According to First National Bank (FNB), Islamic banking is increasing in popularity as people seek alternative banking solutions for a diverse range of financial needs. However, the Islamic banking products and their principles based approach are available to both Muslims and non-Muslims.
Amman Muhammad, CEO of FNB Islamic Banking, highlighted that over the past few years, the bank has experienced a steady increase in the number of South Africans (regardless of faith) who are seeking Islamic banking services, including investment accounts, vehicle and property finance.
What is Islamic banking?
For those not aware of the difference between what some may term ‘conventional’ banking and Islamic banking, Investopedia explained: “Islamic finance refers to the means by which corporations in the Muslim world, including banks and other lending institutions, raise capital in accordance with Sharia, or Islamic law. It also refers to the types of investments that are permissible under this form of law. A unique form of socially responsible investment, Islam makes no division between the spiritual and the secular, hence its reach into the domain of financial matters.”
Absa noted: “Islamic Banking is an alternative to conventional banking that is available to anyone who seeks a different approach to financial services, not only for members of the Muslim community who wish to operate financially in line with Shari’ah Law.”
An important aspect of Islamic banking and finance is risk sharing, while avoiding uncertainty. “Islamic law views lending with interest payments as a relationship that favours the lender, who charges interest at the expense of the borrower. Because Islamic law views money as a measuring tool for value and not an 'asset' in itself, it requires that one should not be able to receive income from money (for example, interest or anything that has the genus of money) alone. Deemed riba (literally an increase or growth), such practice is proscribed under Islamic law (haram, which means prohibited) as it is considered usurious and exploitative. By contrast, Islamic banking exists to further the socio-economic goals of Islam,” added Investopedia.
The reason for the popularity
According to Muhammad, there are a variety of reasons for this rise in demand. One of these is that bank customers are “looking for a principles based approach to their banking. Some customers want to be assured that their investments will not be channelled into the typical sin industries which they fundamentally do not support.”
Furthermore, Muhammad believed that people (both banked and unbanked) are becoming more aware of the type of financial services that they are wanting. As part of this, a person’s personal principles are influencing their banking choices.
“The broader financial services industry needs to acknowledge the rapidly changing needs and create solutions which are aligned to customers’ interests,” said Muhammad.
What products are available?
FNB’s Islamic banking offering includes:
· Islamic Cheque Account
· Islamic Banking Property Finance
· Islamic Business Account
· Islamic Vehicle and Asset Finance
· Islamic Smart Account
· Islamic Wealth Management and Investments
· Islamic Youth Account
· Islamic Term Deposit
In addition to the Islamic banking and financial services available from FNB, Absa also offers a range of Islamic banking services.
The Absa website stated: “Absa Islamic Banking provides a variety of specialised banking, savings and investment solutions that operates in strict compliance with Shari’ah Law.”
Among the Islamic financial products available from Absa are:
· Islamic Savings
· Islamic Cheque Account
· Islamic TargetSave
· Islamic Value Bundle
· Islamic Vehicle and Asset Finance
· Islamic Term Deposit
· Islamic Youth Account
· Islamic Profit Share
· Islamic Wills
· Islamic International Banking
· NewGold Exchange Traded Fund
Poovandran Pillay, head of segment for Client Engagement at Nedbank Retail, noted: “Nedbank currently does not offer Islamic Banking in its offering. However the bank acknowledges the important role the Muslim community plays in South Africa in line with its commitment to driving diversity and transformation. As such, this offering is something that we would consider in the future.”
Standard Bank’s Islamic banking products are only due to launch in July this year.