What do you believe is the potential for Islamic banking on the African continent?
Africa is home to the second-largest Muslim population after Asia. It is estimated that there are 450 million African Muslims. Sources indicate that Muslims make up 45% of the population on the African continent.
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 prevalence of Muslims in African countries ranges from approximately 95% of the population of Egypt in the North, to only 2% in South Africa. Between those extremes lies a significant banking opportunity. Even when the percentage of the population is small, as in South Africa, the relative affluence tends to be high, as Muslims are often entrepreneurs and business owners. In South Africa for example, it is commonly believed that the 2% of the population which is Muslim contributes about 10% of the country’s GDP.
The opportunity for Islamic banking provided by the large numbers of Muslims on the African continent has yet to be realized. The vast majority of Africans are unbanked. Delivering a faith-based solution that responds to a person’s religious beliefs is bound to be a stronger proposition than conventional banking has been able to offer Muslims to date.
What has been done to date to realize this opportunity?
Islamic banking in Africa began in Egypt in the 1960s and today Egypt has four large Islamic banks. Shariah compliant banking has extended into some other countries, such as Morocco, Kenya, Nigeria, Tanzania and South Africa but the vast majority of African countries still lack a Shariah compliant banking offering.
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. The South African National Treasury has amended the Income Tax Act with the intention of creating a level playing field in South Africa for the growth of Islamic banking. These amendments to the legislation are a demonstration of South Africa’s commitment to becoming a financial hub on the African continent. Any African country that wishes to attract Middle Eastern investment or become known as a financial hub, must offer Shariah compliant investment vehicles in order to fulfil these ambitions. Without Islamic banking they immediately limit their attractiveness to Muslim audiences. A number of other African countries are starting to discuss the regulatory changes required in order to become ‘Islamic banking friendly.’
How have Muslim communities in African countries responded to the availability of Islamic banking products?
The growth of Islamic banking in Egypt and Kenya are good examples of how the relevance of the offering to its target audiences drives growth. Islamic banking has only been available on the continent since the late 1960s, so it is still a relatively new concept in banking, but indications to date are that the potential is great. Word of mouth is the key driver of information about Islamic banking in Muslim communities and, as each new happy customer talks about the peace of mind he finds in banking according to his faith, the potential grows.
What changes do you expect to the availability of Islamic banking products during 2013?
I am confident that the number of countries in which Islamic banking is available will significantly increase during 2013. As part of the Barclays Group, we plan to launch an Islamic banking offering in these Barclays African territories where there is a demand for Shariah compliant financial products and services. We will play our part in supporting the Barclays strategy of becoming the ‘Go-To Bank’.
What regulatory changes would you expect in order for Islamic banking to grow on the continent?
The key issue for the spread of Islamic banking at this stage is central bank approval. Naturally, central bank officials in countries not yet offering Shariah compliant banking offerings are not familiar with this form of banking and this requires a period of knowledge transfer until they reach a point at which they feel confident to regulate the offering. Once the regulation is in place, the natural next step is to examine local tax and other financial laws to ensure that they don’t disadvantage anyone who chooses Islamic banking. For example, in South Africa profit share is currently treated in the same way as interest for tax purposes.
As you take over as head of Absa Islamic Banking, what is your vision for the delivery of Shariah compliant products and services on the continent?
Africa is currently the continent which the rest of the world sees as having great potential. Our riches in minerals, energy resources, fertile land and large consumer markets are attracting the attention of international investors looking for new opportunities. South Africa is a member of the BRICS countries, a select group of five large, developing countries (Brazil, Russia, India, China and South Africa ). The BRICS countries are distinguished from a host of other promising emerging markets by their demographic and economic potential to rank among the world’s largest and most influential economies in the 21st century (and by having a reasonable chance of realizing that potential).
As we move from the relative safety of Islamic banking in South Africa towards the vastness of the African continent, there is the excitement of the potential available to us. This comes with the risks inherent in delivering a new offering to the wide range of cultures on the continent. People living on other continents are often tempted to see Africa as a homogeneous mass. In fact each country has a very distinct culture and we must understand and be sensitive to those cultures as we humbly enter their territories to offer Islamic banking, in most instances as a completely new concept. If my team and I can be instruments for ensuring that our fellow African Muslims are offered the choice of banking according to their faith, I believe we will have fulfilled my destiny.