Islamic banking wave is marking its space on the African market and a good number of banks are already tailoring their products to suit the market. For a financial institution to label itself as an Islamic Financial Institution, it should have a Sharia advisory and supervisory board. The role of the board is to ensure that the products and services an in line with the Sharia laws.
Several conventional banks are joining the bandwagon by opening up Islamic windows. It is worth noting that these banks also serve non-Muslims as well. For instance, National Bank of Kenya’s Islamic window registered 25,000 accounts in 2015 and 19,000 of them were held by non-Muslims. The following are the reasons why Islamic finance is spreading very fast in Africa
Response to the worldwide trend
Islamic finance is still young as it started gaining ground in the mid-1970s. The growth has been commendable and now Islamic Finance has assets worth more than $2.1 trillion within such a short period. 80% of these assets are held by Islamic financial institutions and conventional banks with Islamic windows. The remaining 20% lies in other forms such as sukuk which is the Islamic banking answer to bonds and takaful which is an equivalent to insurance. Africa has more than 1.2 billion people who make up 15% of the world’s population. Almost half of these people are Muslims which makes Africa a good spot for Islamic banking.
Free flow of information
Several decades ago, most people did not know that Islamic finance existed. This has changed and the information has found its way into mainstream media. Modern banks have adjusted accordingly and set up departments that cater for this segment. Not too long ago, many people also thought that Islamic banking was for Muslims only but this has also changed. Sharia scholars and financial institutions have taken upon themselves to educate the general public on the principles of Islamic banking. You shall also find many conferences and seminars that discuss matters Islamic finance all year round.
Adoption of technology
Islamic finance has not been left out as it is adopting some of the coolest fintech developments to increase its outreach. Islamic financial institutions are now using social media to promote their brands and communicate with customers in real-time. Innovative institutions such as Medina are revolutionizing this space by setting up digital banks to make access to Halal financing easier and more convenient. Potential customers do not have to walk for hundreds of miles to access financial solutions because they will access them directly from mobile devices. Another important development is the adoption of blockchain technology in the Islamic finance space which increases transparency and accountability.
High demand for ethical products
Let us face it. Most conventional banks are money-minting machines whose core business is generating profits. Such banks have at times contributed to the moral decay of the society as they fund unethical activities. Other cases have been when a catastrophe hits an investment acquired on loan. The borrower bears the loss alone and still have to pay premiums for the loan advanced.
Islamic finance operates on transparency, trust and accountability. More people are shifting to Islamic finance as it has clear terms from the word go. That is why the model does not operate on speculation because Islamic financial institutions know they are also at risk of losing. These financial institutions take upon themselves to screen the intentions of the borrowers before advancing the loan. Such screening makes Islamic finance the ideal solution to the bottom of the pyramid.
Islamic finance is expected to even grow bigger in the next few years as more people understand it’s potential. Technology will play a major part in increasing the adoption rate of this financial segment.