Johannesburg - The Islamic division of South Africa's First National Bank has hired a new sharia advisory committee and aims to rebrand itself after a governance crisis in 2012 saw the previous board quit, denting investor confidence.
Under the new structure, the committee will no longer play a role in the day-to-day running of the business, removing the potential for conflicts like those which led to a public spat with management last year.
“We're proposing to go to the market at the start of our new financial year with the name FNB Islamic Banking. It's important for us to build our credibility in South Africa, (while) FNB acts as a conduit between us and other African countries,” said the new chief executive of the Islamic business, Amman Muhammad.
The new committee consists of Aznan Hasan, Yusus Patel and Zaid Haspatel. FNB is the retail arm of South Africa's second-biggest banking group, FirstRand.
“In the new structure, we no longer call them a board, we're using the term “sharia advisory committee” and we now clearly define what the role of the committee is,” Muhammad said, adding that the new team would review the bank's previous sharia products.
Sharia committees or boards monitor banks' products and activities to check they follow Islamic principles. FNB's previous sharia board resigned last July after disagreements over the board's role when new management took charge of the division, according to former board members.
Deposits at the Islamic bank continued to grow even during last year's crisis, highlighting the demand for sharia banking in Africa's biggest economy, Muhammad said, although he did not provide specific figures.
Only 2 percent of South Africa's population is Muslim but authorities say they want to establish the country as a hub for Islamic finance.
FNB Islamic Banking aims to expand into neighbouring Zambia, where about 12 percent of the population is Muslim, Muhammad said. Other estimates for Zambia's Muslim population are lower.
Zambian central bank governor Michael Gondwe said last month that the relatively small Muslim population was made up of “high value businessmen who control a very significant share of the Zambian economy”, making their exclusion from the banking sector hurtful to the economy.
The Zambian central bank has published draft proposals to govern Islamic banking, which could be law by year-end, Gondwe said.
“With the overwhelming demand from Muslim customers in Zambia requesting Islamic banking, Zambia probably makes sense for us,” FNB's Muhammad said.
South African authorities have said they plan to issue a sovereign sukuk in the next couple of months but local bankers worry that the Treasury could be overtaken by other countries in sub-Saharan Africa if it drags its feet on the launch.
“The sukuk is the first step towards alleviating the desperate need for sharia-compliant money market structures in a country like South Africa,” said Muhammad.
South Africa's Islamic banking industry is not regulated by the central bank; banks are subject only to conventional banking laws, which has hindered growth in the sector.
“What we're doing is we're forced to operate within the confines of the conventional banking rules. We feel specifically that if clear defined rules were set out, it would make it easier for us to plot a course of action in terms of how we grow,” Muhammad said.
The South African government has amended tax laws to give clearer definitions of the sharia products that banks such as FNB, Absa and Al Baraka offer, but industry officials say more clarity is needed. - Reuters