Mohammed Ameen Hassen and Ryan Cohen
South Africa’s Islamic finance market has come a long way since the 2010 legislative changes that initially enabled Shari’ah-compliant banking and financial services in the country, leading to the first Shari’ah-compliant financing solution entering the market in 2014.
Ten years on, the recently issued and first rand-denominated Sukuk Al Ijarah in Africa, although not the first significant South African sukuk, is indicative of increased confidence in the Shari’ah finance market and, together with increased development and uptake of available Shari’ah-compliant finance products, shows that South Africa is becoming an advanced Islamic financial market. That’s according to Mohammed Ameen Hassen, Head of Shari’ah Banking at Standard Bank.
Ryan Cohen, Chief Relationship Officer at leading alternative lender Merchant Capital says “Muslim-owned businesses generate 10% of SA’s GDP, which paints a clear picture of the opportunity to grow the sector in all areas including Shari’ah-compliant financing, banking, taxation, insurance and other financial services needed for businesses to really thrive.”
Hassen notes, however, that technical resources and legislation have been slow to support Islamic finance, and this has resulted in a lack of credibility. “The people who want to consume Islamic finance do not trust that the products on the market are technically sound and truly compliant.”
While lobbying for legislative change is an important enabling factor for Islamic finance, Hassen recognises that education is needed to change perceptions of financing at the community level. “Islamic law forbids Muslims to take on interest-bearing credit. This has created a psychological barrier to financing in any form. However, finance products nuanced to comply with Shari’ah requisites, and confirmed as compliant by scholars, are available.”
Standard Bank has worked with their Shari’ah Advisory Committee and Merchant Capital to launch the first Southern African Shari’ah certified financing solution that offers working capital for entrepreneurs who want to consume Shari’ah-compliant products and services.
Cohen says that while the universe of Shari’ah-compliant products has to-date been limited, the Merchant Capital Advance directly addresses the challenges and lack of options facing Muslim entrepreneurs. “While most entrepreneurs face the same challenges, Muslim-owned businesses have an additional layer of complexity in that they want access to Shari’ah-compliant financing solutions. Without them, Muslim businesses are challenged to grow and, as a result, make up a big portion of South Africa’s underserved SME sector.”
Cohen notes that the Merchant Capital Advance was brought to market in early 2020, just before Covid-19 started to impact the economy. “We have since deployed over R250 million in funding to nearly 1000 Muslim-owned businesses across a wide range of sectors, with an 85% repeat financing rate. This tells us that our product is not only filling a need, but also driving sustained growth in the Shari’ah business community.
Following the latest Sukuk, Hassen says that we’ll start to see additional legislative changes and increased tax parity. “We see a positive longer-term outlook and expect Africa’s Islamic banking assets – currently accounting for only around 2% of global Islamic banking assets – to increase in leaps and bounds over the next decade, providing a real opportunity to bolster both underserved banking customers and business owners where we have already seen strong demand.”
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