According to a report generated by Islamic Financial Services Board (IFSB) in 2017, Africa’s Islamic finance is valued at more than $30 billion. Africa has a long history when it comes to Islamic finance because the first Islamic bank was started on this continent. The Mit Ghamr Savings Bank was the first bank to lay a foundation for the modern Islamic banks and it was founded in 1963. Even though the bank closed business four years later, it lay the foundation of what we have today. From speculations, the global Islamic finance will be valued at $3 trillion by 2020. So, what makes Africa the new frontier for Islamic Banking?
Africa is a culture-based society
If there is one thing that Africans hold dearly to, then it has to be principles and societal beliefs. Before an African takes any action, he or she has to ask himself whether it is acceptable in the society. Islamic finance is based on principles which are quite in agreement with the African spirit. Most Africans believe in helping each other which is one of the aims of Islamic finance. Halal financing is all about funding causes that help in advancing the society, poverty alleviation and fighting moral decay.
Africa is responsive to technology
Kenya was the first country to roll out mobile money transfer through the MPESA platform. The African continent has been a target but multinationals as they realize that it is pregnant with potential. Digital Islamic financial institutions such as Medina are seeking to penetrate the market as they understand the trends as well. Halal financing that incorporates technology is on demand and big banks such as Gulf African Bank is already eying to roll Halal financing through established platforms such as MPESA. Some of the African countries with the best internet connections include Kenya, South Africa and Nigeria.
Islamic finance products are gaining ground in the African market
Even though other regions such as the Middle East have been floating Sukuk for more than two decades, the African market as well embraced it in the last one decade. Nigeria was the first big economy to float $100 billion worth of Islamic bonds in 2013. Other countries are targeting the same route even though the market requires a good financial and legal framework.
Collateral has always been a barrier when it comes to access to finance
Every time you walk into a conventional bank to request for a loan, they will ask for your payslip or collateral to secure the loan. Collateral demands have been a challenge for many people especially the youth and women majority of who do not own property. Most of the times the bank will not follow up or care to know how you use the money because its interest is on the proceeds it gets from the loan. Halal financing can be the answer to this nightmare that befalls many Africans. The risk-sharing contracts such as Mudarabah makes it easy for Africans to access loans
The realization that Halal financing is not only for those who profess Islamic faith is fueling its penetration. People are now looking for ethical financing and Halal products are proving to be worth seeking.