Funding Africa’s huge development needs has long represented a big challenge. This has spawned all kinds of innovative financing mechanisms in the past and could spell an opportunity for Islamic finance, notably haria-compliant bonds, or Sukuk. Still in an embryonic state in Africa – but growing nonetheless – these instruments could play a potential role in delivering large infrastructure projects, from building new airports to constructing power plants and building roads. While it is early days for Africa, on a global scale Islamic finance is not a new concept.
A longstanding feature of the financial markets of Malaysia – a world leader in the field – and across the Middle Eastern Gulf, its spread now encompasses non Muslim-centric territories worldwide. This is a pattern that is catching on, albeit slowly, in Africa. While northern Africa has provided a natural entry point for Islamic products, current activity now focuses on sub-Saharan markets, notably in West Africa.
In #SouthAfrica First National Bank (FNB) has been offering an Islamic home loan since the beginning of the year. The product is aimed at Muslims who want to finance their homes in a manner consistent with the requirements of their faith. But, like all Islamic financial products and services, it is open to everyone. FNB Islamic Banking’s home loan is not strictly a loan. It is modelled on what is known as a diminishing musharaka type of financial transaction. Amman Muhammad, the chief executive of FNB Islamic Banking, says the main advantage of the Islamic home loan is that it offers a competitive fixed-price deal in volatile economic conditions. Also offering Islamic residential property financing is the local arm of the international Al Baraka Bank.
In #South Africa First National Bank (FNB), Al Baraka and HBZ Bank are the only financial institutions offering Islamic banking services. These banks offer a range of Islamic cheque accounts, Islamic savings accounts and Islamic investment accounts as well as vehicle, property and asset finance. CEO of FNB Islamic Banking Amman Muhammad says the bank has seen a consistent rise in the number of South Africans taking up the bank’s transactional banking and investment, vehicle and property finance products irrespective of faith. Customers are looking for an alternative banking form and FNB can offer a principles-based approach. Muhammad says the normal regulatory and risk rules apply to all Islamic banking products.
Customers wanting assurances their investments “will not be channelled into the typical sin industries” is one of the reasons cited for a growth in demand for Islamic finance in South Africa. That’s according to Amman Muhammad‚ the FNB Islamic Banking’s CEO. Over the last few years‚ the bank has seen a consistent rise in the number of South African citizens‚ irrespective of faith‚ who have approached them for various Islamic banking services such as investment accounts‚ vehicle and property finance, he stated. Muhammad said that personal principles are starting to influence the type of banking solutions people choose.
More than 1200 distinguished guests from more than 45 countries and 300 organizations participating this December, Bahrain
Key players from the global Islamic finance industry will be participating with the 22nd annual World Islamic Banking Conference (WIBC) 2015, taking place on the 1st, 2nd and 3rd of December at the Gulf Hotel, Bahrain. Focusing on 'New Realities, New Opportunities', WIBC will play host to more than 1200 leaders including Central bank governors, regulators, C-suite bankers & asset managers, policy makers, Fintech entrepreneurs and contemporary thought leaders.
WIBC 2015 will host 5 central bank Governors and deputy governors and feature speeches and discussions by the Governor of the Central Bank of Bahrain, H.E. Rasheed Al Maraj, the Executive President of the Central Bank of Oman, H.E. Hamood Sangour Al Zadjali, Deputy Governor of the State Bank of Pakistan, Riaz Riazuddin and the Deputy Governor of the National Bank of Kazakhstan, Nurlan Kussainov.
It is anticipated that the South African taxation legislation governing the specific elements around Murabaha and Sukuk will be extended to cover listed companies, effective in January.
The government has followed through on their intention of ensuring Islamic financial arrangements accessibility to “other” entities (over and above just sovereign government itself and state-owned entities) to also allow for an alternate additional source to raise capital.
Over the last few years, the government has introduced Islamic compliant financial structures in stages. With the first of such introductions coming through in the Taxation Laws Amendment Act of 2010 – “the Act” that recognised for the first time arrangements like Diminishing Musharaka, Murabaha and Mudaraba as alternates to their conventional counterparts – these amendments were effected to enable banks to offer a Shari’ah compliant product.
In 2011 further amendments to the same act were effected, wherein Sukuk was introduced. However, issuance was limited to the sovereign government. Later on, effective from April 2015, Sukuk issuance was extended to state-owned entities.
Islamic financing is gaining traction even among non-Muslim countries in a bid to use sustainable and equitable form of alternative models, the Malaysian Prime Minister said on Tuesday. London issued its second Islamic sukuk after its first bond issue was oversubscribed 14 times. In addition to London, Luxembourg and South Africa, Hong Kong has also issued sovereign sukuks.
“Ever since the global financial crisis in 2007-08 there has been a sharp demand for alternative economic and business model that reduces the level of speculation as conventional model that has inherent weakness,” Najib Razak told journalists. “Over-leveraging is believed to have been the root cause of the disaster — but again, that is prohibited in Islamic finance. As a result, Islamic banks remained strongly capitalised and resilient against financial market volatility, while continuing to contribute positively to equitable and sustainable growth,” he said.
“Ethical finance” is a term used to describe finance that is put to good social and environmental use. Interest in it has risen since the 2008 global financial crisis, with Islamic finance and socially responsible investment funds becoming its two fastest areas of growth. The World Bank Treasury has brought the two together by helping the International Finance Facility for Immunization issue two Sukuks in less than a year.
IFFIm is an international organization that finances child immunization and strengthens health systems related to it in some of the poorest countries of the world through Gavi, the Vaccine Alliance. Backed by nine sovereign governments—the United Kingdom, France, Italy, Norway, Australia, Spain, the Netherlands, Sweden, and South Africa—the organization raises money in the international capital markets.
It is proposed that the current legislation in respect of sukuk and murabaha financing will be extended to listed companies, within the 2015 Draft Taxation Laws Amendment Bill (TLAB) that South Africa's Ministry of Finance recently published for public comment. South African Sharia-compliant financing arrangements have been introduced in stages. Changes were made to the tax code to introduce sukuk bond financing arrangements, but these were restricted to the Government and public entities. This is now intended to be available to listed corporates from January 1, 2016. It is also proposed in the 2015 TLAB that it will be possible for listed companies (in addition to banks, as at present) to engage in murabaha financing.
Absa Islamic Banking business has seen growth across South Africa and the continent in recent years. The appointment of Uwaiz Jassat as the head of Islamic Banking will further help the Group to achieve its goals regarding Islamic Banking. Uwaiz has been in an acting role heading up Islamic Banking since October 2013. In this time Islamic Banking has enjoyed growth with more than 120,000 customers across the continent. Uwaiz joined Absa in 2009 and held a number of roles in the financial services industry in prior years. Apart from his leadership of the Islamic Banking team he brings with him additional skills having founded Takaful South Africa – an Islamic insurance offering.
The Republic of Tunisia has sent banks request for proposals for a potential US dollar denominated sukuk transaction. The sovereign, rated Ba3/B/BB-, hopes to complete the debut Islamic bond by the end of the year and thereby becoming the fifth sovereign to issue a debut sukuk this year, after the UK, Sharjah, Hong Kong, South Africa and Luxembourg.
There are many reasons that Islamic financial products are popular outside the Muslim world. Britain became the first non-Muslim country to issue sukuk, the Hong Kong Monetary Authority made an issuance, and the governments of Luxembourg and South Africa will follow suit later this year. Last month Goldman Sachs issued an Islamic bond, and before the end of the year, Bank of Tokyo-Mitsubishi and Société Générale, a French bank will probably do the same. All of these entities want to get a piece of the $2 trillion Islamic finance market.
Sukuk, Islamic equivalent bonds, are beyond the boundaries of many portfolio managers of advanced economies. But in the Islamic finance world, it's the non-Islamic sukuk issuers that are non-conventional, and this is where Azzad Asset Management sees value. Ihab Salib, the lead portfolio manager for the firm's sukuk fund, the Azzad Wise Capital Fund (WISEX) said, "Currently we see value in some of the non-conventional issuers". "As maiden issuers in the market, they need to price the sukuk generously so as to tempt investors," he commented. South Africa's September issuance was a case in point.
As Islamic bond issuance heads for a record year, nations making up the six-member Gulf Cooperation Council are losing share to new borrowers such as the U.K., Hong Kong and South Africa. Global sales of Shariah-compliant debt reached $36.7 billion. GCC market share fell down from more than 50 percent a year earlier as Bloomberg figures show. With non-Muslim countries being lured by the growing Islamic investor base.
According to the finance minister, Luxembourg has issued its first 200 million euro ($254 million) five-year Islamic bond, distributed across 29 accounts, although the market favours dollar-denomineted sukuk. Nevertheless the country thereby becomes the first AAA-rated government to issue euro-denominated sukuk, or Islamic bonds, following London, Hong Kong and South Africa. Luxembourg hired HSBC, BNP Paribas, Banque Internationale à Luxembourg and Qatar-based QInvest to arrange its sukuk.
Standard Bank has acted as Joint Lead Manager on the National Treasury of South Africa's debut Sukuk in the international capital markets. The US$500m 5.75-year Sukuk is the largest Sukuk issuance from Sub-Saharan Africa and only the third Sukuk to be issued by a non-Islamic country. The Sukuk will be used to fund South Africa's National Revenue Fund. It also creates a benchmark for the market which will assist state-owned companies to access diversified sources of funding from Islamic investors. The Sukuk is based on the Ijara principle.
South African state-owned companies Eskom Holdings SOC Ltd. and Transnet SOC Ltd. are weighing Islamic bond sales after the government sold its first sukuk at a record-low cost. Eskom, the national power utility, said yesterday it will use the sovereign sale as a “barometer” for its own financing plans, while rail and ports operator Transnet has said it may access the market amid growing demand for Shariah-compliant debt. Al Baraka Bank is awaiting regulatory approval for a 300 million-rand ($29 million) issue next year. South Africa sold $500 million of Shariah-compliant bonds two days ago at a 3.9 percent profit rate. Yields on the bonds rose 10 basis points to 4 percent by 5:30 p.m. in Johannesburg yesterday.
South Africa sold its first ever Shariah-compliant bonds at a record-low borrowing cost, opening the way for state-owned companies to tap a growing Muslim investor base. The $500 million of 5.75-year securities were priced with a coupon of 3.9 percent, at the bottom end of the range marketed to asset managers. Fifty-nine percent of investors participating in the deal were from the Middle East. The sale is likely to prompt more African nations and companies to follow. Eskom Holdings SOC Ltd., South Africa’s state-owned electricity company, and Transnet SOC Ltd., the ports and railways operator, have said they may tap the Islamic finance market. BNP Paribas SA, KFH Investment and Standard Bank Group Ltd. arranged the sale.
South Africa has announced a tenor of 5.75 years for its inaugural sukuk, which is expected to price later this week. Initial profit thoughts on the U.S. dollar benchmark-sized Islamic bond, which matures in June 2020, will be released early this week. South Africa finished investor meetings for the 144A/Reg S deal last Friday. The sovereign is rated Baa1 by Moody's, BBB- by Standard & Poor's and BBB by Fitch. BNP Paribas, KFH Investment and Standard Bank are the lead managers.
The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday. Five years is the most popular tenor for major international sukuk issues, and South African officials said last year that the country was leaning towards that tenor for its U.S. dollar-denominated sale. The government has said it was issuing a sukuk in order to diversify its fund-raising. It has hired BNP Paribas, Standard Bank, and KFH Investment, a unit of Kuwait Finance House, to handle investment meetings in Europe, Asia and the Middle East starting on Sept. 8. A sukuk issue may follow but the timing will depend on market conditions.