Islamic banking continues to grow in South Africa
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An increasing awareness and understanding that every obligation attached to one’s wealth needs to be fulfilled in the proper manner is spurring a local boom in demand for alternative financial products and services from Islamic financial services providers.
Underscoring the increase in demand, the Banking Association of South Africa (BASA) said at its first Islamic Finance Conference held in September last year that much of what is required to help the country address its economic challenges can be found in the fundamental tenets of Islamic banking: fairness, transparency, risk-sharing and socio-economic responsibility.
According to BASA, the value of Islamic financial services products grew strongly, with deposits reaching R37 billion (2019: R35 billion) and advances amounting to R14.6 billion (2019: R12.4 billion) in the year to the end of June 2020. Globally, Shari’ah-compliant financial assets are now worth $2 trillion.
Naeem Ebrahim, Head of Retail at FNB Islamic Banking, says the bank is seeing that Islamic banking is increasingly adopted as a credible alternative to conventional banking for both Muslims and non-Muslims alike.
Speaking about the principles-based construct upon which Islamic Banking is built, he says Shari’ah-compliant investment products are underpinned by several principles established through Islamic Commercial Law. These principles include but, are not limited to the prohibition of dealing in interest, the avoidance of investing in companies that deal in impermissible industries, and ensuring complete transparency as well as the exclusion of excessive uncertainty when contracting.
“Investors, irrespective of their religious conviction, are assured that their money is not invested in any companies that engage in morally questionable activities and actions that cause social harm.
“At FNB Islamic Banking, customers are also guaranteed that all deposits placed, or funds advanced to finance the purchase of an asset, are managed within a separate, ring-fenced treasury,” says Ebrahim.
Islamic Banking offers clients compliant investment solutions catering for varying customer preferences with regard to investment periods, access to funds and risk profiles. Furthermore, investors over the age of 55 qualify for preferential profit rates on the bank’s Islamic Term Deposit.
Ziyaad Khan, Head of Commercial at FNB Islamic Banking, says the key difference between conventional and Islamic banking is in the relationship that the bank has with its customer and the contracts that govern and manage that relationship.
Khan explains: “In a conventional banking relationship, deposit and lending transactions typically involve monetary exchange, with interest being either earned or charged thereon. In an Islamic banking relationship, money is never commoditised. Transactions are structured such that there is always a trade or service agreement facilitating the customer’s requirement.
“So, with regards to Shari’ah-compliant investments, one of the most prominent types of agreements is that of a participatory agreement. The customer contributes the funds and the bank contributes managerial and entrepreneurial skills in terms of where and how these funds are placed. Naturally, said investment is conducted according to strict Shari’ah guidelines and the bank and customer share the profits on a pre-agreed ratio.”
He says investing with Islamic Banking enables customers to invest in an alternative investment vehicle, whilst still maintaining healthy returns, superlative safety, and the highest codes of ethics. “An example is our Islamic 48-hour Cash Accelerator, which allows businesses to maximise returns on their stagnant working capital cash balances.
“At FNB Islamic Banking we understand that cash flow requirements of a business are at times unforeseen. Accordingly, funds placed in this investment are not locked in for extended periods – a 48-hour notice period is all that’s required to get access to these funds. The notice can even be concluded on our app or online, catering for the highly mobile entrepreneur of today,” Khan says.