THE National Treasury is considering issuing Islamic bonds
and has asked interested banks to submit bids.
Some local banks and the JSE already offer sharia-compliant
financial instruments. These include the JSE Shariah All Share [JSE:J203] index and the
JSE Shariah Top 40 - (Tradeable) [JSE:J200].
Other instruments 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
instalments.
Kokkie Kooyman, head of Sanlam Investment Management: Global,
said the Treasury's Islamic bond issue would be part of a bid to "tap
into" the funds from the Muslim countries that are shariah-compliant.
"I am sure this was at the request of those Middle
Eastern countries because SA has a small Muslim population," Kooyman told
Fin24, adding the shariah products and funding are made attractive by the fact
that they are not interest rate sensitive.
FNB Islamic finance offers shariah-approved banking options
that are not limited to Muslims. They help FNB clients manage their day-to-day
finances, whether they need an account for personal use or a number of products
for their business.
Standard Bank Group [JSE:SBK], Africa's biggest bank by assets, does not
offer Islamic banking services in South Africa yet, according to Erik Larsen,
the head of media relations at the bank.
In 2010 the bank launched its first Islamic savings and
current account in Tanzania. In July last year Stanbic, a unit of Standard
Bank, won approval from Nigeria's central bank to provide Islamic banking services
there.
Nedbank Group [JSE:NED], South Africa's fourth-biggest bank, does not offer
any Islamic banking products in South Africa.
Absa Islamic finance offers businesses current and retail
accounts. Its offerings range from savings, investments, term deposits and commercial
asset finance.
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.
Pros and cons
But Islamic banking, like conventional banking, has its
advantages and disadvantages.
In terms of banking charges, clients of Absa Islamic banking
and FNB Islamic finance pay the same fees as Absa and FNB clients banking
conventionally; both banks are well known for charging high fees.
In Islamic financing, loans for a house or a car offer fixed
repayments, which are an advantage to many. This is not the case with
conventional banks.
Banking experts said the introduction of more Islamic
finance products into South Africa would improve the size of the economy.
They added this would also help diversify the banking
sector's funding and investor base.
Steve Meintjes, a senior banking analyst at Imara SP Reid,
told Fin24: "If people that have been using Islamic banking have been
happy all the time, let us have (more) of it."
Meintjes said: "The SA economy needs more finance.
Islamic banking will enhance the productive capacity of this economy."
He warned, however, that investors who are interested would
have to do a bit of homework to understand the products on offer.
Tom Winterboer, a banking analyst at PwC, said Islamic
finance products can be accessible to investors beyond the Muslim population.
Only 2% of South Africa's population is Muslim but the
demand is coming from non-Muslims, according to Absa.
"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."
The government is also keen on opening the doors to Islamic
finance banking in South Africa.
It has proposed a tax amendment in a bid to put Islamic
banks in South Africa on an equal footing with conventional banks.
- Fin24