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Johannesburg: Plans by South Africa’s National Treasury to introduce Islamic
bonds are gaining a strong support in the African country, amid
expectations the move would help boost the state’s economy.
“I am sure this was at the request of those Middle Eastern
countries because SA has a small Muslim population,” Kokkie
Kooyman, head of Sanlam Investment Management told Fin24.
The National Treasury has announced plans to introduce Islamic
bonds as part of efforts to get a share of the booming Islamic
banking industry.
Other financial instruments planned by the Treasury include
Mudarabah, a form of investment partnership between banks and
businesses that shares the risk and losses.
There is also Murabah, a transaction in which the bank buys the
asset then immediately sells it to the customer at a pre-agreed
higher price payable by installments.
The Sharia-compliant Islamic finance is not new to South Africa
with different banks and investment companies offering these
products.
Several banks as the First National Bank and ABSA bank offer
Sharia-compliant services.
Kooyman said the Sharia-compliant offerings are worth pursuing
because the end result or return is the same as that of
conventional banks.
“The returns are also not much different for ordinary investors,”
he said.
Islam forbids Muslims from usury, receiving or paying interest on
loans.
Transactions by Islamic banks must be backed by real assets — not
shady repackaged subprime mortgages and banks cannot receive or
provide funds for anything involving alcohol, gambling,
pornography, tobacco, weapons or pork.
Sharia-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 authorities.
Analysts opine that offering Islamic bonds will help South Africa
lure investments from the Middle East and the Gulf region.
“If people that have been using Islamic banking have been happy
all the time, let us have (more) of it,” Steve Meintjes, a senior
banking analyst at Imara SP Reid, told Fin24.
The banking expert said the introduction of more Islamic finance
products into South Africa would enhance the economy.
“The SA economy needs more finance. Islamic banking will enhance
the productive capacity of this economy,” Meintjes said.
Tom Winterboer, a banking analyst at PwC, noted that Islamic
finance products can be accessible to investors beyond the Muslim
population.
“It must be a good thing to happen to South African investors. It
is a different principle from the domestic finance we have come to
know,” Winterboer said, adding, however, that it needed a
different expertise.
“But South African banks have this expertise.”
Starting almost three decades ago, the Islamic banking industry
has made substantial growth and attracted the attention of
investors and bankers across the world.
A long list of international institutions, including Citigroup,
HSBC and Deutsche Bank, are going into the Islamic banking
business.
Currently, there are nearly 300 Islamic banks and financial
institutions worldwide whose assets are predicted to grow to $1
trillion by 2013.
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