Appendix 2

Islamic Capital Investment Companies

The Sharikat Tawzif al-Amwal al-Islamiyah are known in the English language as "Islamic capital investment companies" (ICIC). They should, however, be differentiated from the other phenomenon of "Islamic banking," which started with one bank in 1970 and grew to more than 100 by the mid-1980s. Both groups claim that they adhere to Islamic law (shari'a) in which usury (riba) is forbidden and is interpreted as synonymous with interest rates. Their practice, therefore, is based on the concepts of the mudaraba,1 musharaka,2 and similar ideas.

Whereas Islamic banking is governed by strict central bank regulations and Islamic banks have become reorganized as national and international institutions, the ICIC were established as companies without supervision by any central monetary authority. In Egypt, the ICIC were started in the late 1970s more or less by money exchange dealers in the outlawed black market of foreign currencies (mainly the US dollar).

Duwaider has divided the development of ICIC into three distinctive stages:

The first stage lasted from 1978, when the first ICIC was established, until 1983. In this stage, money-exchange dealers conducted their business through the banking system, especially in the private and joint-venture banks, by opening foreign-currency denominated accounts which were used to finance the growing import sector.

The second stage may be identified as lasting from July 1983 to January 1985, during which time the Ministry of Economy tried to freeze bank accounts of 55 major money-exchange dealers. To circumvent the Ministry's action, they resorted to forming their own companies, through which they have directly attracted the savings of Egyptians, including those working in the rich Arab-oil exporting countries.

The third stage may be seen as starting in January 1985. By November 1987, the number of ICIC had substantially increased to about 180.3 They had successfully mobilized unprecedented amounts of savings deposits, totally between $10 and $14 billion.4

The achievement of the ICIC in collecting such massive amounts in a short period of time was not only due to an ability to capitalize on deep-rooted religious convictions, but also because of their campaign announcing rates of return on deposits ranging from 20 to 25 percent annually. They accepted deposits either in the form of cash or in gold or other jewelry. At the beginning, the ICIC were able to distribute such high and unmatchable rates of return from the accumulated amounts of new deposits. Such an inflated balloon was bound to burst. In November 1987, when some depositors were not paid by one of the largest ICIC, the Egyptian government had to intervene. It issued Law 146 in 1988 with the purpose of safeguarding the interests of Egyptian depositors in the ICIC. Even though the collapse of some of the ICIC and the deposits of millions of Egyptians invested in them constituted a major political and financial problem in the country, the Egyptian government is still attempting to find some means through which the money deposited in them can be returned to its owners. It does not seem that the government will be able to track down the assets of the ICIC, especially since a major part of them was transferred out of Egypt.


  1. Mudaraba, meaning speculation, is based on a contractual agreement for profit-sharing between an Islamic financial institution providing 100 percent of the capital of a venture and an entrepreneur managing the venture.
  2. Musharaka, meaning partnership, is based on a contractual agreement for capital sharing in a venture between an Islamic financial institution and an entrepreneur managing the venture. In this case, profits and losses are distributed according to relative equity sharing in the venture's capital.
  3. A list of the Islamic capital investment companies, with information regarding the amounts deposited with them, was published in Cairo in October, No. 627 (October 30, 1988) and No. 634 (December 18, 1988).
  4. Duwaider, op. cit., pp. 11-12.