[BLOG] Islamic banking: A partnership made in heaven?
Judging by some recent developments, the Islamic finance industry continues to gain traction in sub-Saharan Africa (SSA) with the major boost coming from Standard Chartered Bank (SCB), whose dedicated Islamic banking division, Saadiq, made its entry into Kenya in April, its first such foray into Africa.
It is perhaps revealing that SCB Saadiq chose to launch its debut operations in Kenya rather than South Africa or Nigeria, the two largest economies in Africa. Individually, South Africa is the most developed Islamic finance market in SSA, followed by East Africa (mainly Kenya, Uganda and Tanzania) and West Africa (Nigeria and Senegal).
However, if northern Africa is included, then Sudan is by far the oldest and most developed Islamic finance market, with the so-called ‘Arab Spring’ countries undergoing political and economic transition.
Standard Chartered is capitalising on its existing network of 28 conventional banking branches in Kenya, where enquiries about and demand for Shariah-compliant financial products have been increasing. The bank has suggested that it would use the unit in Nairobi to spearhead its Islamic finance activities into other African countries as well. Initially, SCB Saadiq’s branches in Nairobi and Mombasa, where the largest percentage of Kenya’s 15% Muslim population (out of total population of 40m) are located, will be dedicated Islamic banking ones, expanding later to other locations.
Another driver of SCB Saadiq’s decision to use Kenya as a hub is the adoption of the Capital Markets Master Plan (CMMP), which at the time of writing, was under market consultation for comments to the Capital Markets Authority (CMA) and which has detailed proposals for developing an Islamic finance and capital market in Kenya both in the short and medium term. The CMA and the Central Bank of Kenya (CBK) are both proactive supporters of the development of Kenya’s Islamic finance proposition, which they see as vital in promoting Nairobi as a major international financial centre in Africa.
In the CMMP consultation draft, the CMA stresses that “Islamic capital markets need to be recognised in the legislation governing capital markets (among other financial services sub-sectors).”
Similarly, the Kenyan authorities believe that by opening up the financial system to Islamic finance, consumers, irrespective of faith, would get wider choices. It could also make Kenya more attractive for inward foreign direct investment (FDI) especially from the Middle East and Southeast Asia, the two largest regional markets for Islamic finance in the world.
Earlier this year, the CBK’s Kenya School of Monetary Studies and INCEIF, the Islamic finance education entity of Bank Negara Malaysia, the central bank, launched a Regional Certificate in Participatory/Islamic Banking to train the next generation of Islamic bankers in Kenya and beyond.
At the launch, Professor Njuguna Ndung’u, Governor of CBK, reiterated that, “in Kenya we are committed to an Islamic banking framework for conducting financial transactions. As Kenya and the region at large becomes an increasingly attractive destination for investments, the onus is on you, the financial industry players and financial institutions to tap into this tremendous potential in the area of Islamic banking.” Kenya currently has two stand-alone Shariah-compliant banks, Gulf Arab Bank (GAB), with Omani investment, and First Community Bank (FCB), which is locally owned.
On the southern tip of the continent, at the same time, South Africa’s Finance Minister, Pravin Gordhan, confirmed in his 2014 National Budget speech to Parliament in Cape Town in February that the country’s debut sovereign sukuk will be launched this year.
Some of the banks involved in advising on the debut Sukuk issuance, stress that “good progress has been made with this project and at this stage we have no reason to believe that the issuance will not proceed as indicated by Minister Gordhan.” One banker, quoting a National Treasury source said that the size of the Sukuk would be in the region of $500m.
Shabir Randeree, a member of the Board of Directors of Albaraka Bank (South Africa), the first and only stand-alone Islamic bank in South Africa, speaking in a personal capacity, confirms that Islamic finance is gaining prominence in South Africa to the extent that amendments have been made to taxation legislation to recognise Islamic banking products.
“The amendments,” he told African Banker, “have opened the way for Islamic finance to grow very significantly in the years ahead thereby offering an ideal opportunity for Islamic financial institutions to demystify Islamic banking and to educate the South African business community and public at large of the benefits of ethical banking. In essence, Islamic banking requires a concerted marketing and advertising effort.”
The South African Islamic banking market is currently estimated at R80.6bn ($7.63bn) in terms of assets under management (AUM). Albaraka Bank’s AUM, alone, grew by 18% in 2013 to pass the R4bn ($379m) mark to reach R4.4bn ($417m) at year-end. The bank has a customer base of 40,000 in South Africa. In 2013, Albaraka Bank also launched an International Banking Division following approval by the South African Reserve Bank (SARB) for it to commence trading as an Authorised Dealer in Foreign Exchange; and a Shariah-compliant cheque account product.
“The bank,” confirmed Randeree, “has also made significant progress in structuring a Basel III compliant sukuk issuance. In this regard, an application has been submitted to the SARB for its consideration and approval in due course.” Others such as Ebrahim Moolla at FirstRand Treasury, part of the FNB Group, speaking in a personal capacity, agrees that the potential for Islamic banking in Africa, is enormous.
“My sense is that people don’t want handouts; they would rather have opportunities that they can pursue, and I think that this fits perfectly with the ethos of Islamic finance. In South Africa,” he says. “There is scepticism still about Islamic banking. However, with time, this could be overcome.”
- See more at: http://africanbusinessmagazine.com/african-banker/islamic-banking-partnership-made-heaven/2/#sthash.m9aSllui.dpufSouth Africa to launch sovereign sukuk
On the southern tip of the continent, at the same time, South Africa’s Finance Minister, Pravin Gordhan, confirmed in his 2014 National Budget speech to Parliament in Cape Town in February that the country’s debut sovereign sukuk will be launched this year.
Some of the banks involved in advising on the debut Sukuk issuance, stress that “good progress has been made with this project and at this stage we have no reason to believe that the issuance will not proceed as indicated by Minister Gordhan.” One banker, quoting a National Treasury source said that the size of the Sukuk would be in the region of $500m.
Shabir Randeree, a member of the Board of Directors of Albaraka Bank (South Africa), the first and only stand-alone Islamic bank in South Africa, speaking in a personal capacity, confirms that Islamic finance is gaining prominence in South Africa to the extent that amendments have been made to taxation legislation to recognise Islamic banking products.
“The amendments,” he told African Banker, “have opened the way for Islamic finance to grow very significantly in the years ahead thereby offering an ideal opportunity for Islamic financial institutions to demystify Islamic banking and to educate the South African business community and public at large of the benefits of ethical banking. In essence, Islamic banking requires a concerted marketing and advertising effort.”
The South African Islamic banking market is currently estimated at R80.6bn ($7.63bn) in terms of assets under management (AUM). Albaraka Bank’s AUM, alone, grew by 18% in 2013 to pass the R4bn ($379m) mark to reach R4.4bn ($417m) at year-end. The bank has a customer base of 40,000 in South Africa. In 2013, Albaraka Bank also launched an International Banking Division following approval by the South African Reserve Bank (SARB) for it to commence trading as an Authorised Dealer in Foreign Exchange; and a Shariah-compliant cheque account product.
“The bank,” confirmed Randeree, “has also made significant progress in structuring a Basel III compliant sukuk issuance. In this regard, an application has been submitted to the SARB for its consideration and approval in due course.” Others such as Ebrahim Moolla at FirstRand Treasury, part of the FNB Group, speaking in a personal capacity, agrees that the potential for Islamic banking in Africa, is enormous.
“My sense is that people don’t want handouts; they would rather have opportunities that they can pursue, and I think that this fits perfectly with the ethos of Islamic finance. In South Africa,” he says. “There is scepticism still about Islamic banking. However, with time, this could be overcome.”
Mushtak Parker|African Business
- See more at: http://africanbusinessmagazine.com/african-banker/islamic-banking-partnership-made-heaven/2/#sthash.m9aSllui.dpuf