Islamic banking in Africa

photolibraryIslamic banking has become increasingly popular across the Middle East, as both local and international banks begin to offer banking products that comply with the main tenets of the Islamic faith.

It is also becoming increasingly popular in non-Islamic countries, such as the UK, as demand increases from Muslim residents and others who are attracted by what they perceive as a form of ethical banking.

Now, as a result of the creation of new specialist banks in several parts of the African continent, one of the biggest trends in international banks in recent years has finally hit African shores.

Kenya’s first sharia compliant bank opened in April. Gulf African Bank (GAB) is registered and headquartered in Kenya but is owned by a consortium that comprises Bank Muscat International (BMI) (55%); Istithmar, which is an investment organisation owned by the government of Dubai (30%); World Bank offshoot the International Finance Corporation (IFC) (10%); and PTA Bank (5%). The IFC’s participation is particularly interesting as it fits in with its aims of encouraging the creation of a modern financial system in all African states by 2015.

The chairman of BMI, Abdul Malik al Khalili, told journalists that the investors have provided $25m to get the bank off the ground. Apart from providing a new service, the institution will create many skilled jobs: it is expected to employ 150 staff by the end of this year and 250 within three years, most of whom will be Kenyans. BMI is to provide a training programme to assist with the recruitment and education of staff.

The bank also hopes to provide banking services to many of those that were previously denied access to such services and aims to promote trade and investment between the Gulf and Africa. Al Khalili commented: “Africa is an attractive emerging market for the growth of Islamic finance. There is a lot of liquidity in the Gulf and we are making a bridge between the two.” GAB’s shareholders have indicated that they hope to expand the bank’s operations to other parts of Africa where there is currently little provision of Islamic financial product.

East Africa could be about to host a second Islamic bank. In April, the managing director of Abu Dhabi Islamic Bank, Ahmed Darweesh Dagher, revealed that his bank plans to set up the Great Lakes Islamic Bank. It aims to provide services across East Africa but will be based in Kampala. Abu Dhabi Islamic Bank also plans to develop an airport and a hotel on an island in Lake Victoria, although the island in question has yet to be selected.

Nigerian developments

The reform of the Nigerian banking sector over the past three years has also created opportunities for Islamic banking in West Africa. The country’s main takaful provider, African Alliance Insurance (AAI), is set to merge with African Alliance Realty, Fire Equity and General Insurance. Takaful is a form of insurance that is sharia compliant. AAI began offering life and family takaful in 2003 and quickly attracted thousands of applications. This prompted a host of other Nigerian financial organisations to apply to the National Insurance Commission for licences to underwrite takaful products.

This year, however, should see the launch of Nigeria’s first Islamic bank. A holding company called Jaiz International, has been set up in the country to launch what will eventually be called Jaiz Bank International. It is being supported in its endeavours by the Islamic Development Bank (IDB), which is helping to ensure that the launch of Jaiz is a success and that the bank complies with international banking regulations and Nigerian laws. The products on offer will include ijara, istisna, musharaka, mudaraba, murabaha, micro credit finance, specified and joint investment accounts, savings deposit accounts and current accounts. Jaiz is currently working to ensure that it has sufficient capital to register as a Nigerian bank under the new regulatory system.

Following banking reforms introduced in 2004 by the governor of the Central Bank of Nigeria (CBN), Chukwuma Charles Soludo, a new minimum capital base of N25bn ($188m) was introduced for banks. This requirement led to the consolidation of the Nigerian banking sector from 89 registered institutions to just 25. Jaiz bank raised N2.5bn ($19m) through an initial public offering (IPO) in 2003 and is now raising a further N10.5bn ($79m) via a placement to institutional and private investors. The final N13bn ($98m) will be raised through a subscription.

There are currently few trained Islamic banking staff in Nigeria, so the IDB and its member banks are helping to provide training programmes for Jaiz employees.

Source : African News

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