Africa is one of the biggest potential markets for Islamic finance, but longstanding religious tensions along with political and sectoral challenges continue to inhibit its development. UWAIZ JASSAT explores the path of the industry in the continent.
The Muslim population of Africa today is thought to be in excess of 410 million people. Shariah broadly influences the legal code in most Islamic countries but the extent of its impact varies widely. In Africa, most states limit the use of Shariah to personal-status-law for issues such as marriage and inheritance.
Egypt is one of the largest Muslim states in Africa and has Shariah as a source of its legislation, although its penal and civil codes are based on French law.
The presence of Islam in Africa dates back to the seventh century when the Prophet Muhammad advised some of his followers who were facing persecution to travel across the Red Sea to the safety of Abyssinia (now Ethiopia). Thus Africa became a safe haven for Muslims and the first place that Islam was practised outside of the Arabian Peninsula.
The fact that most African countries are not governed according to Shariah is one of the challenges in establishing Islamic banking and in the development of Shariah compliant financial products and services. Having to comply with Shariah as well as local statutory legislation and banking regulations makes product development challenging.
In South Africa, the government has identified Islamic banking as an opportunity to position South Africa as a financial hub for the continent. The South African National Treasury recently passed amendments to the legislation designed to promote a level playing field in South Africa for the growth of Islamic banking.
Islamic banking was first offered in South Africa in the late 1980s. The new offering faced a myriad of challenges. South African Muslims were not used to having the choice of banking according to their faith. They had been operating within a conventional banking environment and had found ways to manage their exposure to Riba (interest). Furthermore, access was difficult as there were few branches and no electronic banking platform. The banks with a national branch footprint only began offering Islamic banking in 2005-06. This was the start of making Islamic banking available to all South Africans at any time and from anywhere in the world.
Customer education became a key focus in the growth of Islamic banking. This customer education program included building a depth of understanding and support among local Shariah scholars. Once South African Muslims were convinced that Islamic banking was Shariah compliant, the customer numbers grew consistently.
The response from non-Muslims was also interesting. While some non-Muslims were attracted to the investment policy dictated by Shariah, many others felt that the name ‘Islamic banking’ excluded them and sounded like special treatment for Muslims. This requires a continuous communication program. Amusingly, some non-Muslims who had heard that there was no interest charged in Islamic banking tried to apply for loans, which they believed would be free.
The focus for Islamic banks in South Africa continues to be raising awareness of the offering and educating Muslims about their access to banking according to their faith. Simultaneously South African Islamic banks and financial institutions also work to build their product offerings so that they respond to the full range of customer needs. As discussed, this is a slow and careful process with the range of compliance required. The demand for Shariah scholars who have a depth of banking experience is constant as local banks need scholars as internal advisors and as independent Shariah board members.
While the Muslim population in South Africa is small – about 2% of the total population – Muslims are believed to contribute about 10% to GDP. This makes them a very attractive target for banks. South Africa is also being used as a springboard for taking Islamic banking into other African countries with far larger Muslim communities.
Uwaiz Jassat is the acting head at Absa Islamic Banking. He can be contacted at
[email protected]
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