Islamic banking: A partnership made in heaven?

Islamic funds on the rise
At present Albaraka, FNB, Absa and HBZ Bank Limited, a wholly owned subsidiary of Habib Bank AG Zurich, offer Islamic commercial and corporate banking products in South Africa.

Several asset management companies are active in offering Islamic Unit Trusts and equity fund products. These include Albaraka Old Mutual Range; Oasis Crescent Range; Element Range; Kagiso Range; and the Stanlib Shariah Equity Fund.

In some respects companies such as Oasis Holdings are leading the world both in product range and performance. The Oasis Crescent Equity Fund, for instance, at end April 2014 had an AUM totalling R6.187bn ($4.4bn) with an annualised return since inception of an impressive 22.7%, way above its peer institutions.

Similarly, the Oasis Crescent Global Equity Fund has an AUM of $209.3m with a return since inception of 8.5%, compared with 0.8% for its peer institution. Most oproviders of Islamic financial products report increased demand and business growth in 2013. Ebrahim Moolla reckons that banks such as FNB can spearhead the development of Islamic banking into other African markets. To him, infrastructure, food and agribusiness and power generation, especially renewable energy, hold very good prospects.

There are other drivers of the Islamic finance market in Africa. These include the massive involvement of the Islamic Development Bank (IDB) Group and its subsidiaries including ICD (its private sector funding arm); ICIEC (its export credit agency) and ITFC (its trade finance fund) in financing trade, development and technical assistance in its 21 or so African member countries.

Another major development could be the entry of Dubai Islamic Bank (DIB), the oldest commercial Islamic bank in the world in which the Dubai Royal family has a large strategic stake. DIB is in the process of exploring expansion into new markets in Asia and Africa, with Kenya reportedly its regional hub of choice.

Similarly, private investors are also increasingly interested in some African markets attracted by the high GDP growth rates in these countries. Saudi-incorporated Islamic investment bank, Sidra Capital and its Geneva-based partner INOKS Capital recently sealed two transactions totalling SR140m ($37.3m) in the agribusiness and real estate sectors in Côte d’Ivoire and Ghana.