Egypt Pioneers Sustainable Finance with Local Green Islamic Bond

Egypt is poised to make a landmark shift in sustainable finance by planning the issuance of Green Islamic Bonds, also known as green sukuk, in its local market for the first time. This groundbreaking initiative is part of the government’s broader strategy to diversify funding sources, reduce public debt, and promote sustainable development. As the country battles economic challenges and strives to align with global sustainability goals, the introduction of green sukuk reflects a renewed commitment to environmentally friendly financing.

The plan, announced by Finance Minister Ahmed Kouchouk, aims to strengthen investor confidence, support the government’s budget, and position Egypt as a leader in sustainable Islamic finance. This move comes as part of a larger effort to attract new investors, reduce external borrowing, and stimulate economic growth.

Strategic Objectives

The issuance of green Islamic bonds is more than just a financial milestone; it is a crucial step toward transforming Egypt’s economic landscape. By introducing green sukuk, Egypt aims to achieve several key objectives:

1. Funding Sources

Finance Minister Ahmed Kouchouk has stressed the importance of diversifying Egypt’s funding sources to reduce reliance on external debt. By offering green Islamic bonds, Egypt can tap into a growing pool of investors interested in sustainable finance. The growing global demand for ethical and green investment options makes green sukuk a strategic move for the country.

2. Debt Burdens

One of Egypt’s biggest economic challenges is managing its national debt. As of the 2023/2024 fiscal year, Egypt’s budget deficit stood at 505 billion Egyptian pounds. The introduction of green Islamic bonds will help reduce borrowing costs, increase liquidity in the local market, and ease the pressure on foreign currency reserves.

3. A New Class of Investors

Green Islamic bonds are designed to attract environmentally conscious investors who prioritize ethical investments. By issuing sukuk that adhere to Islamic principles and sustainable development goals, Egypt aims to draw both domestic and international investors seeking socially responsible investment opportunities.

4. Supporting Vision 2030

The issuance of green Islamic bonds aligns with Egypt’s Vision 2030 strategy, which emphasizes environmental sustainability, economic growth, and social inclusion. Funds raised from the sukuk will be channeled into projects that support renewable energy, waste management, sustainable transportation, and eco-friendly infrastructure. These initiatives will also contribute to the achievement of the United Nations’ Sustainable Development Goals (SDGs), particularly in the areas of clean energy and sustainable cities.

Key Collaborations

In preparation for the issuance of green Islamic bonds, Egypt’s Ministry of Finance has sought technical support from international financial institutions and development partners. The aim is to ensure that the issuance process aligns with global best practices in green finance and Islamic finance.

• Islamic Trade Finance Corporation (ITFC)

One of Egypt’s key collaborators is the Islamic Trade Finance Corporation (ITFC). Hani Salem Sonbol, CEO of the ITFC, has engaged in discussions with the Egyptian government on improving the sukuk issuance process. The ITFC’s support aims to ensure that Egypt’s issuance of green sukuk aligns with global standards in Islamic finance and environmental sustainability.

• Guidance from Global Experts

Egypt is also engaging with global financial advisory firms, multilateral development banks, and technical experts to ensure its green sukuk issuance follows best practices. These consultations are aimed at improving transparency, investor confidence, and project reporting mechanisms.

Planned Issuance Details

The issuance of Egypt’s first green Islamic bonds is expected to take place during the third and fourth quarters of the 2024/2025 fiscal year.

The initial issuance is expected to range between 5 billion and 10 billion Egyptian pounds. This amount is considered a strategic starting point, allowing the government to test market appetite while laying the groundwork for future issuances.

Proceeds from the green sukuk will be allocated to projects that align with sustainability goals. Potential areas of focus include:

1. Renewable Energy Projects: Development of solar, wind, and hydroelectric energy projects to reduce Egypt’s dependence on fossil fuels.

2. Green Infrastructure: Investment in environmentally friendly buildings, smart cities, and low-carbon transportation.

3. Waste Management: Development of waste recycling and waste-to-energy projects.

4. Clean Water and Sanitation: Expansion of water purification systems and improved access to clean drinking water for underserved communities.

Historical Precedents

Egypt’s venture into green finance is not unprecedented. The country’s first steps into the world of green bonds and sukuk have already laid the groundwork for future success.

• Egypt’s Sovereign Green Bonds (2020)

In September 2020, Egypt became the first country in the Middle East and North Africa (MENA) region to issue sovereign green bonds. The $750 million offering was oversubscribed nearly five times, demonstrating strong investor confidence and appetite for green finance. The proceeds were used to support sustainable transportation, clean energy, and climate-resilient infrastructure projects.

• Egypt’s First Sovereign Sukuk (2023)

In February 2023, Egypt issued its first sovereign sukuk, worth $1.5 billion with a three-year maturity. The sukuk issuance was part of the government’s strategy to diversify its debt instruments and attract investors from Islamic finance markets. The success of this issuance has encouraged the government to pursue green sukuk as a natural next step.

Tax Reforms

In tandem with the launch of green Islamic bonds, Egypt’s Ministry of Finance is introducing a series of tax reforms and investor incentives aimed at boosting market participation.

1. Tax Procedures

The government is implementing measures to simplify the tax filing process, particularly for small and medium-sized enterprises (SMEs). These measures are intended to broaden the tax base and increase revenue collections.

2. Green Investments

To encourage investment in green projects, the government is offering tax incentives for companies that engage in environmentally friendly projects. These incentives aim to reduce the cost of green investments and enhance investor returns.

In addition to issuing green Islamic bonds in the local market, Egypt is preparing to re-enter the international bond market. Plans are underway to issue $3 billion in Eurobonds and other debt instruments during the current fiscal year. By tapping into the global bond market, Egypt aims to diversify its financing sources and attract a broader investor base.

Implications for Sustainable Development

The issuance of green Islamic bonds aligns with Egypt’s goal of sustainable development and economic resilience. By raising funds through green sukuk, the government will be able to:

• Address Climate Change: Support projects that reduce greenhouse gas emissions and promote renewable energy adoption.

• Create Green Jobs: Expand employment opportunities in sectors such as renewable energy, waste management, and sustainable infrastructure.

• Enhance Climate Resilience: Develop infrastructure that is more resilient to climate-related shocks and natural disasters.

Egypt’s decision to issue green Islamic bonds marks a significant milestone in the country’s journey toward sustainable development and economic reform. The launch of green sukuk will help Egypt diversify its funding sources, reduce its debt burden, and strengthen its position as a leader in sustainable Islamic finance. By tapping into the growing global appetite for ethical and green investments, Egypt is positioning itself as a pioneer in the Middle East’s sustainable finance market. Through its partnerships with global financial institutions and ongoing tax reforms, Egypt’s green sukuk issuance is set to attract new investors, boost the local economy, and support the country’s broader Vision 2030 objectives.