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The basic principles of Islamic banking demand that any money invested should be put into purely ethical industries. For example, that would exclude investment in liquor producers and casinos. Also central to Shari'ah compliance is the fact that the giving and receiving of interest are forbidden. There's a clear principle that money can be used to buy goods and services that can be sold for a pre-agreed profit.
Niche player Albaraka Bank has dominated the Islamic finance market in SA for more than a decade. Jointly owned by a group of SA investors and shareholders in Britain and the Saudi Arabian-based Dallah Al Baraka Group, it has more than 60 000 clients - but industry insiders say growth has been constrained by the size of its balance sheet.
While asset managers, including Oasis, Futuregrowth and Fraters have been developing Shari'ah-compliant investment products for several years, SA's retail banks have only recently offered services appropriate to the market.
Head of equity portfolio management at Futuregrowth Asset Management, Ashraf Mohammed, says the value of the Muslim market in SA could be as high as R5bn, with increasing amounts of money looking for a home. But with a growing awareness in the 1,5m strong Muslim community concerning Shari'ah compliance, there's also growing religious pressure to invest using those products.
That saw Absa enter the market earlier this year with a full suite of Shari'ah-complaint retail banking products. FNB tested the waters two years ago by launching compliant vehicle finance products and the bank has recently begun offering cheque accounts and other retail products.
But Standard Bank appears content to wait on the sidelines, with the group saying it's "continuously assessing market needs and opportunities". Nedbank, which recently developed a Shari'ah-compliant pension product, says it's currently looking at also developing retail-banking products.
For example, a Shari'ah-compliant mortgage wouldn't charge interest. Instead, the bank would buy the property and the client would buy shares in it over time at an agreed rate.
The uptake for the suite of Absa products has been impressive. To date 16 350 accounts have been opened - but the deposit base remains relatively small. Absa Islamic Banking MD Ahmed Moola says the group isn't just eyeing the SA market but also sees greater opportunity in other parts of Africa, especially as its Barclays relationship is bedded down. Speaking from Tanzania this week, Moola said that the region is home to more than 20m Muslims and demand for Shari'ah-compliant products is growing at a rapid rate.
FNB/WesBank Islamic Finance MD Ebi Patel says the division has started to make money for the broader group and bad debts are below the average of traditional products. The WesBank Islamic Asset Finance initiative broke even after 18 months - a full year and a half ahead of budget.
