entities and allocated for public utility) cannot be the subject of any enforcement proceedings according to the Egyptian Civil Code.

In relation to foreign courts judgments, a request for enforcement of a foreign court judgement must be filed in Egyptian courts, in order to review that the foreign judgment satisfies the following conditions (without reviewing the merits of the dispute):

  • the courts of Egypt are not competent to hear the dispute, and the foreign courts are competent for the matter in accordance with the rules of international private law for the choice of jurisdiction in that county;
  • that the parties to the dispute were duly notified and properly represented in the proceedings;
  • that the judgment is final and enforceable in accordance with the law of the foreign country;
  • that the judgment does not conflict with any prior judgment issued by an Egyptian court in the same case and is not contrary to public policy in Egypt; and
  • the country where the court judgement is issued adopts a reciprocal treatment for the judgements of Egyptian courts.

In relation to foreign arbitral awards, Egypt is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral, also known as the New York Arbitration Convention of 1958. A foreign arbitral award obtained in a State which is a party to the New York Convention should be recognised and enforced by the competent Egyptian court under an exequatur after verifying that:

  • the arbitral award does not conflict with prior judgments issued by Egyptian courts on the same subject matter of the dispute;
  • the arbitral award is not contrary to public policy in Egypt; and
  • the party against whom the arbitral award is rendered has been duly notified. 

There are no specific restrictions on a foreign lender’s ability to enforce its rights under a loan or security agreement to the extent that the structure of the agreements and perfection requirements are in compliance with the law. 

The Egyptian Law differentiate between insolvency procedures applied to non-merchant individuals and bankruptcy procedures applied to merchants including companies. The Restructuring, Rescue, and Bankruptcy Law issued in 2018 provides two procedures that mitigate the financial distresses of a company and provide a first line of defense ahead of bankruptcy proceedings. These proceedings are as follows:

  • Restructuring: the purpose of restructuring is to figure out a plan to organise the financial and administrative works of the bankrupt company. Any company may request restructuring provided that its capital is no less than EGP1 million and has conducted business for the previous two years without committing any fraud. The company may not request restructuring in case a judgment has been issued declaring its bankruptcy or opening rescue procedures. The competent judge will approve the plan prepared by the restructuring committee. The company will remain in control of its business, nonetheless the competent judge may appoint an assistant. 
  • Rescue: subject to the condition of two years of conducting business, any company who may be declared bankrupt, and did not commit fraud or gross negligence, has the right to request “a rescue from bankruptcy” in case there is a disorder in its financial conditions that may lead to cessation of its due payments, or has ceased payment (even if a bankruptcy declaration has been requested), has the right to request the rescue from bankruptcy and submit it to the competent court. Any company may request a “rescue from bankruptcy” upon the approval of the majority of partners or general assembly as the case may be; however, a company subject to liquidation procedures may not request the same. The company will remain in control of its business under the supervision of a rescue secretary appointed by the competent court.

Upon the issuance of a judgment declaring the bankruptcy of the debtor, the debtor shall not repay any debt of a creditor unless the court proceedings. Following the judgment, the interest on unsecured loans shall be suspended, and the interest on secured loans may not be requested unless to the extent of the amounts collected from selling any collateral assets. Payment of the principal shall take priority, followed by the interest due before the issuance of the judgment, then the interest due after the issuance of the judgment. 

The liens ranked by the law take priority (such as debts related to judicial expenses and tax dues). After satisfaction of rights mandatorily preferred by law, secured creditors shall recover outstanding debt from the assets taken as a security according to the ranking of registration (ie, first, second, third degree). Finally, the unsecured creditors will share any remaining enforcement proceedings on a pro rata basis related to the total indebtedness of the debtor.

The ranking of creditors is stated under the law and hence the court may not rearrange this order in any way contradicting to the law. However, the court shall terminate the bankruptcy process in case all the creditors reach a settlement with the debtor who has not committed any fraud. 

There is the inherent risk associated with the fact that the monies of the debtor may not be sufficient to pay the debt of all creditors. In that case, the proceeds will be shared on a pro rata basis between creditors unless there are secured creditors.

Egyptian law generally regulates banking activities, such as loans and credit facilities, letters of guarantee and letters of credit. The Egyptian banking law does not regulate particular forms of bank loan facilities, albeit certain types of financing such as real estate development financing and acquisition financing are specifically regulated by the Central Bank of Egypt. In practice, the banking market in Egypt recognises different types of bank credit facilities. In project financing, Egyptian banks typically require a high debt-to-equity ratio and a capitalisation of the project company that is proportionate to the size of the project. Such requirements may generally be mitigated with the provision of security, such as share pledges and parent company guarantees. In any case, the project company must utilise the proceeds of the loan for the purposes included in the banks’ credit approvals, which utilisation must be supervised by the banks.

Egyptian law recognises public-private partnership (PPP) contracts pursuant to which a project company is entrusted with the financing, construction, equipment and operation of infrastructure projects and public utilities, and making their services available or financing and rehabilitating such utilities with an obligation to maintain works which have been constructed or rehabilitated and to provide services and facilities necessary to enable the project to produce or provide services regularly and progressively throughout the duration of the contract. PPPs are primarily regulated under Law No. 67 of 2010 regulating partnership with the private sector in infrastructure projects, services and public utilities (the “PPP Law”) and the executive regulations enacted thereunder. PPP contracts must be concluded for a term no less than five years and up to 30 years from the date of completion of the construction and equipping works or completion of the rehabilitation works and with a minimum aggregate value of EGP100 million. The Cabinet of Ministers, upon the recommendation of the Supreme Committee for Public Private Partnership Affairs, may, if required due to a material public interest, agree to conclude a PPP contract for a term longer thirty years.

Pursuant to the PPP law, PPP projects may not be tendered except following the approval of the Supreme Committee for Public Private Partnership Affairs, following the request of the competent authority in light of the studies prepared under the supervision of the PPP Central Unit at the Ministry of Finance. Contrary to the public procurement law which is not applicable to PPP projects, the PPP law does not envisage or provide for contracting by way of direct award.

Subject to the nature and type of the project, project financing to privately owned companies would not generally require government approvals. In relation to certain projects, such as renewable energy projects under the Feed-in Tariff programme, the regulatory authority may require project companies to obtain a certain percentage of financing from offshore lenders. Additionally, the approval of the competent authority may be required in relation to the security package to be granted to lenders subject to the nature of the project.

On the lending side, as a matter of Egyptian law, to undertake banking activities in Egypt, a license from the Central Bank of Egypt is required. The definition of banking activities under Egyptian law is broad and includes any service provided customarily by banks in Egypt on a recurring basis. Accordingly, lending in Egypt on a recurring basis would require a license from the Central Bank of Egypt.

Subject to any arrangements with the competent authority to provide a copy or summary of the finance documents and requirements in relation to registration of onshore security, it is generally not required for project finance documents to be registered or filed with any governmental body or authority.

In relation to project financing provided by one or more Egyptian banks, finance documents would typically be governed by Egyptian law, with the Cairo Regional Centre for International Commercial Arbitration (CRCICA) as the dispute resolution forum. With respect to cross-border project finance transactions where lenders are based offshore, financing documents are commonly subject to English law.

In 2014, Egypt witnessed the promulgation of a new Mineral Resources Law No. 198 of 2014 and its executive regulation issued by virtue of the Prime Minister’s Decree no. 1657 of 2015 (the “Mineral Resources Law”) governing mineral resources, ie, resources obtained from mines, quarries and salines. Pursuant to the Mineral Resources Law, the Egyptian Mineral Resources Authority (EMRA) solely regulates and supervises the exploration for and exploitation of mines ores. Exploration and exploitation of oil and gas is also subject to concession agreements approved by the House of Representatives with the Egyptian General Petroleum Corporation being the primary government body competent in matters relating to exploration, production and refining. Electricity is generally regulated under the Electricity Law No 87 of 2015, pursuant to which the Egyptian Electricity Transmission Company is established as the sole grid operator. The Egyptian Electric Utility and Consumer Protection Agency (EgyptERA) is the electricity market regulator.

Egyptian law does not provide for specific restrictions in relation to the form of the company in the context of a project financing, though from a practical perspective, a borrower is typically a joint stock company. One point to note when structuring the security package is that an upstream corporate guarantee by an Egyptian entity is only permissible to the extent that the guaranteed entity is not represented on the Board of Directors of the Egyptian company.

Projects are typically financed by a combination of both debt and equity and subject to a gearing ratio agreed between the lender and the borrower. Shareholders loans are typically extended and may be subject to capitalisation throughout the tenor of the debt financing in order to maintain the agreed gearing ratio. Financing backed by export credit agencies are also a typical source of financing projects.

Natural resources are generally governed by the Egyptian Constitution, Law No. 61 of 1958 as amended in relation to granting of concessions relating to the investment of natural resource and public utilities as well as the relevant law of the concession setting out regulatory and contractual terms.

Law no. 4 of 1994 and its executive regulations issued by virtue of the Prime Minister’s Decree no. 338 of 1995 (the “Environmental Law”) is the general framework governing the environmental, health and safety matters in relation to existing projects/upcoming projects in Egypt. Pursuant to the aforementioned law, the Egyptian Environmental Affairs Agency is the competent authority to issue environmental permits/approvals.

Additionally, there are other regulatory frameworks governing specific environmental, health and safety measures. For example, Law no. 55 of 1977 and its executive regulations governing the establishment/operation of thermal equipment and steam boilers, along with obtaining the required management and operating permits, and Law no. 119 of 2008 governing the specifications, obligations and requirement for establishing a new building or modifying an existing building.

Islamic Products were developed under the various applicable laws. In the case of Sukuk, a product specific legislation was promulgated in 2013 (the “Sukuk Law”). In 2018, an amendment to the Capital Market Law No. 95 of 1992 (the “Capital Market Law”) included a reorganisation of the issuance and trading of Sukuk as a financial tool in the capital market, effectively cancelling the Sukuk Law. With the recent demand for Islamic products in the Egyptian market, Egypt is working under its existing pool of precedents under which Islamic products have been initially developed and regulated. Meanwhile, additional product specific legislations are said to be in the pipeline.

The Egyptian Constitution provides that Shariah is one of the principle sources of legislation. Thus, Egypt does not have a separate Shariah-regime as Egyptian laws are meant to be Shariah-compliant. Islamic Finance and Islamic Financial Instruments should naturally fall under the application of existing laws governing banking and non-banking financial activities.

The Capital Market Law has been amended in 2018 to include several provisions governing Sukuk. Sukuk are defined as a nominal financial instrument with equal value, issued for a fixed period, not exceeding thirty years, each representing a common share in the ownership of assets, benefits, rights or a particular project or its rights or cash flows, as defined in the prospectus or information memorandum, as the case may be.

Amendments made to the Capital Market Law further exempt the transfer of assets occurring between the beneficiary and the Sukuk issuing company from VAT and all applicable taxes and duties regardless of their type or nature. However, it should be noted that such exemption is only applicable on disposal of the asset between the above-mentioned parties and will not apply in the case where assets are disposed to third parties or resulting in the change of the shareholding structure of the Sukuk issuing company. The exemption applies to the disposal of real estate and any registration thereof in the context of the transfer of ownership of the real estate between the beneficiary and the Sukuk issuing company or in the case of its transfer back at maturity. Dividends and profits distributed to Sukuk holders will be subject to the taxes applicable to bonds.

Until the formation of a board competent to guarantee that offered products are compliant with the principles of Islamic Shariah, the CBE and FRA are established as the main regulatory and supervisory authorities in relation to Islamic finance activities.

Pursuant to the regulatory framework of the Islamic finance sector, the Shariah-compliant products are mainly:

  • Sukuk: The Capital Market Law defines the various Sukuk types and organises the issuance thereof. The FRA is established as the competent regulator: T
    1. Mudarbah Sukuk: are issued by virtue of mudarbah agreement between the Sukuk Holder and the Beneficiary. The proceeds of the issuance of the Mudarbah Sukuk are used to finance an economic activity or a specific project managed by the Beneficiary. Each Sukk represents a common share in the ownership of the Mudarbah assets. The proceeds of the Sukuk from the dividends of the activity or the project according to the percentage specified in the contract to be distributed along with returning the nominal value of the Sukk at the end of the its [Sukk] term from the activity or project.
    2. Murabaha Sukuk: are issued by virtue of a murabaha agreement. The proceeds of their issuance are used to finance the purchase of Murabaha merchandise for sale after they have been acquired and seized. The Sukuk represents a common share in the ownership of the goods after they are bought and sold and delivered to the buyer. The return of these Sukuk is the difference between the price of buying Murabaha merchandise and the price of selling it to buyers.
    3. Musharakah Sukuk: are issued by virtue of a musharakah agreement and the proceeds of their issuance are used to finance the establishment of a project, the development of an existing project or the financing of a musharkah activity. Each Sukk represents a common share in the ownership of the musharkah assets. Each Sukk-holder is subject to a share of the dividends equals to the percentage of the Sukuk owned by it.
    4. Ijarah Sukuk of assets or services: Assets or services are leased on the Ijarah basis for assets and services for the purpose of re-acquisition. The proceeds of their issuance are used to finance the purchase of assets or services for re-leasing to their recipients with a view to their ownership after paying them. The Sukuk represents a common share of ownership of assets or services. The return of these Sukuk is the difference between the purchase price of assets and services and the sale price
  • Ijarah: The CBE is competent to grant licenses to licensed Egyptian banks to offer Islamic Finance corporate or retail products. Several Egyptian banks offer a range of Islamic corporate and retail finance products and have their own Shariah boards.
  • Murabahah: Among the range of Islamic Products, licensed Egyptian banks also offer murabahah products, for consumer goods purchase. Typically, this will be seen in the context of vehicles purchases.
  • Takaful: FRA is the competent authority to grant licenses for Takaful insurance activities and to supervise Islamic Finance financial non-banking activities. Regarding financial non-banking activities, an investment fund or a Takaful provider that offers products marketed as ‘Shariah-compliant’ must form a board which role would be to guarantee that the offered products are Shariah-compliant.

To the best of our knowledge, treatment of claims of sukuk holders have not been tested before the Highest Courts of Egypt. Sukuk are generally perceived as debt instruments in Egypt.

We are not aware of any recent cases in Egyptian courts relevant to the topic of Islamic Finance.

Matouk Bassiouny & Hennawy

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Trends and Developments


Matouk Bassiouny & Hennawy is a full-service independent law firm based in Cairo, Egypt, with offices in UAE and Sudan. The firm specialises in advising multinationals, corporations, financial institutions and governmental entities on all legal aspects of investing and business in Egypt and the region. The team of 18 partners and over 145 lawyers are trained both locally and internationally and fully conversant in English, Arabic, and French. The Finance and Projects Group’s primary goal is to provide our clients with legal advice on the banking and finance sector in Egypt as well as on the strengths and weaknesses of security available to lenders in the Egyptian market. Headed by Mahmoud Bassiouny, managing partner, the Finance and Projects Group maintains close relationships with Egyptian financial institutions, enabling first-hand knowledge of commercially acceptable solutions for the major institutions involved in large-scale deals.

The model of cross border syndicated loan transactions is currently designed to provide efficiency for all the parties involved in terms of costs and time. This is particularly proven by the standardised set of documentations and guidelines and the streamlining of the process, which typically plays a part in almost all transactions of different natures and across industries. However, in certain cases it is clear that this set of documentation and process are a burden on transaction cost and, therefore, a reconsideration of the processes and documentation is necessary to restore efficiency.

Cross border, financing transactions generally involve a lender or group of lenders who are located in different jurisdictions to each other, either separate from the borrower or otherwise different from the location of the financed project or assets. The combination of different jurisdictions creates a risk of uncertainty when it comes to any conflict over legal principles, for example between the governing law and the law of the jurisdiction where the assets are located, in cases of enforcement. The Loan Market Association created a standard set of documentation that helps in aligning the expectations of every party involved in the process, and at the same time minimise the costs associated with the transaction.

As an example, the lenders might be located in Germany while the loan is being provided to an Egyptian company in order to finance a project to be undertaken in Egypt. The assets being financed are located in Egypt and, therefore, any collaterals will be, likewise, located in Egypt. The loan agreement will be drafted and governed by the laws of England and Wales in accordance with the standard set of documents provided by the Loan Market Association. Any collaterals will be, most probably, provided in Egypt, given the location of the company and the financed project. Therefore, the collaterals documentation must be governed accordingly by the Egyptian law in order to benefit from the enforcement advantages given by the local courts of Egypt. This process is enacted in every instance where there is an asset located in another jurisdiction and a set of documentation is required for the collateral.

The varying governing laws require a legal counsel in every jurisdiction to advise, not only on the set of documentation governed by the local law, but also the main loan documents that must be reviewed from the perspective of the local law in order to anticipate any potential risks associated with the possibility of enforcement on any collateral in the future. This process creates a multiplication in the quantity of legal work required due to having the review made under the English law and the local laws in the jurisdictions where the collaterals are located. Even where the local law review is limited to certain points of law, transactions can have the same governing law on all documentation without sacrificing the element of certainty associated with the English law and the London Court of International Arbitration as a seat for arbitration.

Other cases might involve international financial institutions acting as a lender, among other Egyptian lenders, to enable the financing of an Egyptian entity for a project within Egypt. The set of documentation required in these cases needs a particular alignment to guarantee that all lenders will rank on an equal basis at all times during the lifetime of the finance agreement, whether in terms of any waterfall, prepayment, or enforcement on assets. This creates a dilemma of aligning parallel loan contracts with varying governing laws given the inapplicability of certain concepts under the aligned version governed by the local law.

In many cases, the risk associated with the uncertainty of local laws governing finance transactions is not material and can indeed be mitigated by the jurisdiction of Cairo Regional Court for International Commercial Arbitration, or any regional arbitration, for that matter, which handles many cross-border transactions with efficiency comparable to other international arbitration centres. The arbitration process guarantees transparency and time efficiency for both parties. The proximity of the arbitration venue provides, in a practical sense, swift enforcement in cases of a favourable award. In the context of legal disputes, it allows the lender the security that they have the ability to enforce a judgement swiftly and without high costs.

Some local laws have a set of well-developed banking and commercial laws that can address the expectations of the parties and can provide a greater deal of certainty to the legal relationship. There are often similarities in legal concepts despite the apparent differences between legal systems. For example, the concept of a contract conferring benefit upon a third party under the Contracts (Rights of Third Parties) Act, 1999, in England and Wales is sufficiently similar to the correlating concept under the Civil Code of Egypt. Additionally, there is a developed set of precedents governing previous lending transactions in light of jurisprudence in Egypt.

Furthermore, the nature of disputes in finance transactions are limited in their scope in comparison to other areas of law. In finance transactions, the dispute can be always monetised by referring to the loan amount and the outstanding balance at any certain point of time. Even the delay in payment — or in loan agreements terms, the default — can be reflected in the agreed combination of interest rate and default interest to compensate the lender for any time value of money. This is different from other legal disputes, such as construction law, where the set of factual inputs that can be associated with the legal dispute determines the financial outcome and any resulting compensation awarded to the aggrieved party. In this sense, the legal dispute in finance transactions is capable of being foreseeable without giving much space for manoeuvring.     

Indeed, there is an element of risk emanating from the diversity of the elements of the contract in cross border financing transactions. This creates an unquestionable burden on transaction costs and leads to prolonged phases of negotiation. The Loan Market Association has already provided streamlined documentation capable of addressing different financing mechanisms and for transactions involving various sectors and industries. However, there remains efforts to be made to standardise documentation for numerous other local laws in jurisdictions where the syndicated debt market has seen a high volume of transactions. These efforts look to save a significant portion of the transaction costs incurred by entities and financial institutions engaged in transactions within these jurisdictions.

Matouk Bassiouny & Hennawy

12 Mohamed Ali Genah
Garden City

+2 02 2796 2042

+2 02 2795 4221
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Law and Practice


Matouk Bassiouny & Hennawy is a full-service independent law firm based in Cairo, Egypt, with offices in UAE and Sudan. The firm specialises in advising multinationals, corporations, financial institutions and governmental entities on all legal aspects of investing and business in Egypt and the region. The team of 18 partners and over 145 lawyers are trained both locally and internationally and fully conversant in English, Arabic, and French. The Finance and Projects Group’s primary goal is to provide our clients with legal advice on the banking and finance sector in Egypt as well as on the strengths and weaknesses of security available to lenders in the Egyptian market. Headed by Mahmoud Bassiouny, managing partner, the Finance and Projects Group maintains close relationships with Egyptian financial institutions, enabling first-hand knowledge of commercially acceptable solutions for the major institutions involved in large-scale deals.

Trends and Development


Matouk Bassiouny & Hennawy is a full-service independent law firm based in Cairo, Egypt, with offices in UAE and Sudan. The firm specialises in advising multinationals, corporations, financial institutions and governmental entities on all legal aspects of investing and business in Egypt and the region. The team of 18 partners and over 145 lawyers are trained both locally and internationally and fully conversant in English, Arabic, and French. The Finance and Projects Group’s primary goal is to provide our clients with legal advice on the banking and finance sector in Egypt as well as on the strengths and weaknesses of security available to lenders in the Egyptian market. Headed by Mahmoud Bassiouny, managing partner, the Finance and Projects Group maintains close relationships with Egyptian financial institutions, enabling first-hand knowledge of commercially acceptable solutions for the major institutions involved in large-scale deals.

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