Islamic Banking Growing in Africa as Muslim Population Expands
When 24-year-old Farhaan Mottiar took over his father’s bridal shop in Johannesburg’s oldest Indian mall, he decided to join a growing movement in Africa: away from traditional banking, and into newly available Islamic banking systems.
“It’s the right way forward,” he told VOA in his shop, as he ran his fingers over a roll of metallic wrapping paper. “We still use the bank, we still need the loans, we still need to finance our way forward to progress, but, just by changing a few things… it makes a difference.”
The differences between Islamic and Western banking are few but significant: Islamic banks do not charge or pay interest, shun investments in so-called “sin” industries like alcohol, pork and gambling, and tend to use physical assets as collateral for loans and other transactions.
For Mottiar, the process has been smooth, he says. Mottiar did not even switch banks, as South Africa’s biggest full-service banks all offer Islamic banking.
Islamic banking is on the rise worldwide, but has recently shown especially strong growth in Africa, says rating agency Moody’s. While banks don’t share their figures, the demographics are undeniable: an estimated one-half of the continent’s 1 billion residents are Muslim.
The head of Islamic banking at South Africa’s First National Bank, Amman Muhammad, says business is booming as Africa’s Muslim population expands.
“We are seeing a steady growth, and this is not just from FNB’s perspective, but I believe from other banks that play in this sector as well,” he told VOA.
Muhammad also says Islamic banking can offer wider benefits to African nations. He noted the successful 2014 issue in South Africa of a $500 million Islamic-compliant bond, called a sukuk.
“I think that’s fantastic, where you can use Islamic principles, in finance, to benefit bigger communities,” he said. “And I think we’re beginning to see the emergence of this coming through in East Africa. For the first time we are hearing of governments like the Tanzanian government talking about sukuk issuance. The Kenyan government, talking about sukuk issuance. We have heard of Nigeria doing sukuk. And I think as the prominence of sukuk and the success start becoming more apparent, we’re probably going to see more African countries use this as a mechanism to develop infrastructure within their own countries.”
Scholars for dollars
But not everyone is a believer. South African Islamic scholar Mufti AK told VOA he believes Islamic banking’s distinction between interest and profit is purely semantic. He advises his students against it.
“There is nothing Islamic about it,” he said. “Ninety percent of the people involved are just scholars for dollars in this thing here. They are just playing with semantics and looking for… loopholes and skullduggery. That is what is happening.”
But Mottiar says he is working to convince his fellow businessmen to make the switch, even if this banking option is not always cheaper.
“I, as a Muslim person, believe there is more blessing in doing the right thing,” he said. “So for me, that is exactly why I do think that Islamic banking is the future.”