Understanding Egypt's Sukuk Framework: Legal Implications for Foreign Investors
Africa Focus
Ali El HawaryPartner, Head of Banking and Finance - Egypt
Egypt has introduced a comprehensive legal framework for Sukuk, a form of Islamic financial certificate similar to bonds but structured to comply with Shariah law. This development marks a significant milestone in Egypt’s efforts to diversify its sources of finance, attract foreign investment, and integrate more deeply into global Islamic capital markets. For foreign investors, understanding the legal implications of Egypt’s new Sukuk framework is essential for making informed investment decisions and navigating the evolving regulatory landscape.
The Sukuk framework is established under Law No. 138 of 2021 and its executive regulations, which provide the legal foundation for the issuance, trading, and regulation of Sukuk in Egypt. The law defines Sukuk as financial instruments of nominal and equal value, issued in both local and foreign currencies, that are tradeable and have a specific, but renewable, term not exceeding 30 years. Sukuk represent undivided or common ownership in tangible assets, usufructs, services, or a combination thereof, in accordance with Shariah principles. These assets are privately owned by the State or a public governmental entity ("Assets"). Sukuk holders are entitled to use and derive returns from the Assets; however, they are not permitted to sell or otherwise dispose of the Assets, which cannot be seized or subjected to any enforcement proceedings during the term of the Sukuk.
The framework accommodates various types of Sukuk, including Ijara (lease-based), Mudaraba (profit-sharing), Musharaka (joint venture), among others, thereby offering flexibility to both issuers and investors.
The law also establishes a Shariah Supervisory Committee under the Financial Regulatory Authority (FRA)1 to ensure that all Sukuk issuances comply with Islamic law. This committee reviews and approves Sukuk structures, documentation, and ongoing compliance, providing assurance to investors seeking Shariah-compliant investment opportunities.
The Sukuk structure involves the Ministry of Finance, as part of its fundraising efforts, establishing a Special Purpose Vehicle (SPV) in the form of a joint stock company.2 This SPV is granted the right to use and benefit from the underlying assets that support the Sukuk issuance. Acting as an agent, the SPV issues and sells Sukuk, either in paper or electronic form to investors. These Sukuk represent fractional ownership in the usufruct of the assets, entitling investors (as Sukuk holders) to a proportional share of the income generated by those Assets.
The law requires that Sukuk issued locally be listed on the Egyptian Stock Exchange and held with Misr for Central Clearing, Depository and Registry (MCDR). International Sukuk, on the other hand, must be listed on global stock exchanges in accordance with international sovereign issuance standards. This framework is designed to attract both domestic and foreign investors seeking Sharia-compliant financial instruments.
The law defines Sukuk as financial instruments of nominal and equal value, issued in both local and foreign currencies, that are tradeable and have a specific, but renewable, term not exceeding 30 years.
To ensure transparency and protect investors, the law imposes strict penalties. It prescribes imprisonment for not less than one year and fines ranging from EGP 50,000 to EGP 1,000,000 for offenses such as fraudulent valuation of usufruct rights, disclosure of confidential information, falsification of Sukuk prospectuses, and unlawful distribution of returns. These provisions are intended to uphold the integrity of Sukuk issuances, ensure compliance with Islamic Sharia principles, and foster investor confidence in both domestic and international markets. However, criminal proceedings for offenses under this law may only be initiated upon a written request from the Minister of Finance. The Minister also has the authority to settle violations of the law under the following conditions:
Before initiating criminal proceedings: A settlement may be reached upon payment of an amount not less than the minimum fine and not exceeding one-third of the maximum fine.
After initiating proceedings but before a final judgment: A settlement may be made for an amount not less than three times the minimum fine and not exceeding half the maximum fine.
After a final judgment is issued: A settlement may occur upon payment of the full maximum fine.
A successful settlement results in the termination of the related criminal case. If the settlement occurs during the execution of the sentence, even after a final ruling, the Public Prosecution must order the suspension of the sentence.
Access to the Egyptian Market The Sukuk framework is open to both domestic and foreign investors, allowing international participation in Egypt’s capital markets. Foreign investors can subscribe to Sukuk issuances, subject to compliance with local regulations and any applicable foreign exchange controls.
Legal Certainty and Investor Protection The law provides a clear legal structure for Sukuk, including the rights and obligations of issuers and investors. It outlines procedures for issuance, trading, and redemption, as well as mechanisms for dispute resolution. This legal certainty is crucial for foreign investors, who may be unfamiliar with local practices.
Shariah Compliance and Oversight All Sukuk must be approved by the Shariah Supervisory Committee, ensuring compliance with Islamic finance principles. Foreign investors should be aware that the committee’s decisions are binding, and any disputes regarding Shariah compliance will be resolved according to its rulings.
Taxation and Repatriation of Profits The framework includes provisions to ensure that Sukuk holders are not subject to double taxation and that profits can be repatriated in accordance with applicable laws. However, foreign investors should review the specific tax implications and consult with local advisors to ensure compliance.
Dispute Resolution Mechanisms The law provides for dispute resolution through Egyptian courts or, if agreed by the parties, through arbitration. Foreign investors should pay close attention to the dispute resolution clauses in Sukuk documentation and consider the enforceability of judgments or arbitral awards in their home jurisdictions.
Regulatory Compliance Foreign investors must comply with the requirements of the Financial Regulatory Authority, including disclosure, reporting, and anti-money laundering regulations. The FRA plays a central role in supervising Sukuk issuances and ensuring market integrity.
Opportunities and Challenges Egypt’s Sukuk framework offers significant opportunities for foreign investors seeking exposure to a growing market with strong demand for Shariah-compliant financial products. The legal structure provides a level of certainty and protection that is attractive to international investors. However, challenges remain, including the need to navigate local regulatory requirements, understand Shariah compliance processes, and manage potential risks related to currency fluctuations and political developments.
The introduction of Egypt’s Sukuk framework represents a major step forward in the country’s financial sector reform and its integration into global Islamic finance markets. For foreign investors, the framework offers a transparent and regulated environment for Sukuk investment, with robust legal protections and oversight. By understanding the legal implications and regulatory requirements, foreign investors can effectively participate in Egypt’s Sukuk market and contribute to the country’s economic development.
For further information,please contact Ali El Hawary.
Published in October 2025
