Ameen Hassen, Head of Shariah Banking at Standard Bank
Shari’ah financing can help Africa achieve important development goals
The Islamic Corporation for the Development of the Private Sector expects the global Islamic finance industry to reach $6 trillion by 2026. That’s almost double the $3.25 trillion that the Islamic Financial Services Board estimated the industry to be worth in 2022, and it demonstrates the growing role of Shari’ah finance globally.
At Standard Bank, we have financed R447 million worth of deals through Shari’ah compliant deals, while personal Shari’ah banking and investment accounts have grown by 855% in the past five years.
These figures indicate that the perceived dichotomy between Islamic and conventional financing may be preventing many economies from leveraging Islamic finance to meet their development objectives.
Since Islamic financing is not contingent on an interest-based contract but one that is asset backed or asset based, many people believe that the two universes cannot achieve the same economic outcome.
Following the academic debate about the economic viability of Shari’ah finance to fund sustainable development in Africa, Standard Bank conducted research which showed that Shari’ah financing can help the continent achieve important development goals.
The African Development Bank (AFDB) estimates that Africa has a $100 billion annual infrastructure financing gap. Massive infrastructure development is needed, and governments will have to raise a large portion of the funding for this infrastructure development from debt capital markets. To put it into perspective, the amount of Shari’ah compliant assets in sub-Saharan Africa was estimated to be over $3 trillion by 2021.
Moving past the perceived dichotomy
One of the biggest misconceptions about Shari’ah financing is that it comes with onerous and stringent requirements. Nothing could be further from the truth. Many of the assets this form of funding could finance already fit the mould of being Shari’ah-compliant assets, as they are infrastructure that exists in natural environments like green energy or transitional energy infrastructure, and road infrastructure.
Standard Bank is playing its part in actively dispelling the perceived differences in financing. We acted as Shari’ah technical lead on South Africa’s inaugural ZAR Sukuk and joint arranger on all of Nigeria’s Sukuk issuances in the last few years. We are strategically using our position as a leader in debt capital markets across the continent to increase access to otherwise excluded entities and individuals across the continent.
According to Moody’s research, sub-Saharan Africa (SSA) has 18% of the world’s Muslim population but Islamic finance assets make up only 1% of such global assets. There is little question that the potential for growth and financial inclusion is large. From a Shari’ah Banking business unit perspective, we are working towards achieving broader understanding and access to this type of financing by enabling Shari’ah finance transactions in capital markets.
The strategic and deliberate use of Shari’ah financing would be a useful tool in the ongoing growth story across emerging market countries. It comes down to overcoming the apparent contradiction in understanding the way that Shari’ah financing works and making sure the right laws and business conditions are put in place to obtain the funding.
In April this year, Uganda received $295 million from the Islamic Development Bank (IDB) for infrastructure development while the IDB will devote a third of its annual financing to climate-related projects mostly in partnership with the African Development Bank.
We are at a turning point in the industry where people are beginning to see past the apparent dichotomy. It is only a matter of time until these two universes converge, hopefully serving as a means or a catalyst for growth in the developing world.
Ameen Hassen is Head of Shariah Banking at Standard Bank