Radio Islam News Team – 27/01/2016

As public confidence in the banking sector remains low, consumers are looking for greater transparency and risk avoidance from their bank.

Can Islamic banking provide an alternative to Western banking models, and how is this model looking to expand into South Africa?

FNB Islamic Banking’s CEO Amman Muhammad joined Ml Sulaiman Ravat on Sabahul Muslim this morning where he said “this system of financial intermediation contributes to a more equitable distribution of income and wealth, which is attractive to clients Muslims and non-Muslims”.

He added that “there is a demand for a more formalised system of Islamic economics in the country. Alhamdulillah, you know just in the last few years, we’ve seen it become formal”.

With financial scandals becoming so common, it seems that the public has lost faith not only in the banks themselves, but also in the banking system.

Islamic banking and finance is based on profit and loss sharing, along with a religious prohibition in dealing in interest and transactions which are deemed too hypothetical in nature.

Muhammad noted that the aspects of Islamic finance also invariably apply to the infrastructure of all Islamic financial institutions, for example, Sharia compliant operational procedures, relating to the purchase and sale of assets as well as, usually, audits by the bank’s Sharia advisors.

The foundation of the Islamic finance model is based on a profit-sharing principle, whereby the risk is shared by the bank and the customer.

He attributes this to the significant Muslim population that exists across Africa and he points out that Islamic finance is also available to non-Muslims.

“Over the last few years‚ we have seen a rise in the number of South African citizens‚ irrespective of faith‚ who have approached us for various Islamic banking services such as investment accounts‚ vehicle and property finance.

Although Muhammad notes that transparency is likely to become more of an issue when it comes to sukuk transactions as investors will always want to be comfortable with the underlying credit of the issuer.

Therefore, he adds, Islamic finance can contribute to dealing with current issues of transparency in finance with the increased use of “robust corporate governance systems of internationally recognised standards, incorporating transparent, fair and ethical working practices”.

According to IMF report, Islamic finance is growing in Sub-Saharan Africa, including Botswana, Kenya, Gambia, Guinea, Liberia, Niger, Nigeria, South Africa, Mauritius, Senegal and Tanzania have Islamic banking activities.

There is also scope for development of Islamic finance in a number of African states, particularly those with relatively large Muslim populations, such as Zambia, which is interested in using Islamic finance instruments to fund investment in the mining sector.

However he has an optimistic outlook for the sectors future in Africa, estimating a likely increase in Islamic finance products in the coming years, something that will comfort many Muslim-owned businesses.

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Click to listen to podcast: Islamic finance growing – Even among non-muslims