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Islamic banking heralds African expansion
Absa Islamic Banking is firmly entrenched in the South African Islamic financial services market. It is making inroads in sub-Saharan Africa and is recognised as a globally competitive player. The majority of Africa’s Muslim population, estimated at between 400 million and 500 million (which constitutes nearly 50% of the total population of the continent), is still unbanked.
In the past five years, Absa Islamic Banking has played a central role in the development of the South African Islamic finance industry. It is positioned as a market leader, as clients benefit from Absa’s extensive footprint, by way of its national branch and automated teller machine network infrastructure.
Beyond South Africa’s borders, there is a clear growth vision for Africa as Absa, through its “One Bank in Africa” strategy with Barclays, focuses on expansion.
Absa launched its Islamic Banking division in 2006 and grew its customer base exponentially, a testament to the need for financial services based on Islamic Law or Shari’ah. Absa Islamic Banking is the custodian of Shari’ah governance within the Absa Group, supported by a highly skilled Shari’ah Supervisory Board.
Globally, one of the challenges facing the Islamic finance industry is the shortage of suitably skilled Shari’ah scholars. Absa Islamic Banking has been able to source and appoint some of the most sought-after scholars to not only its Shari’ah Supervisory Board but to its internal Shari’ah departments as well – they all adhere to stringent Shari’ah requirements.
Islamic Finance is still in its infancy in South Africa and many of the sub-Saharan countries. Therefore, consistent growth will require a concerted and co-ordinated effort from industry players, policy-makers and state institutions.
As an example within the South African environment, the impending challenges that have received attention from the National Treasury are those that are related to the South African tax framework, which is being reformed to accommodate the underlying structures that act as the building blocks of the Islamic finance industry. These structures were investigated thoroughly, and are expected to be brought into the National Taxation Act; they are intended to accommodate specific areas such as asset financing, deposit and investment accounts, joint ownership financing, and leasing structures.
Further down the line, a key point on the government’s agenda is the discussion around the launch of an Islamic bond, or sukuk, to finance various infrastructure projects.
According to Finance Minister Pravin Gordhan, 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 competition to establish African Islamic banking hubs is gaining momentum. One need look no further than South Africa’s island neighbour Mauritius, which consistently has ranked as one of the most progressive places to do business. Bank of Mauritius Governor Rundheersing Bheenick had long commented on the need to position the country as a regional hub for Islamic finance, thus tapping into a sector worth over one trillion dollars in assets.
In the “Doing Business 2012” report by the International Finance Corporation and the World Bank, for the fourth year in a row Mauritius ranked as the easiest place for an entrepreneur to do business in sub-Saharan Africa. Little wonder that a country setting standards in the business sector has placed the growth of Islamic finance high on its agenda. It has been less than a year since Mauritius opened its first fully fledged Islamic Bank, Century Banking Corporation.
The case of Mauritius is indicative of a growing trend across sub-Saharan Africa. An increasing number of countries are reviewing regulatory and tax frameworks to enable the growth of a non-interest banking system, including African economic powerhouses Kenya, South Africa and Nigeria.
For example, Nigeria’s Central Bank governor Lamido Sanusi has stated on numerous occasions that the country wants to position itself as the African hub for Islamic banking. There are positive projections for the potential of Islamic finance in Nigeria, as nearly half of the 150-million population is Muslim.
Sanusi says the country is looking at the example of Malaysia, where a national Shari’ah council sets rules for Islamic financial institutions, which are standardised under the Central Bank.
Kenya and Tanzania have made significant strides in facilitating the growth of local and international Islamic finance institutions, with Kenya recently licensing two banks and rapidly positioning itself as a gateway for Islamic finance into East Africa.
Therefore, the competition for Absa Islamic Banking is from local and global multinational players that are scrambling for their share of the wallet. To compete, the business has focused on customer service, innovation and the group-wide objective of driving sustainable growth in targeted markets.
In addition, emphasis is placed on increasing awareness of Islamic banking, supported by education and training initiatives.
In 2010, Absa Islamic Banking played a key role in the development of the Banking Sector Education and Training Authority learning material for Islamic finance, and a growing team of skilled Shari’ah scholars ensures the business is a frontrunner in the development of the industry.
Drilling down
Absa Islamic Banking entered the South African market with an investment and transactional banking offering and has since expanded with a comprehensive Islamic business banking offering.
More recently, a significant milestone for Absa Islamic Banking was its acquisition of Takafol South Africa. With an estimated global growth projection of US$12bn by the end of 2011, the takaful (Islamic insurance) industry is a market that Islamic financial institutions cannot afford to ignore.
This acquisition makes Absa probably the only financial institution in Africa to offer both Shari’ah-compliant banking and insurance services under one roof, giving clients an unrivalled value proposition.
Furthermore, since the launch of Absa Islamic Banking, the business has achieved many firsts, particularly being the first South African Islamic financial institution to launch the only two Shari’ah-compliant exchange traded funds, and by offering the MasterCard World Card.
Absa Islamic Banking has extended its offering into neighbouring African countries with the launch of Islamic Banking in Tanzania. Traditionally, northern Africa has been the key growth driver for Islamic finance on the African continent, but sub-Saharan Africa has become the focus for the Islamic banking growth story.
An African growth strategy
In 2010, Tanzania’s economy grew at 7%, driven by a strong performance in agriculture, construction, manufacturing, transport, communications, fishing and real estate. The Bank of Tanzania has projected an economic growth rate of just over 7% for 2011, with the country attracting foreign direct investment in many industries including Islamic finance.
In May 2010, Absa Islamic Banking was launched in the Tanzanian market. The Tanzanian National Bank of Commerce (NBC), of which Absa owns 55%, launched Islamic banking retail products. Central to the success of Islamic banking was the support that Absa Islamic Banking and NBC received from key scholars and community leaders. The Grand Mufti Sheikh Shabaan Simba of Tanzania had conveyed a positive message about Shari’ah-compliant interest-free banking, thus further entrenching the need for communities to manage their finances according to Shari’ah principles.
There were numerous innovations that underpinned the offering in Tanzania. When takaful was introduced into the market, it was the first time it was embedded into a savings product. The next phase is to develop a range of takaful products to include standalone short-term products.
In August this year, the product suite including an Islamic cheque and savings account was expanded with the introduction of Islamic corporate banking.
The Tanzanian business is on an exciting growth path, as it explores more opportunities in the digital space: Internet and cellphone banking, and additional transactional products.
Absa Islamic Banking continues to explore opportunities in other African markets. Under the Absa Group’s “One Bank in Africa” strategy, Islamic finance has come of age with the recognition that an African growth strategy must include Islamic financial services.
Amman Muhammad, managing director
Absa Islamic Banking
in line with the 'one bank in africa' strategy, can we expect barclays bank to open an islamic window?
jazak Allah for a prompt reply