Saturday, October 30, 2010

Al Ahram Weekly Article 1 (28 May- 3 June 2009)

Those who paved the way

Egypt's banking system is rooted in the modern nationalist movement, writes SeifAllah Rabie*

The reception I got from the Khedive, when I had the honour of meeting with him to present my project, and the interest and determination I found on his part, ensures that the idea will be taken with care and initiative... I plead to the justice of those in charge to test both my project and the other one and choose the one closer to the interest of the country.
-- Amin Shumayyil in a letter to
Al-Ahram, 1879

With money being "the root of all evil" and paradoxically also the modern measure of all "success", over and above the current world economic crisis, in which banks have played the role of the main villain, and during which the banking system as a whole has come under severe scrutiny, it would be amiss not to take a look at the history of banking in Egypt.

All modern-day Egyptians crossing downtown have at some point or the other glanced up at the statue of Talaat Harb, maybe even taken the time to read the inscription beneath the statue, "Political and economic independence are soul mates, and it is our duty to enrich them with strength, power and resilience," and we all go along happily with the textbook idea that this great man was the "father of Egyptian banking".

This fact in itself is not to be totally discredited; Harb did have an enormous influence on the financial environment of 19th century Egypt. He founded Banque Misr in 1920, the first Egyptian national bank, but Harb himself mentioned others and gave them credit, at least for having national sentiment and national aspirations.

But as often happens, history has a highly selective memory and can at times be fickle about who to glorify and who to bury.

It must first be stressed that the idea of having a national bank was part and parcel of an Egyptian nationalist movement. It was a portrayal of its identity, character, desires and demands.

Into the spotlight walks a Syrian lawyer by the name of Amin Shumayyil, who came up with the idea of establishing a joint stock bank with a capital of LE14 million. The main objective of establishing the bank was to convert Egypt's foreign public debt into a domestic debt, and initiate a plan of liquidating it in a period of 28 years.

Actually, Shumayyil sent several letters to the Egyptian daily Al-Ahram under the title of Al-Bank Al-Ahli (The National Bank). Although the idea was welcomed by the Egyptian public and elite, it was too farfetched and not financially feasible, and was left to gather dust in economic drawers of the time. Still the question remains as to the character of Shumayyil. An article in Al-Ahram of 10 April 1879 opined: "verily, there are experienced and capable men among the children of our tongue, who are able to amend any aberration should the justice of decision-makers permit them to act."

Shumayyil stands out as an interesting example, although he was Syrian by birth and a Christian by faith. Nationalist measures at the time placed him (as well as his famous brother Shibli Shumayyil) as active contributors; therefore it seems that happenstance rather than territorial or religious identity formed the bond.

But Amin Shumayyil was not the only active mind at the time. Two other men put their heads together and came up with a very unique document known as Manshur Inma Al-Mal (The Communiqué on the Nurturing of Wealth) . These men were Omar Pasha Lutfi and Mohamed Pasha Sultan. Both belonged to the elite class of the 19th century and played active roles in the nationalist movement.

Whereas Shumayyil went into details in his proposal of establishing a national bank, Lutfi and Sultan viewed the issue from a more ideological perspective. The document focussed on the village debts crisis, which was threatening the peasants' possessions of agricultural land. The document also had a religious leaning, starting off by showing how the establishment of a national bank was actually in line with God's will, and moreover was a religious obligation.

The first line of the communiqué reads: "God in his highness did not create any of his creatures except to bear fruit and to be useful, God does not approve of leaving his gifts buried in the ground without bearing fruit..." On the other hand, the document showed the significance of the contribution of large enterprises (such as their suggested national bank) to Western economic and political power. The authors of the document did not find contradiction between religious justifications on the one hand and emulating the Western/European model of economic advancement on the other.

Reading Manshur Inma Al-Mal a very important point comes to light. It is difficult not to notice the significant difference between the nationalist sentiments of the 19th century and the nationalist sentiments of contemporary Egypt. The nationalist movement was led by the traditional elite, wealthy landlords, Western educated intellectuals, and men who had benefited from the social system that preceded European control. Therefore, their nature was far from radical, and was able to accommodate European economic prototypes within their nationalist demands.

The document does not portray the West as the villain and the East as the victim, but rather shows the West as a model of commercial superiority with their large corporations, unlike the East that stuck to the traditional pattern of small enterprises, where business is mainly dependent on an inheritance from one generation to the other.

It is obvious that the nationalist movements of the 19th century focussed on realising the potential of Egypt, and cementing its economic independence and power. The absence of Egyptian national banks was viewed as leading to a situation whereby most of the land became mortgaged to foreigners, and Egypt lost its economic independence.

The document went further in showing how the proposed bank would conform to Islamic Sharia law. It established the fact that lending money was in itself legitimate and that lending profits fell in the same category. Banking was presented in this document as mean for liberating peasants from usury. It was claimed that a national bank would help rescue the mortgaged lands from foreigners, and the pricing of the loans would conform with Islamic jurists judgement that have approved the rate of 15 per cent, unlike the actual percentage that peasants used to borrow at, which ranged from 30-40 per cent.

The precursors to Talaat Harb are the ones who took the initiative to look into the future, establishing the ideological base for banking in Egypt and giving it the legitimacy we depend upon today. Acknowledgement of their contribution in history is crucial in helping us understand the nationalist approach that took root in the early 19th century, and might give us some food for thought amidst the current turmoil.

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