Africa is home to more than 412 million Muslims, and multinational banks and finance organisations are starting to take advantage of the opportunities that exist in the African Islamic Finance market. Over the last decade, global Sharia- (Islamic Law) compliant assets have grown at approximately 15 percent per year and Sharia assets have reached the $600 billion mark.
Even though Islamic Finance has been around for 50 years, more than half of Africa’s Muslim population is still unbanked. The growth potential in Africa is phenomenal because Islamic Finance is one of the most dynamic and fastest-growing sectors in the world.
South Africa is well-positioned to promote the development of this industry in Africa given our robust regulatory and legislative structures, strict risk management frameworks as well as governance and compliance structures.
Finance Minister, Pravin Gordhan, expresses the same opinion: “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.”
With the recent turmoil in the banking industry, the ethical, risk-sharing approach offered by Islamic Finance is attracting increased attention. 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.
Almost 25 percent of Islamic financial institutions operate in non-Muslim-denominated countries.In South Africa, only 10 to 15 percent of the Muslim population uses Islamic alternatives and Islamic banking assets account for one or two percent 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.