Islamic Finance 2025 Comparisons

Under Egyptian law, Islamic finance transactions are regulated within the existing financial statutes rather than a standalone code. The primary regulatory bodies are Central Bank of Egypt (CBE) which oversees Islamic finance transactions undertaken by Egyptian banks and other authorised financial institutions as regulated under the Banking Law No 194 of 2020, and the Financial Regulatory Authority (FRA) which oversees non-banking Islamic financial services under the Capital Market Law No 17 of 2018, including Islamic Sukuk issuances. It also oversees Takaful (Islamic insurance) under the Egyptian Unified Insurance Law No 155 of 2024.

Although Egypt does not have a dedicated Islamic financial law, Article 2 of the Egyptian Constitution designates Sharia as the principal source of legislation, underpinning the legitimacy of Islamic finance. Licensed Islamic banks, financial institutions and non-banking financial entities are required to establish their own Sharia Supervisory Boards, whose decisions are subject to review by either the CBE’s Supreme Sharia Advisory Board or the FRA’s Sharia Committee (as the case may be), depending on the nature of the financial activity. This framework ensures that products such as Murabaha, Ijara, Sukuk, and Takaful are compliant with Sharia principles and formally recognised under Egyptian law.

Under Egyptian law, the offering of Islamic financial products is subject to regulatory oversight within the framework of existing legislation. A bank intending to operate as a fully fledged Islamic bank or to provide Islamic banking services through a designated window must obtain the requisite authorisation from the Central Bank of Egypt (CBE), in accordance with the provisions of the Banking Law No 194 of 2020.

Within the non-banking financial sector, entities seeking to issue Sukuk or other Sharia-compliant instruments are required to obtain the authorisation from the Financial Regulatory Authority (FRA) pursuant to the Capital Market Law No 17 of 2018. Providers of Takaful (Islamic insurance) services must also be licensed by the FRA under the Egyptian Unified Insurance Law No 155 of 2024. Furthermore, the Capital Market Law requires the incorporation of a Sharia Supervisory Committee – for purposes of issuing Islamic Sukuk – in accordance with the regulations issued by the board of directors of the FRA and subsequent to the approval of Al Azhar Mosque.

This regulatory framework ensures that Islamic finance activities are subject to the same prudential, licensing, and compliance standards as conventional finance, while accommodating the specificities of Sharia-compliant products.

Each licensed institution is also required to establish a Sharia Supervisory Board to ensure compliance with Islamic finance principles. These boards are subject to oversight by the CBE’s Supreme Sharia Advisory Board which supervises banking-related matters, and the FRA’s Sharia Committee oversees capital market activities.

The Islamic finance market in Egypt is active and growing. A recent report by the Egyptian Islamic Finance Association (EIFA) highlights the robust performance of Islamic banking in Egypt. In June 2024, the turnover of Islamic banking reached EGP737 billion, marking a substantial increase of EGP175 billion compared to June 2023. This impressive growth represents a 31.1% year-on-year expansion.

Market Share

Islamic banking now constitutes 4% of the overall Egyptian banking market. The Egyptian market includes 14 banks licensed by the Central Bank of Egypt (CBE) to offer Islamic financial products.

Among these, three banks operate exclusively as Islamic banks:

• Faisal Islamic Bank of Egypt;
• Al Baraka Bank Egypt; and
• Abu Dhabi Islamic Bank Egypt.

Additionally, 11 other banks have Islamic branches alongside their traditional ones.

Furthermore, the Islamic finance sector extends beyond banking products to include Takaful (Islamic insurance), microfinance, and real estate financing. This demonstrates both robust market activity and ongoing innovation, all under the regulatory oversight of the Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA) (as the case may be).

Egypt has recently witnessed the issuance of new regulations boosting Sharia‐compliant finance, notably the issuance of the Sovereign Sukuk Law No 138 of 2021. Accordingly, the Ministry of Finance has been solely authorised to incorporate one or more joint-stock companies for purposes of administrating and undertaking Sovereign Sukuk issuance in favour of the Ministry of Finance within the Arab Republic of Egypt or abroad. Such entity must be fully owned by the Ministry of Finance, whilst the Ministry of the Finance shall notify the FRA of its incorporation. The law mentioned further provides that interest on Sovereign Sukuk as well as their trading are subject to the same tax treatment of treasury bonds.

In Egypt, the Islamic finance market is actively embracing new trends, especially in areas that align with its national development goals. The two most significant emerging sectors are sustainable finance (including Green Sukuk) and Islamic fintech.

Sustainable Finance and Green Sukuk

Egypt is strongly committed to sustainable development. The government plans to issue Green Sukuk, which are Islamic bonds used to fund environmentally friendly projects. In this respect, the Egyptian government seeks to issue new Sukuk and green bonds valued between EGP5–10 billion during the third and fourth quarters of FY2024/2025, according to Finance Minister Ahmed Kouchouk. The Minister highlighted that this is part of a broader strategy to diversify financing sources and attract both investors and savers to the local debt market.

When structuring Islamic finance in Egypt, stakeholders often encounter delays and added costs due to the absence of a unified legal framework governing Sharia-compliant contracts. Each bank’s Sharia board may interpret Murabaha, Ijara or Istisna’a differently, so approvals can drag on. Additionally, existing tax and stamp duty regulations are designed for conventional loans, do not always align with the asset-based nature of Islamic transactions. Capital adequacy and liquidity rules, developed with interest-based lending in mind, often impose higher charges on Islamic assets, limiting banks’ ability to scale Islamic finance. Furthermore, conventional risk management tools such as interest rate swaps or currency hedges are generally non-compliant with Sharia principles, exposing issuers to financial risk from market volatility. Regulators also require Islamic assets to be accounted for separately from conventional ones, compelling institutions to establish parallel systems – adding an estimated 10–15% to operational costs and slowing down the roll out of new Islamic finance products.

Egypt follows a civil law system, with the Constitution at the top of its legal hierarchy, followed by legislation, presidential decrees, ministerial decisions, and judicial rulings. The Constitution states that the principles of Sharia are the main source of legislation, which gives Sharia a direct role in personal status matters like marriage, divorce, and inheritance for Muslims. In other areas, such as civil, commercial, and criminal law, Sharia has an indirect influence, ensuring that laws do not contradict core Islamic principles.

Directly: Article (2) of the Constitution stipulates that Sharia is “the principal source of legislation”, which forms the basis for personal status and family laws for Muslims.

Indirectly: Sharia regulates the Islamic finance; regulators like the CBE and the FRA work with Sharia Supervisory Boards to ensure products like Sukuk and Islamic funds follow Sharia rules.

The Central Bank of Egypt (CBE) and the Financial Regulatory Authority (FRA) are the principal regulators overseeing Islamic banking and non-banking Sharia-compliant financial services, supported by the Ministry of Finance for Sovereign Sukuk. They derive their authority from the Central Bank and Banking Law No 194 of 2020 and the Capital Market Law No 95 of 1992 as amended in 2018 and its executive regulations, enforcing compliance through licensing, mandatory Sharia audits and on-site inspections. Penalties for non-compliance include administrative fines (from tens of thousands to millions of EGP per breach), daily fines for ongoing violations, corrective directives, suspension or revocation of licences, seizure of non-compliant products and referral to the public prosecutor for fraud or breach of fiduciary duty.

There is no separate court system for Islamic products or participants. Civil courts or the economic courts would have jurisdiction to oversee such disputes or arbitration, if agreed upon by the parties in their contractual agreements. There is no separate jurisdiction for Sharia under Egyptian law. However, it is worth noting that the Egyptian Constitution provides that Sharia is one of the principal sources of legislation. To the extent that a Sharia principle is claimed, Egyptian courts would have discretionary authority in light of Egyptian legislation and public order to apply such principles.

Businesses in Egypt can use Islamic finance methods like Murabaha, Mudarabah, and Musharakah to manage their working capital and cash flow.

• Murabaha – in a Murabaha transaction, the bank purchases an asset and then sells it to the customer at a higher price, which includes a profit margin. The payment can be made in instalments. This structure ensures that profit is derived from sales rather than interest.
• Mudarabah – in a Mudarabah contract, one party provides the capital while the other provides expertise and management. Profits generated from the investment are shared between the parties based on a pre-agreed ratio, while losses are borne by the provider of the capital. This arrangement encourages transparency and aligns the interests of both parties.
• Musharakah – Musharakah is a joint venture where all partners contribute capital and share profits and losses according to their shareholding. This principle emphasises risk-sharing and co-operation, discouraging speculative behaviour and encouraging investment in productive business activities.

These Islamic finance methods help businesses access funds and manage payments in a way that suits their cash flow needs while following Islamic principles.

Under Egyptian legislation, securitisation is generally implemented through the assignment of financial rights owed to a company by its debtors, to a securitisation company, for the purpose of issuing securitisation bonds to investors. Once the assignment becomes effective, the assigned rights are no longer considered part of the assets of either the assigning company or the securitisation company. The assigning company bears no liability for the fulfilment of any obligations arising from the assigned financial rights after the assignment takes effect and shall have no further involvement, except for the potential role of acting as a servicer to collect the assigned receivables and transfer the proceeds to the relevant beneficiaries. Ownership of the assigned rights is limited exclusively to the holders of the securitisation bonds.

The sale of these rights to investors is typically structured on the basis of risk-sharing principles, allowing for a proportional allocation of any potential risks associated with the assigned financial rights across all investors.

This structure serves as a key factor in attracting banks and investors – particularly those seeking Sharia-compliant investment opportunities – to participate in bond offerings issued under such frameworks.

Fintech and emerging technologies do not consistently prioritise or deploy Islamic finance solutions, and their integration into Sharia-compliant working capital structures remains relatively less common. However, the authors have observed an adoption of revenue-based financing models, often structured in a Musharaka/Mudarabah style, serving as a Sharia-compliant alternative to traditional interest-bearing facilities. These structures align more closely with Islamic finance principles by linking repayment obligations to revenue flows rather than to interest.

Additionally, there has been movement toward developing Sharia-compliant equity financing instruments, with Simple Agreements for Future Equity (SAFE) being restructured to exclude interest, penalties, or other provisions inconsistent with Sharia principles. That said, non-Sharia-compliant financing structures, such as venture debt and standard convertible notes, continue to be the most common instruments utilised in the Egyptian market.

In Egypt, structuring Sharia-compliant working capital finance involves navigating complex contract requirements and varying interpretations of Islamic law, which can cause delays in funding. Risk-sharing options are often limited because financiers prefer lower-risk products, while the strict requirement for tangible asset-backed financing restricts many SMEs from accessing finance. Additionally, regulatory uncertainties and a limited range of Sharia-compliant products hinder innovation in the market. To overcome these challenges, Egypt needs to standardise Islamic finance contracts, leverage fintech to improve risk assessment, develop more asset-backed solutions such as supply chain finance, and strengthen regulatory frameworks to enhance accessibility and efficiency for businesses seeking Sharia-compliant working capital.

In Egypt, Islamic finance offers several Sharia-compliant products to fund businesses and projects while avoiding interest and promoting risk-sharing. Murabaha is a cost-plus sale where the bank buys an asset and sells it to the customer at a known profit, paid in instalments, helping businesses buy goods or equipment. Mudarabah is a partnership where one party provides capital and the other manages the business, with profits shared but losses borne by the capital provider, commonly used for investments and financing projects. Musharakah involves joint partnership where both the bank and client contribute capital and share profits and losses, often used in real estate and commercial projects. Ijara is a lease-to-own arrangement where the customer leases an asset and eventually owns it, useful for equipment or property financing. Istisna’a is a contract for manufacturing or construction, allowing clients to order customised products or buildings with payments over time. These products follow Islamic principles by being asset-backed, avoiding fixed interest, and encouraging shared risk between parties, making them suitable for various sectors like retail, industrial, real estate, and services in Egypt.

In Egypt, Islamic project finance products like Ijara, Murabaha, and Musharakah generally offer competitive pricing, with Ijara providing predictable rental payments and Musharakah sharing profits and losses, which can lead to variable returns. While Islamic financing may involve higher upfront structuring costs due to Sharia compliance, it avoids interest charges, appealing to ethical investors. Overall, Islamic project finance provides a Sharia-compliant alternative with both pricing and tax benefits under Egyptian regulations.

In Egypt, Sharia-compliant project finance typically involves a range of guarantees that are structured to comply with Islamic principles. Common forms include the following.

• Corporate or sponsor guarantees (Kafala) – support the obligations of the project company without involving interest-based liability, governed by Articles 772 and 782 of the Egyptian Civil Code No 131 of 1948, even if the guarantor is entitled to have a right of recourse against the debtor, and is offered at the request or with the consent of the debtor or voluntarily by the guarantor without the debtor’s request or consent.
• Asset pledges (Rahn), covering project-related assets such as equipment, land, or receivables of the project.
• Performance bonds and advance payment guarantees – issued by Islamic banks through Sharia-compliant contracts such as Wakalah (agency agreements) or Mudaraba (profit-sharing partnerships).
• Assignments of receivables – limited to proceeds arising from permissible (Halal) transactions, such as Ijara (leasing) or Murabaha (cost-plus sale).
• Insurance through an Islamic insurance coverage for the debt obligations whilst not extending to conventional insurance.

These guarantees are structured to comply with Sharia principles by avoiding interest (Riba), speculation, and unlawful gains.

The principal difference lies in the purpose and scope of the guarantees. In conventional finance, guarantees usually secure repayment of debt including interest. In contrast, Islamic finance extends to the actual principal or real losses, excluding any interest or penalties.

Islamic financing should be directed only towards activities that do not entail dealing in Sharia impermissible commodities or services as directed by the directives outlined in the Holy Quran and the noble Hadith of the Prophet (PBUH). These divine sources prohibit usury, alcoholic drinks, drugs, gambling, pork, illegitimate carcasses, prostitution, nightclubs, statutes, etc, as well as impermissible acts like deception, bribery, cheating in weight and measurement, and various types of prohibited sales. Each transaction is reviewed by the bank’s Sharia board to confirm compliance before issuing, to obtain their internal approvals.

According to the Executive Regulations of the Capital Market Law, in order for an entity to be able to issue Sukuk (an Islamic financial certificate, similar to a bond in conventional finance, but complying with Islamic law) convertible to shares, the underlying project, related agreements, prospectuses and information memoranda as well as applications in respect of listing and trading on the Egyptian Exchange are deemed permissible by the Sharia Committee according to the principles of Sharia. In the same vein, the underlying project must be an economic revenue-generating activity based on the feasibility study prepared in such respect. In this regard, Sukuk subject to the same issuance are issued in an equal value, non-tradable and non-divisible, and grant their holders the same rights.

The Financial Regulatory Authority, often referred to as the FRA, is entrusted with overseeing Sukuk issuances, whilst its board of directors determines the regulations applicable on the listing of Sukuk on the Egyptian Exchange or any stock exchange abroad after obtaining the approval of the FRA and in accordance with the regulations issued by the latter in such respect. Further, the board of directors of the FRA determines the accounting standards applicable to entities issuing Sukuk as well as their beneficial entities, and is entitled to authorise other accounting standards adopted by competent international authorities. Key regulatory considerations include ensuring transparency through comprehensive disclosure of subscription, allocation, and redemption terms.

Applying Islamic finance to fintech presents challenges, primarily ensuring that innovation does not conflict with Sharia principles. Many fintech tools, like smart contracts or blockchain transactions, are built on conventional models that may include interest, uncertainty, or speculation, all of which are not allowed under Sharia. The key issue is adapting these technologies in a way that respects both innovation and Islamic values.

In Egypt, there is currently no dedicated legal framework specifically for Islamic fintech. However, the FRA is gradually adapting existing digital finance regulations to support it. FRA Decree No 140 of 2023 sets rules for data security, encryption, archiving, and smart contracts – offering a foundation that can accommodate Sharia-compliant fintech, including blockchain-based solutions like automated Murabaha or Ijara contracts. While the Decree is not specific to Islamic finance, its flexibility allows digital Islamic platforms to operate within a regulated environment, provided they comply with both technical standards and Sharia principles.

Pursuant to Article 206 of the Central Bank of Egypt (CBE) Law No 194 of 2020, the issuance, trading, or promoting cryptocurrencies or operating related platforms are prohibited in Egypt without obtaining a licence from the CBE. While cryptocurrency activities remain restricted, Egypt has made progress in other fintech areas relevant to Islamic finance. Peer-to-peer financing and crowdfunding remain unregulated for now. These developments are gradually shaping a regulatory framework that supports Islamic fintech innovation.

There is no specific law regulating Islamic finance in Egypt’s fintech sector. However, Article 1 of FRA Decree No 42 of 2019 (as amended) established a Central Sharia Supervisory Committee responsible for approving and overseeing Sharia-compliant Sukuk and non-banking financial products. This committee oversees the use of proceeds, registers subsidiary Sharia committees and promotes the development of Sharia-compliant instruments in the non-banking sector.

Moreover, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) guidelines provide clear standards for Sharia Supervisory Boards overseeing Islamic crowdfunding and fintech platforms, ensuring they conduct regular supervision to maintain full compliance with Sharia principles throughout all stages of the funding process. This framework ensures digital Islamic finance products align with Sharia while accommodating new technologies.

Tax Challenges in Cross-Border Islamic Finance

Withholding tax and double taxation

Cross-border Islamic finance deals can trigger withholding tax on profit distribution or lease payments, which can reduce returns. There is also the risk of double taxation when both Egypt and the foreign jurisdiction tax the same income. These challenges often arise due to differences in national tax laws.

Varying tax treatments

Islamic finance structures may face inconsistent treatment across jurisdictions. In some countries the lack of specific tax guidance for Sharia-compliant products, may lead additional costs or unintended tax consequences.

Mitigation Strategies

To manage these challenges, the following strategies are often used.

• Double tax treaties – using double tax treaties to mitigate withholding taxes and avoid double taxation.
• Structuring flexibility – tailoring the transaction to meet both Sharia and local tax regulations.
• Tax opinions – obtaining binding rulings or guidance from local tax authorities to clarify the tax treatment and ensure compliance with local laws.

These strategies help legal advisers keep cross-border Islamic finance transactions that are both Sharia-compliant and tax-efficient.

In Egypt, Islamic finance transactions are generally subject to the same tax framework as conventional finance. However, Article 14 bis (19) of the Capital Market Law No 95 of 1992 provides a specific exemption relevant to Sharia-compliant Sukuk structures. It states that the transfer of assets from the Sukuk beneficiary to the securitisation company as part of the Sukuk issuance process is exempt from all taxes and fees.

This exemption is intended to eliminate any fiscal disadvantages for Islamic finance instruments compared to their conventional products, particularly in asset-backed structures. While there are no broader tax incentives exclusively for Islamic finance, this provision facilitates the issuance of Sukuk by ensuring tax neutrality during asset transfers.

There have not been any recent tax reforms or regulations in Egypt specifically targeting Islamic finance. The existing framework remains unchanged, applying equally to both conventional and Sharia-compliant financial products without any notable updates in recent years.

With financial inclusion as a key element of Egypt Vision 2030, Egypt’s Islamic finance sector is set for key changes to strengthen its legal and regulatory framework. The government aims to refine Sukuk regulations, simplifying issuance and encouraging more Sovereign Sukuk.

Sharia governance is anticipated to be further regulated by the CBE and FRA enforcing stricter compliance rules for Islamic transactions. Additionally, potential tax incentives may also be introduced for products like Murabaha and Ijara, enhancing their competitiveness against conventional financing.

As Islamic fintech grows, Egypt is expected to roll out clearer rules for Sharia-compliant digital platforms, positioning itself as a regional leader in digital Islamic finance.

To support the long-term growth and sustainability of Islamic finance, further legal and regulatory development is necessary, with the view of harmonising Sharia standards across jurisdictions, which is essential to reduce interpretational inconsistencies and boost investor confidence. Achieving tax neutrality for multi-step Islamic transactions would level the playing field with conventional finance structures.

There is also a growing need for specialised dispute resolution mechanisms tailored to the unique features of Sharia-compliant contracts. As digital finance expands, clear regulatory frameworks for Islamic fintech, including crowdfunding platforms and smart contracts, are critical. Strengthening institutional Sharia governance and ensuring the legal recognition and enforceability of Islamic finance instruments under civil law will enhance both transparency and legal certainty.