Africa offers strong growth options for Islamic banking

Sukuk achieving recognition as potential financing options for governments

Africa presents a high growth opportunity for Islamic banking products — more particularly in East and West Africa, given these markets are home to the largest number of Muslim residents. Nigeria has the largest Muslim population in Africa with around 80 million people. Across Sub-Saharan Africa, the number of Muslim residents is expected to grow by 37 per cent, to over 386 million by the year 2030, presenting valuable growth opportunities for Shariah-compliant banking products.

This is a positive opportunity for the continent’s banking sector as a whole, and not just for the region’s large Muslim populations, as it facilitates a banking market based on choice for all consumers.

While Islamic banking assets have grown rapidly around the world to stand at more than $1.3 trillion at the end of 2013, the industry has remained in its infancy in Africa. However this position is gradually changing, with Shariah-compliant banking looking to account for up to 10 per cent of banking assets in five or six Sub-Saharan African countries by 2020, including Kenya and Nigeria.

African domestic consumers are realising the value in choosing their bank in accordance with their faith. Governments and regulators in Africa no longer view Islamic banking as a niche industry, but actively support and encourage its development in recognition of the growing interest and benefits local Islamic banking products have for economic growth. There is a growing awareness of the significant liquidity pool now available in Islamic finance, particularly across the Middle East, as a source of funding for crucial infrastructure investment.

Sukuk are achieving recognition as potential financing options for governments. Nigeria’s Securities and Exchange Commission recently permitted the issuance of sukuk, with the first sukuk issuance of 10 billion naira ($62 million) by Nigeria’s Osun State in 2013.

Kenya set the standard and pace in establishing a Shariah-friendly banking environment, issuing their first licences to Islamic banks five to six years ago and amending their Banking Act to open the industry further in 2010. This approach is delivering positive dividends, with Kenya’s Islamic Banking offering now growing to account for two per cent of the local banking industry, where around one in ten citizens is Muslim.

Nigeria issued its first licence to a non-interest bank, Jaiz Bank, in 2012 and has since paved the way for conventional banks to open ‘non-interest windows’ — an option for conventional banks to add Islamic banking products to their current offerings. Uganda and Tanzania are also following this trend.

The entry of blobal banks such as Standard Chartered have further accelerated the growth, depth and development of those markets. With bigger capabilities and more sophisticated networks and platforms, Standard Chartered added a new dimension to the market by plugging the domestic banks into the global financial market and acting as an innovator, promoter and advocate of Islamic banking. The bank continues to be involved in introducing and structuring creative and unique Islamic banking financial solutions for corporate and retail clients drawing on its more than 150 years heritage, global expertise and deep local market knowledge across Asia, Africa and the Middle East.

As the service gap between Islamic and conventional banking narrows and as the Islamic banking range of products and solutions develops and gets more sophisticated, Islamic banking is increasingly appealing to non-Muslim clients too as a non-interest, profit sharing alternative to conventional banking products. This trend is especially evident in the Middle East, where banks are widely promoting their Islamic banking products given the growing target customer base. In Malaysia, with the help of strong government support, the sector now accounts for one quarter of total banking assets and Islamic banking has attracted a significant contingent of non-Muslim customers.

From a talent perspective, Islamic banking will add a new set of specialist skills and create more jobs in Africa’s banking sector. The opening of the sector would provide young talented bankers with opportunities to train and build their expertise in markets where the sector is more advanced, such as the UAE or Malaysia. This will boost career potential while contributing to the sustainable growth potential of Islamic Banking on the continent. Central banks from several African countries, including Nigeria, Tanzania and Uganda, are already working with more mature Islamic banking markets to gain experience and knowledge for the benefit of their respective markets.

With a strong presence across Asia and the Middle East and strong global Islamic banking capabilities, Standard Chartered aims to invest its international experience and knowledge to benefit the markets across its well-established African footprint.

The writer is global head of Consumer Islamic Banking and regional head of Consumer Banking for Menap and Africa at Standard Chartered, based in Dubai. Views expressed by him are his own and do not reflect the newspaper’s policy.