In 2020, the narrative of Islamic finance penetration was anchored by South Africa, Kenya, Nigeria, Senegal and the Ivory Coast. These nations led the growth of more than US$31.1 billion in Islamic finance assets. However, data about the Central African Economic and Monetary Community (CEMAC) region (Chad, Cameroon, Gabon, Equatorial Guinea, Congo & Central African Republic)’s contributions on these assets was hard to find. This is quite telling.
The CEMAC region saw customer demand for Islamic finance solutions and services grow anecdotally, but the documented returns and positive market impact did not seem to be aligning or playing out as it has in the rest of Africa.
Why and what does this mean for 2021 and beyond?
Review of 2020
A quick review of 2020 reveals unprecedented and unpredictable market dynamics across all sectors in the region. COVID-19 brought SME engagement to a snail’s crawl, economic growth fell below 3%, reliance on oil and extractive imports softened and no new licenses for Islamic banks were issued in the CEMAC region.
Some of the big players such as Ecobank, Afriland Bank, Banque Populaire and others delivered Shariah banking services to address financial inclusion but this progress was overshadowed by a notable reduction in traditional lending which tends to be the focus of financial measurement and reporting in the private banking and finance sectors.
The reason that Islamic banking and Shariah financing is not better known or reported in this region is due to a lack of knowledge as well as low prioritization and no broad-based adaptation of Islamic principles to encourage financial depth. Customers are not informed of the benefits or they have choices. As with the growth of Mpesa in East Africa, fintech solutions that incorporate Islamic finance have had to thread their way through an ecosystem that barely defines the shortcomings from the viewpoint of Islamic finance.
Mpesa’s unexpected growth and explosion was driven by the fortuitous meeting of smart innovation that was inspired by customer demand under the less-than-watchful eye of a regulator that was not up to speed on fintech innovations and their impact on the livelihoods of customers and businesses.
2020 might have been a different story in the Central African region if similar conditions existed for Islamic finance. 2021 could fare better with recognition and acceptance if the industry could define customer solutions through the lens of Islamic-driven innovations and guide the regulator through an Islamic finance sandbox.
Preview of 2021
2021 offers an opportunity to grow Islamic assets under management and assist the CEMAC region to rebound in a post-COVID-19 era. Ovamba predicts that investments and grants will become available to underwrite data studies; marketing and customer outreach will become sought-after niche skill sets; public relations and communications will double down on educating interested stakeholders in the sector; and policymakers will seek to include Islamic finance as a necessary tool in economic recovery efforts. This will be successful only if the regulator actively supports and promotes solutions that serve customers for growth rather than regulate as a defensive response to what appears to be ‘the unknown’.
2021 could see microTakaful as a strategic response to disaster prevention and the disrupted supply chains will take on a more domestic flavor with Murabahah and Musharakah soothing the way for risk-averse traditional banks and microfinance institutions that have yet to enjoy the non-interest-bearing revenues from alternative trade finance.
All indications point to strong trending from central banks globally to slow down economic attrition with government-backed stimulus plans. We see Sukuk built around diaspora remittances to boost liquidity, share risk and bolster capital markets. If these strategies are combined with consolidation of banks and Islamic fintech sandboxes, then there is every chance that 2021 could begin to claw back 2020’s losses.
Of course, none of the aforementioned would be possible or effective without a policy shift. For the Islamic finance industry to reach its full potential in the CEMAC region, it will be imperative that legal statutes, policies and Shariah compliance dovetail efficiently to ensure a robust inclusion of Islamic finance at all levels of the banking and finance sectors. Ovamba recommends a two-tiered approach that incorporates simple messages to customers and a policy response to sandbox results will be most effective.
The CEMAC region should work on shaping the perception and expectation that Islamic finance has a meaningful application to businesses at the lower end of the pyramid where GDP growth begins. The approach should include demonstrable evidence of businesses that have grown and benefited from Islamic finance along with data from trade and capital-tracing from the informal sector. Realistically, this is a beginning. It will be 2022 and beyond before we see traction and positive change.