Following the South African government’s recent announcement of its plans to issue the country’s first sovereign Sukuk, Absa Islamic Banking (Absa Islamic), the Shariah compliant arm of Absa Bank, may be among those best positioned to capitalize on the country’s Islamic finance initiatives.
As one of the few home-grown banks to provide full-service Islamic banking in the country, the bank is also looking to expand its presence across its home continent, leveraging the strength and experience of its parent bank, Barclays.
With awareness and interest in Islamic finance picking up across Africa, South Africa’s reputation as the continent’s success story could represent a major advantage in promoting the industry’s growth in the region. Couple this with Absa Islamic’s existing expertise and its home-ground advantage, and the bank may just emerge as the leading Shariah compliant finance player in one of the world’s most exciting markets yet.
Solid foundation
One of Absa Islamic’s key successes is its standing as a fully-fledged Islamic bank in a market where Shariah compliant finance has been slow to take off, despite what is seen as latent demand from the country’s approximately 80 million Muslim population.
In a response to Islamic Finance news Amman Muhammad, the managing director of Absa Islamic, remains optimistic regarding the unit’s growth going forward. “As Absa Islamic is not just a provider of Islamic banking services but also of Takaful, investment and estate planning solutions, we see a few potential growth areas. Among the focus areas on the banking front are business and corporate banking; and our unique wealth offering that provides exceptional service by skilled and experienced bankers; all done while upholding stringent Shariah compliance.”
In addition, the unit plans to consolidate its leadership position in the corporate and investment banking space next year. According to Amman, this will be achieved by tapping further into the Absa group’s strong national and international footprint and distribution strength to reach communities and businesses seeking an Islamic finance alternative in South Africa and the wider African continent.
“Our African growth plan is well in motion,” he noted, adding that hand in hand with Barclays, its parent company, Absa Islamic plans to roll out its services in “a few more” African countries through its ‘One Bank in Africa’ strategy.
He also said that following the unit’s acquisition of South Africa’s sole Takaful firm, Takafol South Africa, in September this year, its main aims now also include growing the Islamic insurance business and transforming it into a household name.
Government game-changer
The Islamic finance industry has also been buoyed by news of South Africa’s planned debut sovereign Sukuk, to be issued via the National Treasury; and this optimism has spilled over into positive expectations on the growth of the industry, not just domestically but across Africa.
“This will be the first liquid, listed and tradable Shariah compliant instrument in sub-Saharan Africa and one of very few on the continent. The impact that this would have on the Islamic finance industry would be significant as there is a demand for such certified instruments that could act as banking regulation-compliant liquid assets for banks, and fixed income securities for asset managers,” commented Amman.
He also believes that Sukuk represents a “perfect” alternative for much-needed fundraising in South Africa, for a variety of core infrastructure projects that would attract warmly welcomed foreign direct investment.
The planned sovereign Sukuk is also likely to benefit the local Islamic banking industry, helping to raise crucial awareness of the country’s Shariah compliant market.
“The Islamic banking industry in minority Muslim countries is always challenged by the lack of appropriate awareness and education around the mechanics of this alternate form of banking. The Sukuk issuance will certainly go a long way towards opening the minds of all that there is an alternate way of doing banking,” noted Amman.
On Absa Islamic’s part, he also said that the unit views itself as an integral part of the overall process of bringing Islamic banking to South Africa. The unit also hopes to leverage Absa group’s position as one of the largest local banks to help further the growth of Islamic finance in the country.
Bright prospects
Meanwhile, Amman was unable to comment on expectations of Absa Islamic’s financial position, as the bank is currently preparing to close its books for the 2011 financial year.
In the period ended the 30th June this year the banking group, which reports results half-yearly, recorded profit of ZAR4.83 billion (US$575.95 million) against ZAR4.11 billion (US$490.1 million) a year earlier, on an asset base of ZAR715.92 billion (US$85.37 billion).
With its strong financial position and having emerged as an early mover in the South African Islamic finance market, Absa Islamic appears poised to dominate Africa’s Shariah compliant financial industry. Nonetheless, further efforts are undeniably needed to ensure the industry’s continued growth and to cement the success of the advance guard players.
However, Amman remains optimistic. “Much can still be done, but at this point we are pleased with the efforts of the South African government, specifically in levelling the playing field by making changes to the South Africa National Taxation Act in recognizing Islamic finance products for the very first time; and now with our government making public its intention to issue Sukuk.” — EB