BoZ’s Gondwe: Islamic finance essential for African growth

He welcomes the debut South African sukuk issuance, which would have a positive impact for the rest of Africa. “We would learn from it and it will pave the way for other issuances to come. The more the issuers, the better the experience and the learning curve for the rest of us.

We all know South Africa has been a leader in many areas including the financial sector, which is second to none on the continent. Because of their strength they have managed to get their banks to reach out in many countries.

“In Zambia, for instance, we have Standard Bank, which is called Stanbic. We also have First Rand Bank, which is the parent of First National Bank (FNB). They both have strong Islamic finance businesses and growing. Islamic finance assets now total almost $2 trillion, a development no one can ignore any more,” he maintained.

He sees Islamic finance playing a potentially fruitful role in all sectors but primarily in infrastructure financing, agriculture (the backbone of the African economies), industry and manufacturing.

In fact, in his previous job at the PTA, he helped to provide Shariah-compliant financing for a steel manufacturing project in Zambia and was also involved in the establishment of the first Islamic bank in Kenya, Gulf African Bank, which today includes the International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, as one of its shareholders.

Impact of Basel
Dr Michael Gondwe says Zambian-incorporated banks are on track to meet the new capital requirements for banks introduced in 2012 in order for them to better withstand the shocks of both external and internal crisis. The previous minimum capital requirement of $2.4m had simply become unsustainable and initially the banks were given a year to comply with the new minimum core capital requirements of $100m for international banks and $20m for local banks.

“The aim then,” explains Dr Gondwe, “was to get banks to fulfil this requirement within 12 months to the end of 2012. A number of international banks met this requirement but some of the smaller ones got an extension on that date. Some have subsequently complied with the capital requirement, but a small number still have to do so.

The reason is that some of these international banks have decided to convert to local banks through listing on the Lusaka Stock Exchange by floating shares through an IPO (initial public offering).”

Of Zambia’s 19 banks all but one were foreign owned prior to the new minimum capital measures. Dr Gondwe, formerly the president and CEO of the Eastern and Southern African Trade and Development Bank, commonly known as the PTA Bank, is also concerned about the impact of the new Basel III Capital Adequacy and Liquidity Provisions, which come into force over the next four years. “For us we are not there yet for Basel III. We are just about complying with Basel II but we hope to migrate to Basel III later.”

Dr Gondwe believes that financial inclusion policies may be affected given that most developing countries have only recently started to liberalise their financial sectors, with a shift to private sector ownership of banks. “Consultation should be increased.

I was in Basel myself in June for the BIS annual meetings. The BIS is ready to engage with any country that seeks its services. It is a question again of ensuring that the financial system remains resilient,” he says.

He is very keen on continuous financial education “to ensure that our people are thoroughly educated in terms of handling finances and understanding business entrepreneurship”.

He wants banks to advise clients on how to run businesses and how to handle obligations that arise from business borrowing. “As such, they need to apply a lot more discipline. We need to help out businesses so that they become more mature and contribute to stability and growth.”

One mechanism to boost the stability of the banking sector is the emergence of Credit Reference Bureaus (CRBs) – effectively credit history and data banks, providing a reference tool for the banking industry when it is approached by the private sector, including SMEs, for financing. The aim is to promote responsible lending and borrowing.