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Johannesburg - SA financial services companies will need to have sound knowledge of Shariah (Islamic law principles) as they move into countries with large Muslim communities like Nigeria and part of the Far and Middle East.
According to Shahid Sulaiman, an associate at law firm Bowman Gilfillan, some financial products marketed in SA as being compliant with Islamic law do not have the legal backings or structures required.
Islamic law has strict rules regarding the formation of earning interest, which not only prevents direct investment in money market-type instruments which are currently very popular, but also investing in funds or unit trusts that direct in such products.
Similar rules apply to companies involved in lending, insurance, gambling, alcohol or the production of pork.
In the South African context, companies need to ensure that they comply with the Banking Act and the Collective Investment Schemes Act.
This challenge is further compounded by the level of conservatism in regions and the flexibility of the local Muslim communities to embrace concessions around issues such as insurance and investment products that might strictly be prohibited according to law.
This poses a conundrum for financial institutions. "Islamic finance institutions globally are faced with a problem of excessive liquidity" said Sulaiman. These institutions are sitting with cash and are battling to find areas to invest these funds while still complying with both Islamic and country specific law.
South African financial services and banking industry players are experiencing mixed success developing products for the South African Muslim community. This will pose challenges as service providers try to tap into a global market estimated at US$200bn.
The South Africa Muslim community is estimated comprise about 1 million people: "Our market offers limited scope for the financial services industry but South Africa offers a testing ground for these companies to develop products."
- Fin24.com