22 - 28 July 1999
Issue No. 439
|Published in Cairo by AL-AHRAM established in 1875|
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A Diwan of contemporary life (295)The first attempt at establishing an Egyptian bank was made in 1842 by Mohamed Ali, the founder of the royal dynasty. But it failed mainly because of his state monopoly. More than 50 years later, the National Bank of Egypt was founded. But it was Egyptian only in name: the British, who occupied Egypt in 1882, held most of the shares and had full control. A campaign for the establishment of a truly Egyptian bank was launched in 1919 in what amounted to an economic revolution coinciding with the nationalist anti-British uprising. The drive paid off and the Misr Bank was founded the following year. It lives on today. Dr Yunan Labib Rizq * tells the story from reports published by Al-Ahram
The banking revolution
Less than two months after the outbreak of the mass uprising known as the Egyptian Revolution of 1919, another revolution erupted on the pages of the national press. Equally popular in character, the focus of this uprising was economic. It voiced the demand for the creation of an Egyptian national bank to counter the hegemony of the foreign banks, viewed by Egyptians as no less oppressive than the military forces of foreign occupation.
To describe this movement as a revolution is not excessive. Following the progress of the campaign, in which Al-Ahram was a prime player, one observes a broad array of public participation, lending the movement a mass character. Moreover, the campaign was marked by tenacity in the pursuit of the demand until ultimately the powers that be were forced to cave in.
The idea of founding an Egyptian national bank had haunted Egyptians since their country entered the international marketplace under Mohamed Ali in the first half of the 19th century. Mohamed Ali, himself, pioneered the first modest attempt when, in 1842, he decreed the establishment of a commercial bank. This bank, which was to be based in Alexandria would have "the authority to determine the value of the currency, set the prices for all commercial and agricultural commodities that are subject to trade, open credits and receive government remittances and proceeds." The project failed. With his hands so tightly controlling the government monopoly on the means of production, the Pasha of Egypt never generated the economic environment conducive to the natural development of the incipient bank and its activities. Also, in Egypt, the transition to capitalism had been initiated from the top down, unlike in Europe where, beginning in the 16th century, a nascent capitalist class had begun to make itself increasingly influential in shaping socio-economic realities for which banking was a primary instrument.
This initial failure, however, did not discourage the notion of banking among Egyptians, at least those in contact with Europe.
Following the death of Mohamed Ali, Egypt did indeed open itself to capitalist forms of financial transactions and world trade. At the outset of the reign of the Khedive Ismail, in particular, Egypt invested heavily in cotton as a cash crop. The Royal Cotton Exchange was established, the volume of commercial exchange grew dramatically and a large influx of foreigners paved the way for an increasing financial activity. The attendant rise in the generation and circulation of capital created a natural climate for the establishment of banks. The remainder of the 19th century thus saw the rapid emergence of privately owned banking houses and the establishment of branches of foreign banks such as Le Credit Lyonnais and the Ottoman Bank.
These developments eventually led to the creation of the Egyptian National Bank in June 1899. The name of the bank, however, is deceptive. Founded essentially with European-based capital, most of its shares were placed on the British market, with a small quota allocated for sale to a handful of Egyptian notables. In addition, the initiative to form the bank was also foreign-inspired, coming from the thousands of foreign expatriates in Egypt, prominent among whom was the Souaris family whose name was associated with one of the major private banking houses in Egypt.
One of the major accomplishments of the National Bank at the beginning of the 20th century, within months of its inception, was to issue banknotes. Egypt's first paper currency appeared in two denominations: a hundred-piastre note bearing the picture of two camels and a fifty-piastre note bearing the picture of the sphinx and the pyramids.
However, the 1907 economic crisis in Egypt exposed the fact that the National Bank of Egypt was Egyptian in name only. At the first signs of the crisis, when prices plummeted on the Royal Stock Exchange, Al-Ahram of 22 May wrote that the rapid drop in the prices of shares below their actual value was the result of the lack of liquidity. People's money was "trapped" in the banks, the newspaper wrote. "The National Bank, for example, has more than a million pounds invested in London. This bank could have invested that money in Egypt and set the example for other banks."
The case of the Casa Disconto Bank illustrated the perils of the monopoly of the foreign-owned banks over the Egyptian financial market. This bank ultimately had to close its doors to the public, which, as was the habit at the signs of economic crisis, scrambled to the banks to withdraw their deposits. Within a matter of days, the Casa had paid out some LE330,000, a considerable sum at the time for what was a relatively small bank. Although the National Bank lent it LE50,000, that was not sufficient. The Casa turned to the Union Bank of Austria, one of its main shareholders, for a grant of LE150,000 to rescue it from disaster. The officials of that bank, however, refused to comply before examining the Casa's ledgers while other European banks withheld assistance pending the consent of the Union bank. The Casa Disconto may, itself, have been a relatively insignificant bank, but its fate would send ripples of anxiety into an already distressed climate. As Al-Ahram wrote on 23 June, "One of the country's small banks was forced to close down yesterday, casting a shadow of gloom on all faces and unnerving the entire country. Hardly would two people meet than they would ask one another what brought on this catastrophe and would other catastrophes follow."
It is true that the small bank did not ultimately have to declare bankruptcy and put its shares and property up for auction. Al-Ahram soon announced that the Union Bank and a group of Egyptian banks had bailed it out with loans of LE100,000 and LE200,000 respectively, "on the condition that the donors would oversee the gradual liquidation of its assets". Nevertheless, the bank's debacle underscored the fragility of the continued dependence of the Egyptian economy on foreign banks. Perhaps for this reason, the crisis of 1907 could be said to mark the beginning of the drive for a truly national bank, one that would be Egyptian both in name and in essence.
One of the first to launch the appeal through Al-Ahram in 1919 was Mohamed Badawi El-Biali, a student at the College of Law, who wrote five articles on the subject. Although he and other students of the higher educational institutions spearheaded the movement, it was not long before journalists joined the fray. In the forum furnished by Al-Ahram, these included two of the newspaper's most noted columnists: Aziz Bek Khanki, author of "Small but Significant", and Mohamed Tawfiq Diab, author of "Glimpses."
"The state of our economy and the need to found a national bank" was the title which El-Biali chose to open his campaign. Appearing in Al-Ahram of 27 April, it was an impassioned appeal. Economic conditions, he wrote, were looking up, which made it all the more imperative "to accept advice." In his view, the only way to prevent a backslide was to "establish a national bank to amass the vast sums of money that are being squandered left and right." Admonishing "the wealthy and owners of hoarded treasures of which your country is in the direst need", he wrote: "You no longer have any excuse (to continue hoarding your wealth) now that you have seen the manifestation of that pure spirit -- the spirit of solidarity that courses through our veins, bringing men and women side by side to work for the good of the country.
In his second article, which appeared three days later, El-Biali adopted a more foreboding tone. Egyptians, he warned, "will remain strangers in their own country, alienated from its bounty, as long as its imports and exports, its foreign trade, its banks, its stock exchange, its insurance companies, its major industries and its shipping industry remain in the hands of our foreign brothers."
El-Biali's voice was soon joined by that of another law student. Mahmoud Helmi Leheta, whose article appeared in Al-Ahram in early May, made similar appeals for a national bank. However, he added that for the project to come into being, three prerequisites had to exist: money, men and confidence. Egypt met the first two prerequisites, he maintained. "Egyptians, thank the Lord, are wealthy. They have untold sums deposited in foreign banks as a form of security. They do not even get the interest, which these banks invest independently, sending the profits to their shareholders in Europe." Egypt was also rich in the necessary personnel for the project. "We have entrepreneurs who have accumulated their wealth through their own toil and labours; we have qualified specialists who are now bank directors or senior officials at prominent banking houses and whose expertise, skills, intelligence and good management stand as proof of their competence." Because these conditions existed, the third prerequisite would follow naturally, as Egyptians would instinctively have more confidence in their fellow Egyptians than in foreigners.
Two months later, rumours spread that 50 "public-spirited gentlemen" began the process of founding the Egyptian National Bank. As is the case with rumours, there were exaggerated reports on the capital these men had accumulated for this purpose, some reports citing figures up to a million pounds. To put paid to such exaggerations, Al-Ahram announced that it had learned from its sources that the amount of capital was far less, no more than LE250,000. It added that "the founders want to build their project upon firm and sound foundations, proceeding from the natural law that healthy growth starts from small beginnings."
The news of the initiative rekindled Egyptians' enthusiasm for the project, with some of Al-Ahram's most prominent columnists adding momentum to the drive. Very much in form, Tawfiq Diab, author of "Glimpses", offered a succinct depiction of his feelings, which may well have reflected the feelings of all Egyptians at the time. Diab relates his reaction upon reading the news that a number of Egyptian entrepreneurs had begun the process of founding the Misr (Egypt) Bank. He recounts, "I read this news out loud, then I read it again, and yet for a third time. Then I began to doubt my eyesight. If you had seen me, with my eyes popping out at that news item, my pupils virtually touching the print, you would have laughed in your astonishment at how weak my faith in my sense of sight had grown."
At the root of his weak faith in that sense was an intense fear. He explains, "How many times have we attempted to rise, only to end up prone on our backs. How often have we soared to the heavens on hope and plummeted back down to earth in reality. How often have we laboured, but failed to give birth and how often have we sought the promise of our most capable men and come up empty-handed... Therefore, I have a right to be afraid."
Aziz Bek Khanki, author of "Small but Significant" was less emotive. He could find nothing that would prevent the project from seeing the light of day. Capital assets existed -- approximately LE14 million in the banks, according to his calculations, most of it not getting interest. There were also considerable sums of idle money that could be tapped in various trust funds, the palace, the syndicates, charitable and philanthropic societies, the Red Crescent, the university, private schools, various Egyptian-owned companies and commercial outlets and municipal councils. In the course of enumerating the various sources of capital, Khanki cites the names of Egypt's wealthiest agricultural landowners. Apart from the members of the royal families, he lists what were reputed to be the 25 richest families in Egypt. Khanki argues that were all these assets to be conglomerated, they would form an enormous national capital reserve upon which the national bank could depend.
Also riding the new wave of enthusiasm for the national bank were those who spearheaded the early drive, foremost among whom was Mohamed Badawi El-Biali. Perhaps more than other proponents, El-Biali saw the formation of a national bank an indispensable component of national liberation. Foreign banks, he reminded his readers, "operate on Egyptian money, lend Egyptians money and extort money from Egyptians. These banks are no more than branches of large financial houses whose headquarters are far away from Egypt and influenced by conditions in those countries, heedless of the welfare of our country."
Another writer, Suleiman Hassib El-Wardani advised his wealthy compatriots to withdraw their assets from foreign banks and deposit them in the national Egyptian bank, and to keep in their homes "only those funds necessary for temporary exigencies." Apparently, shortly before writing his article, the Council of Ministers had deferred ratifying the bank project. El-Wardani took the opportunity to condemn what he referred to as "the harbingers of evil, disseminators of falsehoods and populist demagogues" for "spreading rumours about the drain on the nation's wealth." Such rumours, he argued, in conjunction with the curious behaviour of the Council of Ministers, were counter-productive. They only fed the foreigners' accusations that "you (Egyptians) are negligent and backward and do not merit full independence. For what have you done? The foreigners' money is surrounding you on all sides while your Egypt is devoid of any nationally owned and run economic enterprises."
Before the week was out, however, Al-Ahram made an announcement that would put paid to El-Wardani's pessimism. On 5 April, under the headline "The Misr Bank is on its way", the newspaper published a letter sent to it from Mohamed Talaat Harb, informing it that on that day "the Sultan will promulgate an edict providing for the establishment of the Misr Bank." Talaat Harb's letter went on to say that the bank would be founded with a capital of LE80,000 and that, soon, the shareholders would be summoned to a general assembly meeting to determine ways to increase the capital. The writer concluded by asking Al-Ahram to "bring these good tidings to the Egyptian people so that they can be reassured about their project." Al-Ahram commented, "We have now moved to the working phase, where action takes the place of words and commitment takes the place of incitement to action and appeals to the conscience."
On the following day, 6 April, Al-Ahram featured the text of the Sultan's edict. The edict called for the formation of a joint-stock company called the Misr Bank. The bank contract would be drawn up by eight associates who were Egyptian subjects, who included Talaat Harb. The main article of the edict stated that these individuals would be authorised "to establish, upon their own cognizance and at their own responsibility, a joint-stock company in Egypt that will be called the Misr Bank. Under no circumstances shall any responsibility whatsoever accrue to the government from this authorisation, provided that the above-mentioned individuals abide by the laws and customs of the country."
It was indicative of the importance Al-Ahram attached to the new bank that it listed all names of the 50 initial shareholders. The largest shareholder was Abdel-Azim Bek El-Masri, who purchased a thousand shares. He was followed by Ali Bek Ismail at 600 shares and Talaat Harb and Ahmed Midhat Yakin at 500 shares each.
The newspaper also reviewed the main provisions of the company's 43-article charter. Among these was the article that stipulated that the management of the company would be controlled by a board of directors consisting of a minimum of nine and a maximum of 15 members. Elections would be held every year to elect the chairman and vice-chairman of the board. In order to be eligible for membership of the board, candidates had to own at least 250 shares.
One reader had written to Al-Ahram to voice his doubts about the low initial capital of the Misr Bank. Al-Ahram reminded him that the company had not yet put up its shares for public subscription and assured him that "the capital that has been collected so far is solely for the purposes of founding the company. Soon the bank will begin business and its capital assets will increase in proportion to its growing activities."
On 10 May 1920 Al-Ahram published the speech Talaat Harb delivered on the occasion of the inauguration of the bank. Talaat Harb took special pains to address "the spurious accusations" that surrounded the establishment of the new bank. The first was that the founders' insistence that the bank be fully Egyptian-owned was indicative "of fanaticism and backwardness". The second was that Egypt did not have the qualified people to operate a bank. The third was that "in spite of all the fanfare that accompanied the project, the founders were only able to collect LE80,000."
Talaat Harb countered that, firstly, restricting the shareholders to Egyptians was not new in the world of banking. The national banks of Switzerland and Sweden had also confined shareholding to their respective nationals. It is true, he admitted, that the national bank of France permitted foreigners to own shares, but those shareholders were not allowed to attend general assembly meetings. The same applied to the national bank of Austria.
The second accusation Talaat Harb dismissed out of hand. Nevertheless, he added that the officials of Misr Bank were fully prepared to benefit from the expertise and information any foreigner might offer in his capacity as technical adviser or employee at the bank, "but not as governor of the bank or any other position of control that would entitle him to alter the policy of the bank in a manner that would contradict the will of its shareholders or prejudice the national welfare."
Finally, he admitted that the initial capital of the bank was indeed modest. However, he noted that Egyptians were not yet accustomed to such forms of financial entrepreneurship. At the same time, the modest initial capital did not make the bank any less intent upon the pursuit of its objectives. The Misr Bank, Talaat Harb concluded, was "neither a charity nor a refuge for the unemployed. It is a commercial house that will engage in a commercial activity in accordance with the proper norms and principles of that activity."
Not long after Talaat Harb's inaugural address, the general assembly of the Misr Bank held an extraordinary meeting in order to issue new shares to augment its capital to LE2 million. It was also decided to rent the premises of the former Bank of Rome on Al-Sibaa Street. By the end of June, the Misr Bank had moved into its new premises and opened its doors for business. If the name of the street, Al-Sibaa, meaning "the lions", had any portent, it was that there were indeed some very vicious beasts of prey intent upon the new bank's demise. The lion that was the Misr Bank would have to fight fiercely in order to hold its own in a dramatic struggle that formed an important chapter both in the history of the Egyptian economy and in the history of the Egyptian nationalist movement.
* The author is a professor of history
and head of Al-Ahram History Studies Centre.