Multinational banks and financial services firms are increasingly eyeing opportunities in Africa’s Islamic finance industry.
Africa is home to more than 412 million Muslims. PwC says that even though Islamic finance has been around for 50 years, more than half of the continent’s Muslim population remains unbanked.
Zuhdi Abrahams, director in financial services at PwC reckons that South Africa is well-positioned to promote the development of the industry in the rest of the continent. South Africa’s robust regulatory and legislative structures, strict risk management frameworks as well as governance and compliance structures make it a possible springboard for companies into the rest of the continent.
The country’s finance minister Pravin Gordhan is also keen to position South Africa as an Islamic finance hub. “The development of Islamic finance in South Africa is critical to the expansion of National Treasury’s strategy to position South Africa as a gateway into Africa. The treasury envisages South Africa being a central hub for Islamic product development and ensuring the rollout of such products into African markets,” he recently said.
Shariah law prohibits any transaction which involves paying or receiving interest. Transactions dealing with anything prohibited in Islam, such as gambling, pork, weapons, alcohol, pornography or any activity where there is uncertainty in the outcome of the transaction (“sale of the unseen”) are also outlawed. PwC says that the ethical, risk-sharing approach offered by Islamic finance is attracting increased attention, especially in the wake of the recent turmoil in the banking industry.
Almost 25% of Islamic financial institutions operate in non-Muslim-denominated countries. In South Africa, only 10% to 15% of the Muslim population uses Islamic alternatives and Islamic banking assets account for 1% or 2% of total banking assets. The South African Muslim population is relatively small compared to the total population and the Islamic finance market is not limited to the Muslim population. South African banks have already embarked on offering Sharia-compliant banking products in Africa.
South Africa only has one fully-fledged Islamic bank and the big four South African banks either have existing Islamic finance offerings or are looking to establish an offering in the near future. Only basic banking products including vehicle and asset financing are available. While investment products are limited, a number of Shariah investment funds are available in the market.