Johannesburg: Non-Muslims in South Africa are turning
to Islamic finance to guarantee investing their money in fields
that are not negative for society, such as alcohol, tobacco and
“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,”
Arrie Rautenbach, head of retail markets at Absa bank, told
Trying to get a share of the booming Islamic banking industry,
several South African banks are offering Shariah-compliant
services, such as the First National Bank and ABSA bank.
The South African National Treasury
has also announced plans to introduce Islamic bonds as part of
efforts to get a share of the booming industry.
Over the past few months, the number of South Africans
usingShari`ah-complaint banking products has remarkably increased
to exceed 100,000 citizens. The newShari`ah-compliant services are
available to all customers, regardless of their religion.
“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 Shari`ah-compliant.”
Islam forbids Muslims from usury, receiving or paying interest on
loans. Transactions by Islamic banks must be backed by real assets
— not shady repackaged sub-prime mortgages and banks cannot
receive or provide funds for anything involving alcohol, gambling,
pornography, tobacco, weapons or pork.
Shariah-compliant financing deals resemble lease-to-own
arrangements, layaway plans, joint purchase and sale agreements,
or partnerships. Investors have a right to know how their funds
are being used, and the sector is overseen by dedicated
supervisory boards as well as the usual national regulatory
Choosing Islamic banking products, many customers found stability
in Islamic investments, a known win-win for bank and customer.
“The structure of Islamic finance
products is gaining rapid acceptance as a viable alternative to
traditional Western banking,” said Eric Enslin, head of client
engagement at FNB Wealth.
“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", he added.
With Shariah-compliant products, profit comes exclusively from the
nature of the agreement. “Shari`ah banking is consistent with the
principles of Islamic rulings and their practical application’”
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. 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
Starting almost three decades ago, the Shariah-compliant system is
now being practiced in 50 countries worldwide, making it one of
the fastest growing sectors in the global financial industry. A
long list of international institutions, including Citigroup, HSBC
and Deutsche Bank, are already operating Islamic banking business.
Currently, there are nearly 300 Islamic banks and financial
institutions worldwide whose assets amounting to $1.6 trillion
(1.2 trillion euros).