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Leading the way for Islamic finance on the continent

10 June 2021 Standard Bank Group
Mohammed Ameen Hassen, Head: Shari’ah Banking, Standard Bank Group

Mohammed Ameen Hassen, Head: Shari’ah Banking, Standard Bank Group

Islamic finance is one of the fastest-growing areas of international finance. According to the World Bank, Shariah-compliant financial assets are currently estimated at roughly $2 trillion. While much of Islamic finance activity is centred in the Europe and the Middle East, this traction has, over the years, filtered down to regions across Central West and South Africa.

With over a decade of experience in the Islamic banking sector in South Africa, Ameen Hassen, Head of Shari’ah Banking at Standard Bank Group, has played an integral role in developing Shari’ah compliant products and services for the South African market.

Ameen led Standard Bank through the adoption of the Tahawwut ISDA agreement in [date TBC], which made it the first financial services organisation in Southern Africa to adopt this framework. The significance of the Tahawwut is that it allows for exotic swap and derivative products to be entered into on an over-the-counter basis with the comfort of an umbrella agreement that is accepted globally.

This materialised following a series of legislative amendments in 2010 that allowed for some of the core Shari’ah products and services to be treated on parity with conventional products for taxation and certain regulatory purposes – a key milestone for the industry in South Africa.

Since this development and National Treasury’s Sukuk issuance in 2014, Ameen says he has seen the industry go through a phase of accelerated growth. “The rapid maturation of the industry is important to note as we often find that there is a negative perception about Shari’ah compliant products and services; that they are more expensive; filled with administrative friction and cannot hold their own against a conventional product in terms of features and benefits and other misnomers.”

The truth of it, he says, is that Shari’ah compliant products and services in South Africa today benefit from one of the most sophisticated, technologically advanced, and financially stable financial systems in the world. “The industry has evolved from where it started three decades ago where it fulfilled the elementary banking requirements of clients. Today, however, we cater to most elementary needs all the way through to the most exotic of derivative or complex lending transactions.”

He adds that, for the most part, clients can access the same level of customer experience across both the conventional and Shari’ah universe. “For example, accounts can be opened and managed digitally, access sophisticated hedging instruments, Shari’ah short- and long-terms insurances, a full bouquet of investments across multiple asset classes, and end-to-end fiduciary services.”

The robust nature and maturity of financial markets in South Africa has enabled the development of bespoke Shari’ah compliant financial and investment products. But north of the Sahara, where financial markets are not as mature, more vanilla products that will aid financial inclusion at the basic level rather than an institutional or sovereign level.”

Research conducted by the International Monetary Fund in 2016 that explored whether Islamic finance holds the potential to increase the rate of financial inclusion highlighted the many structural elements to the African continent that are hampering financial inclusion overall.

The IMF conducted a survey across all the different countries in Africa, which showed that 5% of respondents cited religious reasons for formally excluding themselves from the banking sector. “This is a noticeable portion of the demographic. Those that are the primary consumers of Shari’ah compliant products and services in Africa were either completely ‘unbanked’ or ‘underbanked’ for religious purposes.”

He says that now, with Shari’ah compliant products and services rolling out across the continent, this cohort of client is entering the ‘banked’ population and deepening their relationships with their providers.

“There is also another cohort of client that has started to take up these products. Post the 2008 financial crises, they lost faith in the global financial system largely due to the speculative nature of many of the conventional financial instruments that serve as the backbone of conventional financial services. In stark contrast, given that Shari’ah compliant products and services require that transactions cannot be concluded for speculation and that only items with actual intrinsic value can be traded, these financial instruments have proven to be significantly more resilient than the conventional universe and able to withstand macroeconomic shocks.”

Ameen, who left school at the age of 14 to complete the memorization of the Qur’an in Arabic and pursued traditional Islamic Studies and Arabic under numerous reputable scholars in around South Africa, says that for those who are followers of Islam, the attraction is primarily rooted in the religious requirement as interest is forbidden.

“For those who do not ascribe to the faith of Islam, they can be broken down into two groups: Those who follow other religions and follow the prohibition of interest in their respective religions. There are also those who are not as religiously devout or perhaps agnostic or atheist, but still want to consume a financial product or service knowing that money within the system will not be utilised to fund certain industries that many human beings consider to be either sins, unethical or contrary to their personal ethical and moral compasses.”

With these principles coming to the fore, and a growing distrust in the financial system, Shari’ah compliant products and services have grown in demand. While the pandemic has had its impact, as has been the case for most sectors of the economy, it has provided areas of growth such as that of digital acceleration. “On the global front, the greatest trend across financial services is the 4IR effect and Shari’ah compliant products and services have not been immunised against this and so, the digitisation of these products and services are top priority for the market participants right now.”

Ameen was deeply involved in the recent launch of a Shari’ah funding solution, launched in partnership with Merchant Capital, that aims to both address the significant small business funding gap in South Africa while offering a new source of working capital for entrepreneurs – a first of its kind in Southern Africa. This has bolstered Standard Bank’s ability to serve business clients and to drive the growth of a critical sector of the economy.

“Shari’ah compliant financial services and products have for a long time now been regarded as something that operated on the periphery of the financial services universe. In recent times, we have seen that this is not true and that it is something that can occupy a place within the mainstream of financial services. And so, my hope is that people begin to appreciate that we do not operate on the periphery, but as an industry we are holding our own, we are positive contributors to all our stakeholders across the value chain and that we do not just seek to imitate what the conventional world is doing, but we are now also on a journey into unchartered territories,” he concludes.

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