The politics of the Islamic investment companies in Egypt

Abstract

The investment companies discussed in this article (sharikdt taw.zf al-amwdl) came to prominence in Egypt in the years 1985-88. They were 'investment companies' in the sense of inviting deposits from the public on which they paid very high rates of return, but in forms which did not offend against the Islamic interdiction on interest dealing. Their activities enjoyed wide media coverage and formed the subject of heated political debates. They also posed serious problems for the public authorities. This episode was punctuated by dramatic events and scandals, culminating in the collapse of some of these companies in 1988 and the cessation of deposit-taking from the public by all the others. The legal and financial ramifications of their activities have continued to preoccupy public opinion and the media to the present day. These companies and their activities had a particular impact on Egyptian politics because they were closely related to two central issues: infitah and its economic consequences, and the Islamic phenomenon. The companies, which as we shall see, seemed to operate with remarkable freedom from public regulation, were seen by critics of the policy of infitdh as examples of the harm that can be done by unchecked private enterprise, and for the same reason were defended by the free marketeers. Their appeal to Islamic sentiments and the employment of religious rhetoric in defence of their activities brought the investment companies into the field of debate over Islamic politics and economics. This paper will give a brief account of the activities of these companies and reactions to them, and review the political debates to which their activities gave rise. The origins of the investment companies have been traced to the activities of private currency traders in the 1970s. These traders offered financial services to Egyptian migrant workers in the Gulf who would not entrust the transfer and conversion of their remittances to the banks, or use the official rates of exchange. In time, these financial services grew to include investment. They were, for the most part, personal and unofficial transactions with no clear legal status, and were probably of doubtful legality. It was alleged by their critics that two of the directors of al-Rayyan (one of the largest and most prominent companies of the later 1980s) were included in a Ministry of Interior list, dated 26 June 1983, of well-known illegal currency dealers. Some of these dealers started publicly-declared investment companies in the 1980s. Even the largest of these companies (the seven largest were: al-Sharif, al-Rayyan, al-Sa'd, alHuda, Badr, al-Hilal and al-Hijaz), remained family firms. Many of the smaller 'companies' were not companies at all, but operated by small entrepreneurs with connections; one writer called them 'money shops'. Early in 1988, as a tactic in the struggle against proposed regulations, al-Rayyan reconstituted itself as a public company issuing shares. In fact the company