Managing Islamic Finance in Africa AYESHA ZAHID EXECUTIVE DIRECTOR THE SUPERIOR GROUP PAKISTAN

Transcription

1 Managing Islamic Finance in Africa AYESHA ZAHID EXECUTIVE DIRECTOR THE SUPERIOR GROUP PAKISTAN

2 Africa: An Untapped Opportunity Africa is fastest growing untapped market 1.9bn Muslim and Christian population by 2050 Sub-Saharan Africa host over 250m Muslims, projected to grow to over 385m by West Africa hosts 160m Muslims, it will rise to 257m Muslims by 2030 that will account for 67% of Muslims in Sub-Saharan Africa. Region s economy grew at 4.5 percent per year on average between 1995 and Positive medium-term prospects with GDP growth projected to rise to 5.4 percent in both 2015 and (The World Bank s Africa s Pulse )

3 Major Challenges Uneven economic growth Lack of infrastructure Uncertain Business climate Lack of access to finance The effects of climate change Inadequate supplies of roads, railways and ports Insufficient energy supplies Housing shortages

4 Islamic Finance: A possible solution

5 A Glance at Islamic Finance

6 A Glance at Islamic Finance

7 Islamic Finance Expanding Horizons North America Canada 2009(Toronto stock exchange index) USA 1999(Dow Jones Islamic Market Index) Europe France 2009(Central Bank issued Islamic Banking License) UK 2003( abolish stamp duty on Islamic Mortgages) 2010 (UK Sukuk) 5 Islamic Banks Germany 2010 (1 st Islamic Banking operations)

8 Islamic Finance Expanding Horizons South Korea 2011 (Tax waiver on foreign investors interest income from sukuk issued) Japan 2009(Law passed allowing banks to conduct Islamic Finance) 2011 discussed issues on tax reforms related to Islamic Finance

9 Islamic Finance Expanding Horizons Hong Kong 2012 (Government releases consultation conclusions on Sukuk taxation with a view to provide a taxation framework for Islamic bonds on par with that for conventional bonds) 2007 (Launch of Hang Seng Islamic China Index fund ) Singapore 2005(waives double stamp duties on Islamic transactions) 2007 (First Islamic bank established, Islamic Bank of Asia) 2008 (Launched Islamic Exchange Traded Fund (ETF).

10 Islamic Finance Expanding Horizons Australia 1989 ( Launch of first Islamic Finance firm, the Muslim Community Cooperative Australia Limited ) 2010 (Australia Board of Taxation to review tax laws on Islamic Finance) Malaysia 2013 ( Islamic Finance Services Act 2012 ) 2010 (Established International Islamic Liquidity Management Corporation to enhance cross-border liquidity of Shariah-compliant financial instruments (Adopted a two-tier quantitative approach in screening methodology determining Shariah-compliant status of listed companies)

11 Islamic Finance Expanding Horizons Senegal Issued its first sovereign Islamic Bond. South Africa 2011 (Finance Minister introduces legislation permitting a government savings instrument that satisfies Islamic principles, known as a Sukuk)

12 Islamic Finance Expanding Horizons Ethiopia 2011 ( First Islamic bank) North Africa Full-fledged Islamic Banks are already established in Egypt,Algeria and Tunisia and Islamic windows in Egypt, Morocco and Algeria

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15 Islamic finance has a presence in 21 African countries, from established systems like Sudan through to new entrants like Uganda. Islamic economy activity does not depend on Muslimmajority populations Political tensions mean that some populations are concerned about Islamic economy discourse. Sukuk are an attractive tool for financing African infrastructure. Between 2001 and 2014, global sukuk issuances were nearly US$670bn The UK and Hong Kong have both issued sukuk. Sharia-compliant banks do not have many securities that satisfy Basel III s definition of Tier 1, they too have a large appetite for sukuk issuances.

16 Implications for Islamic Financial Institutions Islamic finance must focus on improving its strategy and performance Bank ROEs are significantly lower than conventional banks mainly due to considerably higher costs. Stronger governance- key to maintaining confidence in the Islamic finance industry.

17 Implications for Islamic Financial Institutions Integrity of Shariah Governance Independent Shariah Supervisory Boards Representation of Shariah scholars is highly concentrated. A survey by Funds@ Work (2011) reveals that only the top 20 Shariah scholars hold 619 Board positions representing more than half of the 1,141 positions available, thus raising independence and succession issues. Creation of central Shariah supervisory councils and development of next generation Islamic scholars arekey to addressing this issue.

18 Implications for Islamic Financial Institutions Legal Integrity The existence of precedents on the application of commercial law (which also governs contractual agreements with Islamic financial institutions) has a positive impact on dispute resolution. On the other hand, lack of precedents on the application of Shariah law (which continues to govern the operational aspectsof Islamic Financial institutions) risks undermining the dispute resolution mechanism. The interaction of commercial law with Shariah law will continue to challenge the legal integrity of Islamic financial transactions in relation to dispute resolution. UK court cases in point: (1) Shamil Bank of Bahrain E.C. (Islamic Bankers) vs. Beximco Pharmaceuticals Ltd and Others (2004); (2) The Investment Dar vs. Blom Developments Bank (2009).

19 Implications for Islamic Financial Institutions Regulations and industry standards are important for consumer confidence, growth and innovation Business model needs to change in order to capture growth. Increased customer centricity. Improved service, operational efficiency and delivery. Standardization of contracts, accounting and documentation. Enhanced financial returns and performance. Improved governance and regulation. IT systems need to be compatible with Shariah requirements

20 Thank You