The rise of Islamic finance is trending throughout the MENA region as well as the energy sector. And with the introduction of the sharia-compliant renewable energy bond, Egypt could be next in line to see this financing mechanism applied.
The East Delta Electricity Production Co., a wholly owned subsidiary of the Egyptian Electricity Holding Co. (EEHC), struck a deal to repair and finance the Damietta and Shabab power stations to help increase capacity of the national grid. The $110 million agreement to be disbursed over four years is the first syndicated Islamic financing deal in the country’s energy sector, meaning a deal struck with one company involving numerous financiers (National Bank for Development, Banque Misr, Egyptian Gulf Bank, Baraka Bank, Bank Audi, and United Bank). NBD’s CEO and managing director Nevine Loutfy told Alternative Energy Africa that there was potential for further collaboration in Egypt’s energy sector. NBD said in a release that the agreement remained part of the Bank’s commitment to “support the national economy in spite of the current circumstances.” Loutfy also mentioned that, depending on the government’s needs, that a green sukuk could be discussed in the future.
According to an Ernst & Young report, Islamic banking assets increased to $416 billion in 2010, representing a five-year CAGR of 20% compared to less than 9% for leading conventional banks. The region’s Islamic banking industry is expected to more than double to $990 billion by 2015. However, it’s not all bright for the sector. In 2010, the average return on equity for leading Islamic financiers declined 10% with market valuations converging to that of regional conventional peers.
Ernst & Young said in the “Brave New World of Sustainable Growth” that one of the biggest necessities to propel the Islamic banking industry would be to “strengthen the sharia differentiation and provide greater integration with the real economy.” The firm added, “A worrying concern though is the absence of an enabling legislative, regulatory, tax, and legal environment in most OIC (Organization of Islamic Conference) markets, which adds to the cost and complexity of Islamic banking operations.”
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