ABSA and FNB have predicted strong growth in Islamic banking in SA as more people embrace a sharia-compliant approach to dealing with money.
In separate interviews, the heads of the two banks' Islamic banking units have said while the customer numbers are still small relative to those using conventional banking services, interest is steadily growing.
Islamic banking is consistent with the principles of sharia, which prohibit the payment or acceptance of interest payments (riba) for either lending or making deposits. But FNB IslamicFinance CEO Ebi Patel says in a paper prepared on the growth prospects of the industry that both Muslims and non-Muslims are keen on Islamic banking products.
"Islamic banking, or interest- free banking as it is sometimes known, has been successfully introduced into numerous international countries and is now enjoying encouraging growth in SA and neighbouring states," he says. "Internationally, Islamic finance has grown at a rate of between 10% and 15% annually, where the current global economy annual growth rate is 4,2% (for 2010)," Mr Patel says.
FNB IslamicFinance has experienced 25% year-on-year growth since it was launched seven years ago, Mr Patel says, without giving figures. This compares favourably with international growth statistics.
"FNB IslamicFinance's product offering has grown to include a range of vehicle and asset finance through WesBank, commercial products including retail and merchant banking commercial and residential property, and a private banking facility."
The MD of Absa Islamic Banking, Amman Muhammad, said last week Absa had also experienced steady growth since the bank established Islamic banking in 2006. He could not provide customer numbers because of the competitive nature of the business. However, based on statistics filed with the regulator, he believes Absa probably has the largest market share out of the big banks in SA, where about 2% of the population are Muslims.
Mr Muhammad said interest among non-Muslims was also increasing, mainly based on moral and faith grounds. To widen interest in SA, Absa is participating in a programme to introduce Islamic banking into communities, including schools.
Proposed tax amendments by the Treasury to put Islamic banks on an equal footing with traditional, conventional finance should help spur the growth of the industry, he says.
Mr Muhammad says that for Islamic investments, the government wants to ensure that the profit share earned by the investor will be exempted from tax on interest earned.
He says Absa intends expanding Islamic banking to Mozambique. "Preparations have reached an advanced stage and we should be able to launch probably (before the end of this year)."
Absa is already a dominant player in the Islamic banking sector in Tanzania, where it launched in May last year, in partnership with the National Bank of Commerce, (NBC) of which Absa owns 55%. NBC was the first major bank to offer Islamic banking in a country where Muslims comprise half of Tanzania's population of nearly 50-million people.