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Tuesday, 1 July 2014

Islamic banking sector in SA shows healthy growth

ABOUT half of Africa’s population is Muslim and businesses are gearing up to meet the needs of this growing market with Islamic finance and banking products.
Just less than a decade since the market was created, the local Islamic banking sector is estimated to be worth R80.6-billion in terms of assets under management.
On the African continent, the market’s assets are estimated to be more than $1.6-trillion (about R17-trillion) and are expected to surge to more than $5-trillion by 2020. These numbers may seem a stretch, but Africa is home to more than 500 million Muslims — about a quarter of the world’s Muslim population.
The growth of Islamic banking has not gone unnoticed by the National Treasury. Earlier this year during the budget speech, former finance minister Pravin Gordhan revealed that South Africa will launch Islamic bonds — better known as sukuk — before the end of the year. Sukuk are normally based on property or infrastructure and are designed to pay a fixed profit rate rather than a coupon.
Absa, FNB, Al Baraka Bank and HBZ Bank offer Islamic commercial and corporate banking products in South Africa.
Standard Bank has Islamic banking offerings in other countries on the continent, and Nedbank is rumoured to be assessing the possibility of dipping its toes into the market.
Islamic banks do not require their clients to be Muslims. “We are not pushing a religion here. We are pushing a [financial] product that has certain requirements,” said the head of Islamic banking at Absa, Uwaiz Jassat.
Those requirements have to be compliant with sharia law, which prohibits the taking and receiving of interest and also rules out certain other practices in conventional banking.
For example, when Islamic banking clients deposit money in their savings accounts, the lender will then trade the money to earn a return on it and those returns are shared with the customers.
Jassat said this method sometimes beat the return on a conventional interest-bearing savings account.
Last year, the returns for Absa Islamic banking saving accounts were 2% higher than for conventional ones.
So it is not surprising that more people are opting to switch to Islamic banking. About 10% of Absa’s Islamic bank customers are non-Muslim. Although Absa’s Islamic banking division is relatively small, its contributions are quite significant to the parent company’s bottom line, according to Jassat.
Al Baraka, the first stand-alone Islamic bank to operate in South Africa with a full bouquet of financial products, has more than 40 000 customers.
Al Baraka, whose parent company is based in Bahrain, has eight branches nationwide, most of them in Muslim communities. Last year, total assets grew 18.7% to nearly R4.4-billion, and advances swelled 13.1%. Al Baraka’s deposit book grew 18.6% to R619.1-million and the equity finance book increased 23.1% to R126.6-million.
Al Baraka’s CEO, Shabir Chohan, said about 30% of the Muslim population — which is estimated to be more than two million strong in South Africa — was using Islamic banking products provided by local banks.
The total Islamic banking sector in South Africa is estimated to be worth as much as R12-billion. Chohan said this meant his bank had the potential to grow eight to 10 times its current size.
Absa’s Islamic banking division is eager to introduce vehicle and home-loan products. Jassat said that once more products were introduced, “customer numbers will skyrocket”.
However, if it does not move fast, it might end up eating its rivals’ dust. FNB’s Islamic banking unit already offers these products and recently launched a term-deposit product.
The CEO of FNB’s Islamic banking unit, Amman Muhammad, attributed the success of FNB’s Islamic banking products to the fact that they were underpinned by strong values and principles that, he said, covered much more than just finance.
Much like Absa, which is controlled by Barclays, FNB has its sights set on expansion beyond South Africa’s borders.
“Africa provides a large opportunity for growth,” said Muhammad. “Muslim entrepreneurs play an important role in the African economy, so the need to provide appropriate financial services through the correct channel is paramount.
(Business Day / 29 June 2014)
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Malta potential for Islamic finance

Malta is increasingly perceived as an attractive gateway for Islamic finance, a sector which currently sees an annual expansion rate of 15-20 per cent and has an estimated value of $2 trillion as at 2014.
Speaking at the latest educational clinic on Sharia-compliant funds organised by FinanceMalta in collaboration with the Malta Funds Industry Association, some of Malta’s 27 fund administrators discussed how to apply the rules of Islamic finance transactions to the country’s financial regulations.
The suite of investment vehicles offered by Malta’s International Financial Centre also resonates well with Islamic investors, who may set up their funds as Special Purposes Vehicles, Undertakings for Collective Investment in Transferable Securities, Alternative Investment Funds or Professional Investor Funds. Having a regulatory framework in place that allows for protected cell companies and incorporated cell companies, Malta is well placed to accommodate charitable collective funds, better known as Takaful insurance solutions.
To create further awareness about this sector, FinanceMalta will be publishing a new series of sector guides in January 2015, one of which will now focus solely on Islamic finance. The MFSA is also the only EU regulator that has issued formal guidelines on Sharia-compliant investments.
“Since Sharia-compliant funds prohibit interest on loans and generate profits in a socially responsible manner, experienced practitioners are also adamant on maintaining a strong focus on ethics and prudential practices,” FinanceMalta’s head of administration Bernice Buttigieg said.
David Zahra, partner at David Zahra & Associates, explained that the guidelines were meant to create a level-playing field between locally-based fund administrators and investors and to overcome the challenge of applying two sets of regulations to this type of transaction.
“Coupled with concerted efforts by the Maltese government to offer further incentives to investors,this helps Malta achieve top-of-mind awareness status in the Islamic world,” he said.
(Times Of Malta.Com / 01 July 2014)
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