South Africa has an opportunity to position itself as a pioneering non Islamic state in creating a mainstream and sustainable path for Islamic finance and to secure a leading post in a potential revolution underway, said financial experts.
With Islamic finance or Sharia banking remaining relatively insulated from the global financial crisis, there was growing interest in its workings, said Ernst & Young’s assurance director Merisha Kassie.
Islamic finance is guided by the Shariah Law which forbids the paying and receiving of interest, including trading and investing in certain industries such as Tobacco and alcohol.
The South African Institute of Chartered Accountants (SAICA) project director in financial services, Yusuf Dukander said Islamic finance can no longer be written off as a temporary trend but should rather be seen as an alternative to the conventional financial institutions. He said although the Muslim population in South Africa is considerably smaller compared with the rest of the continent, South Africa was expected to take a leading role to promote Islamic finance to level the playing fields with conventional finance.
Kassie said Islamic Islamic finance was no longer limited to Muslim Banks. “A large number of conventional banks that already have a presence in Africa also want to offer Islamic financial services in these countries to capitalise on this untapped market”. There are limited Islamic finance institutions in Africa with some of the larger banks choosing to enter this niche market through Islamic banking windows.
Dukander said “although initially Islamic finance set itself apart from conventional banks on the basis of religion, it has now become evident that the growth of the industry has made it necessary for it to be a major player in a global economic system. Consequently investors and analysts are looking for consistency and comparability in reporting across financial institutions and are pressurising regulators worldwide to take Islamic finance services seriously.”
The South African Income Tax Law now has specific provisions for Islamic finance to be placed on an equal footing compared with conventional finance. However, these provisions only relate to three arrangements due to Islamic finance being relatively new in South Africa: Mudaraba, Murabaha and Diminishing Musharaka.
In partnership with auditing firm Ernst & Young has SAICA has introduced a number of initiatives and the Institute believes it is through consultations with its members and the general public that it could place a call for legislative and regulatory amendments, similar to the adoption of the tax legislation.