South Africa proposes extending sukuk to corporate issuers

South Africa's Treasury has proposed extending tax reforms to facilitate the issuance of sukuk, or Islamic bonds, by listed companies after the government did a $500 million debut deal last September.

Sukuk transactions in Africa have been few and infrequent but this is gradually changing as governments see an opportunity to tap cash-rich Islamic investors from the Gulf and Southeast Asia.

Senegal issued sukuk for the first time in June last year while Niger, Nigeria and Ivory Coast are planning debut deals.

South Africa introduced tax amendments in 2011 to allow the government to issue sukuk and this was extended to public entities in April this year. The proposed changes will come into effect in January 2016.

"It has always been the government's intention to ensure that these financing arrangements are accessible to other entities as well as an additional source to raise capital," the Treasury said in the draft of the legislation.

Taxation is often problematic for sukuk because of their asset-backed nature, which means multiple asset transfers may be required for a transaction to take place, creating a heavy tax burden for issuers unless special legislation is in place.

Firms such as South African National Roads Agency Ltd (Sanral) and power utility Eskom have been considering following the government's sukuk deal, which attracted an order book of $2.2 billion.

Sanral has studied sukuk for years but has faced some challenges relating to the transfer of assets and its tax status, the company told Reuters in May.

Both Sanral and Eskom have said they would only sell sukuk if this was cost-effective versus other funding sources.

(Reuters / 28 July 2015)

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UPDATE 1-South Africa's debut sukuk to be at least $500 million

JOHANNESBURGAug 28 (Reuters) - The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday.

"South Africa is looking to issue a benchmark-size sukuk and the tenor will be in line with other sukuk transactions in the market," Tshepiso Moahloli, director of debt issuance and management, told Reuters.

Traditionally, benchmark size is understood to mean at least $500 million. Five years is the most popular tenor for major international sukuk issues, and South African officials said last year that the country was leaning towards that tenor for its U.S. dollar-denominated sale.

The government has said it was issuing a sukuk in order to diversify its fund-raising. It has hired BNP Paribas, Standard Bank, and KFH Investment, a unit of Kuwait Finance House, to handle investment meetings in Europe, Asia and the Middle East starting on Sept. 8, Moahloli said.

"A sukuk issue may follow but the timing will depend on market conditions."

Ratings agency Moody's issued a provisional Baa1 rating to the expected bond on Thursday, the same level as South Africa's sovereign rating, saying the two were expected to move in tandem.

"Higher domestic savings and investment rates would support South Africa's rating, and, in turn, the sukuk rating," Moody's said, adding that stronger economic growth, less debt accumulation and maintaining sound economic policies were other factors that would be supportive.

Putting the ratings at risk is the possibility of a deterioration in South Africa's debt profile, however the ratings agency expects the government debt to GDP ratio to stabilise within the next two years.

Moody's said the proceeds of the sukuk would be used to buy interest in a portfolio of South African properties.

Sukuk transactions in Africa have been few and infrequent, but governments see an opportunity to tap cash-rich Islamic investors from the Gulf and southeast Asia.

Gambia has long been selling small amounts of sukuk for the domestic market, while last year, Nigeria's Osun State sold a local currency sukuk worth $62 million. Senegal raised 100 billion CFA francs ($208 million) via its first sukuk in June.

Egypt and Tunisia have also considered sukuk but those plans have not yet materialised. Outside Africa, governments looking to tap the sukuk market for the first time include Hong Kong and Luxembourg, both of which have hired banks to arrange investor meetings in September. 

(Reuters / 28 August 2014)

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Islamic banking sector in SA shows healthy growth

ABOUT half of Africa’s population is Muslim and businesses are gearing up to meet the needs of this growing market with Islamic finance and banking products.

Just less than a decade since the market was created, the local Islamic banking sector is estimated to be worth R80.6-billion in terms of assets under management.

On the African continent, the market’s assets are estimated to be more than $1.6-trillion (about R17-trillion) and are expected to surge to more than $5-trillion by 2020. These numbers may seem a stretch, but Africa is home to more than 500 million Muslims — about a quarter of the world’s Muslim population.

The growth of Islamic banking has not gone unnoticed by the National Treasury. Earlier this year during the budget speech, former finance minister Pravin Gordhan revealed that South Africa will launch Islamic bonds — better known as sukuk — before the end of the year. Sukuk are normally based on property or infrastructure and are designed to pay a fixed profit rate rather than a coupon.

Absa, FNB, Al Baraka Bank and HBZ Bank offer Islamic commercial and corporate banking products in South Africa.

Standard Bank has Islamic banking offerings in other countries on the continent, and Nedbank is rumoured to be assessing the possibility of dipping its toes into the market.

Islamic banks do not require their clients to be Muslims. “We are not pushing a religion here. We are pushing a [financial] product that has certain requirements,” said the head of Islamic banking at Absa, Uwaiz Jassat.

Those requirements have to be compliant with sharia law, which prohibits the taking and receiving of interest and also rules out certain other practices in conventional banking.

For example, when Islamic banking clients deposit money in their savings accounts, the lender will then trade the money to earn a return on it and those returns are shared with the customers.

Jassat said this method sometimes beat the return on a conventional interest-bearing savings account.

Last year, the returns for Absa Islamic banking saving accounts were 2% higher than for conventional ones.

So it is not surprising that more people are opting to switch to Islamic banking. About 10% of Absa’s Islamic bank customers are non-Muslim. Although Absa’s Islamic banking division is relatively small, its contributions are quite significant to the parent company’s bottom line, according to Jassat.

Al Baraka, the first stand-alone Islamic bank to operate in South Africa with a full bouquet of financial products, has more than 40 000 customers.

Al Baraka, whose parent company is based in Bahrain, has eight branches nationwide, most of them in Muslim communities. Last year, total assets grew 18.7% to nearly R4.4-billion, and advances swelled 13.1%. Al Baraka’s deposit book grew 18.6% to R619.1-million and the equity finance book increased 23.1% to R126.6-million.

Al Baraka’s CEO, Shabir Chohan, said about 30% of the Muslim population — which is estimated to be more than two million strong in South Africa — was using Islamic banking products provided by local banks.

The total Islamic banking sector in South Africa is estimated to be worth as much as R12-billion. Chohan said this meant his bank had the potential to grow eight to 10 times its current size.

Absa’s Islamic banking division is eager to introduce vehicle and home-loan products. Jassat said that once more products were introduced, “customer numbers will skyrocket”.

However, if it does not move fast, it might end up eating its rivals’ dust. FNB’s Islamic banking unit already offers these products and recently launched a term-deposit product.

The CEO of FNB’s Islamic banking unit, Amman Muhammad, attributed the success of FNB’s Islamic banking products to the fact that they were underpinned by strong values and principles that, he said, covered much more than just finance.

Much like Absa, which is controlled by Barclays, FNB has its sights set on expansion beyond South Africa’s borders.

“Africa provides a large opportunity for growth,” said Muhammad. “Muslim entrepreneurs play an important role in the African economy, so the need to provide appropriate financial services through the correct channel is paramount.

(Business Day / 29 June 2014)

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Senegal Sukuk Shows Way for South Africa, Nigeria to Debut

Senegal beat South Africa and Nigeria to market with sub-Saharan Africa’s biggest sovereign sukuk, clearing the path for the continent’s biggest economies to follow with debut Islamic bonds.

Senegal opened a sale this week for 100 billion CFA francs ($208 million) of the debt that will close July 18, tapping a global market that may surpass record issuance of $46.5 billion in 2012, according to arrangers. Worldwide offerings rose 27 percent to $24.4 billion in 2014 from a year earlier, data compiled by Bloomberg show. Gambia, which shares a border with Senegal, sells sukuk maturing in less than a year weekly, with yields on 91-day notes falling 117 basis points this year to 14.89 percent.

“Other governments on the continent will be watching the issuance with interest,” Sarah Tzinieris, principal Africa analyst at Bath, U.K.-based risk advisory company Maplecroft, said in an e-mailed response to questions on June 25. “With the market still relatively undeveloped in sub-Saharan Africa, the first countries issuing sukuk bonds -– such as Senegal -– are in a strong position to position themselves as African hubs for Islamic finance.”

South Africa, which has the continent’s largest stock and bond exchanges, plans to issue a sukuk this year, the National Treasury said in April. A sukuk is part of Nigeria’s strategic framework through 2017, Patience Oniha, the Abuja-based Debt Management Office market development director, said by e-mail yesterday. Kenya may offer sukuk to broaden its investor base, Treasury Secretary Henry Rotich said two days ago. Nigeria’s Osun state sold 10 billion naira ($61 million) of Islamic debt in September, the first state in the country to sell sukuk.

Capital Needs

Since coming to power in the West African nation in 2012, Senegalese President Macky Sall has shut or combined 59 state agencies and allocated more money to curb water and power cuts in the capital, Dakar. He audited the administration of his predecessor, Abdoulaye Wade, and set up a court to try economic crimes, while reducing Senegal’s inflation rate. Senegal’s economy is set to expand 4.6 percent this year, the fastest pace since 2007, and 4.8 percent in 2015, according to the International Monetary Fund.

“Senegal is issuing sukuk bonds before more developed markets in North Africa, such as Morocco and Tunisia, reflecting the investment-minded approach of the Macky Sall government, as well as its crucial need to raise capital,” Tzinieris said.

The sukuk issuance comes as Senegal plans to sell its second Eurobond, with the nation seeking to raise $500 million by July. Standard Chartered Plc, Societe Generale SA’s local unit and Citigroup Inc. have been appointed to manage the offering, Ange Constantin Mancabou, an adviser to Finance Minister Amadou Ba, said by phone from Dakar yesterday.

Yields Drop

Yields on its notes due May 2021 have dropped 88 basis points this year to 5.97 percent by 10:52 a.m. in Dakar. The average yield on African dollar bonds dipped to a one-year low of 4.97 percent on May 29, JPMorgan Chase & Co. indexes show.

In July 2012, Sudan raised 955 million Sudanese pounds ($165 million) selling Islamic debt, with no issuance since, Osama Saeed, head of the research and statistics section at Sudan Financial Services Co., said by phone from Khartoum, the capital, yesterday. South Africa’s Treasury didn’t immediately respond to e-mailed requests for comment yesterday.

Senegal has the second-largest economy in the eight-nation West African Economic and Monetary Union and is the only country in the region apart from Cape Verde that’s never had a military overthrow of the government.

Half of the debt earmarked for the sukuk has already been sold, Budget Minister Mouhamadou Mactar Cisse told reporters in Dakar, the capital, on June 25.

“The launch of this sukuk bond marks an important milestone for the development of Islamic finance” in West African markets, he said. “It allows Islamic banks and financial institutions to improve their liquidity.

(Bloomberg / 27 June 2014)

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Bahraini bank Al Baraka plans sukuk in South Africa, Pakistan

DUBAI (Reuters) - Bahrain-based Al Baraka Banking Group said it is considering issuing subordinated Islamic bonds through its South African and Pakistani units to boost their regulatory capital.

The Islamic bank's plans come at a time when sovereign sukuk are expected from both countries later this year. [ID:nL5N0JA34X] [ID:nL6N0NK1WR]

The lender has operations in 15 countries across the Middle East, Asia and Africa.

Al Baraka is working with the authorities in South Africa and Pakistan over launching Islamic bonds there, said Chief Executive Adnan Ahmed Yousif.

While details have not been finalised, the prospective deals could mirror the $200 million capital-boosting sukuk issued by Al Baraka's Turkish unit last year, Yousif said. That deal enhanced the bank's Tier 2, or supplementary, capital.

"We will try to do it as a subordinated, to raise capital adequacy ratios," he said.

Islamic banks typically obtain their funding from retail deposits and short-term syndicated Islamic loans, but subordinated deals are increasingly being used as Basel III global banking standards are phased-in across the globe.

In Pakistan, for instance, Islamic banks must maintain a minimum paid-up capital of 6 billion rupees ($60.9 million), a requirement that will be raised to 10 billion rupees by the end of 2016.

Unlike most other Islamic banks, Al Baraka has built the bulk of its business outside the Gulf and southeast Asia. In South Africa, it operates the only full-fledged Islamic bank in the country, with seven retail branches.

Its franchise in Tunisia switched this year from an offshore bank license to a full commercial banking permit, with plans to open 25 branches there in the next three years.($1 = 98.4650 Pakistani rupees)

(Reuters Africa / 19 May 2014)

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Absa ‘to lead Islamic banking along its African path

ABSA would expand its Islamic banking franchise in South Africa and the region using the same strategies that would make it the "go to" bank as coined last week by group CEO Maria Ramos.

Islamic banking is operated under the principles of Sharia law which, among other practices, prohibits the charging of interest on loans.

Arrie Rautenbach, Absa’s head of retail markets, said in an interview Islamic banking had always been a strategic initiative for Absa.

This was shown by what he said were the "pioneering" propositions that the Barclays-owned bank had brought to the market.

"Our purchase of the only Islamic Insurance company (Takafol) in South Africa and recent launch of the Sharia Forward Exchange contract bear testimony to this," Mr Rautenbach said.

The purchase by Absa last year of Takafol SA — which then claimed to be the only firm offering Islamic insurance in South Africa — was part of its plan to expand its offering of Islamic financial services and products.

When it made the acquisition, Absa also said it would expand Islamic insurance in Africa.

Mr Rautenbach said Islamic banking would continue to be a key focus area for Absa, which last week announced it would purchase the majority of Barclays Africa’s portfolio in an all-share deal worth R18.3bn.

The deal was part of a strategy by Barclays and Absa to create a dominant "go to" retail bank in the region where it would have more than 14.4-million customers and over 1,300 branches, according to Ms Ramos.

Mr Rautenbach said there was a growing demand for Islamic banking products in South Africa and across the region.

"The need for Islamic banking products on the Africa continent cannot be over-emphasised," said Mr Rautenbach.

"We are engaging our stakeholders in Barclays to assist with the launch of Islamic banking in certain African jurisdictions including Egypt, Tanzania, Uganda, Ghana and Zambia," he said.

Absa’s rivals in South Africa also offer Islamic banking products, but Absa claims, without giving figures, to have the largest market share.

"Our largest customer base is currently in South Africa. We have the largest Islamic financial services market share in South Africa (and) we have also noted growth in Tanzania," he said.

Mr Rautenbach said Absa would differentiate itself from rivals offering Islamic banking services particularly through innovation.

"Our uncompromising Sharia governance framework and the manner in which we leverage of the Absa brand and distribution network are critical success factors," said Mr Rautenbach.

On Monday, Absa appointed Afzal Seedat has head of its Islamic banking unit with effect from next month.

Mr Seedat is head and executive director of Absa Trust. He will fill a position that was left vacant over six months ago by Amman Muhammad who is now the strategic head of FNB Islamic Finance.

Mr Rautenbach said Mr Seedat’s appointment was in line with Absa’s approach to develop and promote internal talent.

"In order for us to effectively execute on our retail market priorities, we need to have strong leadership that has the necessary skills set to successfully implement our strategy and achieve business objectives," he said.

(Business Day Live / 10 Dec 2012)

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South Africa's FNB to appoint new sharia board by year-end

* Sharia board resigned in July after disputes over role

* FNB Islamic division plans expansion in Africa, India

By Xola Potelwa

JOHANNESBURG, Aug 28 (Reuters) - South Africa's First National Bank (FNB) aims to appoint a new sharia board for its Islamic finance division by the end of 2012, after the previous board dealt a blow to the bank's effort in the sector by resigning a month ago.

"It's top priority for us. We are certainly aiming to have our final committee together towards the end of the year," Amman Muhammad, chief executive of FNB Islamic Finance, told Reuters late last week.

Muhammad joined FNB's Islamic finance division on July 1. The previous head, Ebrahim Patel, resigned after the bank conducted an investigation into "internal processes and practices of the businesses aligned to internal governance practice", according to Eric Enslin, head of client management at FNB Wealth, who declined to elaborate on the investigation.

FNB's sharia advisors quit after disagreements over the board's role when the new management took charge of the division, according to former board members.

A bank's sharia board supervises the institution's products and activities and certifies that they comply with Islamic principles.

FNB said its new sharia board would probably be made up of scholars from local and international Muslim communities, as its Islamic finance division would leverage the bank's presence in India and the rest of Africa to grow there.

A new sharia board for FNB, the retail arm of South Africa's second-biggest bank FirstRand, could help its business by increasing consumer confidence in its Islamic products.

"(When) members of the community have no method to get confirmation or comfort from the sharia board, that puts them on guard. They say, 'I'm not getting information from the sharia board, do I continue to deal with the bank?" said South African businessman and FNB client Abdur Moosa.

FNB says Islamic finance is currently not a "material contributor" to its bottom line, but that it intends the business to expand its contribution in future.

BOUNDARIES

Muslims make up only about 2 percent of South Africa's population but the country is looking to establish itself as a centre for Islamic finance in sub-Saharan Africa.

There are no national rules for Islamic finance in South Africa - banks are subject only to conventional banking laws - so the Islamic operations of institutions such as FNB, Al Baraka and Absa are under pressure to demonstrate to the public that their sharia boards are effective.

"Up until we get to a point where we start seeing a concerted regulatory change to the way Islamic banks operate in the country, and defined governance standards specifically around the functioning and the role of sharia boards, we ensure ourselves that through the boards we have, sharia compliance is always adhered to," Muhammad said.

The bank says it has learned a lesson from the recent incident and will draft clear rules and roles for its new sharia board, which will not include approving the appointments of senior personnel - a point of contention with the previous board, according to bank sources.

"In the absence of terms of reference, everybody (wonders) what's the role of the board," said Enslin.

"What is really key is to ensure that there's proper terms of reference and a constitution in place, which will (ensure) roles are quite clear, and their accountabilities."

Businessman Moosa, who has been a client of FNB Islamic Finance for nearly all eight years of the division's existence, said he had not entered new transactions with the bank since the last sharia board resigned.

( Reuters / 28 August 2012)

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South Africa poised to launch debut sukuk-Islamic bond

* Would be first of its kind in sub-Saharan Africa

* Sukuk likely to be five-year ijara issue

* Looking at both international and domestic markets

* Kenya, Nigeria, Tanzania could follow

JOHANNESBURG, July 4 (Reuters) - South Africa is preparing to launch sub-Saharan Africa's first Islamic bond, paving the way for issues by other countries in the region, officials said on Wednesday.

Thuto Shomang and Monale Ratsoma of the South African Treasury's government borrowing department told Reuters that South Africa was leaning towards a dollar-denominated, five-year sukuk, using an ijara structure.

"It's the one that seems to attract investors' interest. That's the one that the recommendations have been on so far," said Ratsoma, adding that first-time issuers usually chose five-year tenors so that was what South Africa was considering.

The bond would be marketed to Middle Eastern countries. There are large pools of Islamic investment money in the Gulf, which have been buying sukuk eagerly this year as the global financial crisis hurts many other investments.

"On this deal we really have to go out and talk to them because we don't know what their response will be and we don't want to have a failed transaction the first time around," said Shomang.

The Treasury put out a request for proposals in December and has appointed two consortiums led by Standard Bank and BNP Paribas to make the issue. Bahrain's Al Baraka Banking Group, Kuwait's Liquidity Management House, Nova Capital Partners and Regiments Capital are also involved, banking sources said.

Islamic finance prohibits interest payments so sukuk are structured to provide returns to investors in other ways. In a common form of ijara deal, the originator sells assets to a special-purpose vehicle and then rents them back at a price which gives investors in the sukuk a profit.

OTHER COUNTRIES

The South African Treasury is still deciding the precise timing of the issue, and is also considering a sukuk sale to domestic investors.

Kenya, Nigeria and Tanzania have also been planning sukuk issues, and a successful sale by South Africa could encourage them to put those plans into operation.

Muslims make up only 2 percent of the population of South Africa, which has a BBB+ foreign currency credit rating from Standard & Poor's, so the country seemed an outside contender to be the region's leader in Islamic finance. But it has been seeking to diversify its investor base, and its Treasury has the financial sophistication to explore new funding methods.

"I know there's jostling between Kenya, Nigeria and South Africa on who wants to take the lead, but I think the country that actually issues sukuk and attracts investment into the sukuk market is going to determine the key infrastructure for the development of Islamic finance," said Amman Muhammad, an Islamic banker in South Africa.

In its 2012/2013 budget, announced in February, South Africa's Treasury said it intended to borrow $3 billion in global markets over the medium term to maintain benchmarks in major currencies and meet part of its foreign currency commitments.

Finance Minister Pravin Gordhan has said developing Islamic finance and issuing sukuk would encourage new forms of foreign investment beyond traditional Western funding.

"The dollar sukuk is directly linked to and intended to attract FDI (foreign direct investment) into South Africa. When you create a sukuk you promise a sharia-compliant return, and immediately the Muslim countries sit up and notice - the petrodollar countries," Muhammad added.

"When you marry the sharia-compliant return with an emerging market economy like South Africa...it actually becomes quite an attractive proposition in your investment portfolio, to be able to invest in a country like this."

Meanwhile, issuing a domestic sukuk could help to develop a local sukuk market and resolve a problem faced by South Africa's Islamic financial institutions.

They have to hold certain amounts of government securities to satisfy central bank reserve rules; since they have been restricted to buying conventional securities, they have obtained interest which they have then had to give away to charity, bankers and Treasury officials said.

If they were able to satisfy reserve requirements by holding sukuk, they could avoid the financial loss.

(By Xola Potelwa / Reuters / 04 July 2012)

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South Africa Names Six Companies to Advise on Sukuk Sale

South Africa’s National Treasury appointed six companies, including Standard Bank (SBK) Group Ltd., BNP Paribas SA (BNP) and Albaraka Banking Group (BARKA), to advise it on its debut Islamic bond issue.

Nova Capital Partners LLC, Liquidity Management House for Investment Co., and Regiments Capital (Pty) Ltd. were also appointed, Tshepiso Moahloli, a senior analyst in the Pretoria- based Treasury, said by phone today.

The Islamic bonds, or sukuk, may form part of the Treasury’s plan to raise $3 billion in international markets over the next three years, she said. South Africa, where less than 2 percent of the 49.1 million people are Muslim, is looking to tap the Islamic finance industry’s $1 trillion in assets.

“We’re engaging with the banks now; the amount, currency and timing will depend on the outcome of our discussions,” Moahloli said. “From what we have observed, issuance tends to be from $500 million to about $700 million and movement around the five-year sukuk area looks like it’s the most favored area.”

The structuring and issuance of the sukuk may be used as a benchmark for state-owned companies that also plan to issue Islamic bonds, Moahloli said.

Public Finance Law

Sukuk are usually backed by assets sold to a special- purpose company by the issuer, which then rents them back in lieu of paying interest. The debut Islamic bond issue was delayed after the government decided to review public finance law, which doesn’t provide for the government to issue asset- based securities, Thuto Shomang, head of asset and liability management at the Treasury, said on May 17.

Moody’s Investors Service rates South Africa A3, the second-highest investment grade on the continent, according to data compiled by Bloomberg.

The country should not limit itself to an international sukuk, Jay Henning, an executive at Cape Town-based money manager Oasis Group Holdings, said by phone.

“While we agree with an international issue, there is definitely demand for a South African issue as well,” Henning said. “We have capacity for it and I’m sure other Sharia- compliant asset managers do as well.

(Bloomberg Business Week / 03 July 2012)

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South Africa: Shariah banking growing rapidly

Many non-Muslims like knowing they are not investing in alcohol, tobacco or porn. More than 100000 South Africans make use of the shariah-compliant banking products of local banks.

Eric Enslin, head of client engagement at FNB Wealth, said the shariah customer base is not exclusively Muslim.

Enslin said shariah banking is consistent with the principles of Islamic rulings and their practical application through the development of Islamic economics. Shariah prohibits the payment or acceptance of interest charges (riba) for the lending and accepting of money, as well as trade and other activities that provide goods or services considered contrary to its principles.

With shariah products, profit comes exclusively from the nature of the agreement. "There are a number of ways trade contracts can be set up, such as rental with a view to ownership, cost plus mark-up, and more," Enslin said. "An example of a rental agreement could be the financing partner [the bank] purchasing the asset on the client's behalf and renting the goods to the customer at a fixed rental repayment price over an agreed period. The rental amount would include the bank's profit mark-up that is agreed at the inception of the sale. The agreed repayments are not subject to any fluctuations, irrespective of market conditions."

Without any fluctuations, Enslin said, the customer can rely on a constant repayment amount throughout the period of the contract.

This provides the certainty required by shariah, and the stability is a win-win for bank and customer, said Enslin. "The structure of Islamic finance products is gaining rapid acceptance as a viable alternative to traditional Western banking. This is because the sale and buy-back agreement between the financier and the customer is agreed when the partnership is entered into. The terms of the sale and the profit margin are fixed."

FNB's Islamic product client base has been growing at 25% a year, showing rising demand.

Absa's head of retail markets, Arrie Rautenbach, said the Islamic banking product choice is available to anyone - and for reasons beyond the usual. "Many non-Muslims choose Islamic banking products because they like knowing that their funds will never be invested in industries that are potentially negative for society, such as alcohol, tobacco, gambling and pornography. Absa also offers an Islamic will, Islamic risk cover (Takaful), Islamic business banking and Islamic private and wealth banking. Even shariah-compliant exchange traded funds (ETFs) such as NewGold and the Shariah Top 40 ETF are available through Absa Capital.

"Any company - small, medium or large - that chooses an alternative to conventional banking can make use of the Islamic business bank offering," said Rautenbach. "During June the Islamic Forward Exchange Contract [FEC] from Absa Capital will be launched to support international trade by Islamic banking customers. Support for companies wishing to do international business is a current focus and products in the pipeline include a unique working capital solution and letters of credit, which will be shariah-compliant."

Will you never earn or be charged interest if you opt for a shariah-compliant bank account? "Conventional banking pays interest, which is a guaranteed amount," said Rautenbach. "Islamic banking pays a profit share, which is not guaranteed as it is the sharing between the customer and the bank of profit earned by the bank on the customer's behalf. Shariah compliance also requires complete transparency of contract, so the customer knows in advance what his or her expected share of the profit earned will be.

"Islamic finance products require that there is an underlying asset. This is one of the reasons why Islamic banks fared better in the recent economic meltdown than many conventional banks. For example, in a vehicle finance transaction, after being mandated by the customer, the bank buys the car and agrees with the customer what profit mark-up will be added to the purchase price. The cost of the car plus the profit mark-up is then divided by the number of months the customer chooses for repayment to arrive at a monthly repayment amount for the duration of the contract - this could be anything up to 72 months. What the Reserve Bank does with interest rates will not affect the payments as interest is not part of the transaction," Rautenbach explained.

(Business Live / 09 June 2012)

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