What the future holds for Islamic financial services industry in South Africa


The industry is now an emerging market as opposed to just being a potential market.

Amman Muhammad, the CEO of FNB Islamic Banking South Africa, said the niche Islamic financial services industry has grown, with the government recognising it as a formidable player in the country’s banking and insurance industry. 

“Participation in the South African niche Islamic banking market has proven that it certainly is an exciting place to be in,” said Amman. 

“Looking back at the challenges that the industry faced, not too long ago, one can certainly be proud of the significant developments that have taken place at an industry level over the past few years. These developments have played their part towards levelling the playing field for niche Islamic financial services providers and in growing awareness of this small but growing industry." 

The Islamic finance sector has established itself as a serious player, with the South African government issuing the first draft of an amendment to the National South African Taxation laws during May 2010, which went on to become legislation for the first time ever. 

Previously, the South African Islamic finance market was viewed as nothing more than a potential Islamic financial market, where market depth and market reach were purely in an infancy state. Participants in the Islamic financial market were working hard at building a market and confidence in their product offering, the macro market lacked sophistication and there was a lack of skilled resources to support any real growth.

Currently, the Islamic finance industry is in good shape, with most of the South African Islamic financial institutions delivering consistent double-digit growth, said Amman. 

“We are also witnessing new entrants to the industry, this from all the various financial disciplines, not just from the banking sector, but also from the insurance and asset management sectors,” Amman said. “In addition, we have noticed a fair level of curiosity from other big financial institutions looking to offer Islamic financial products and services.” 

According to Amman, the South African Islamic market can now comfortably categorise itself as an emerging Islamic financial market as opposed to being just a potential market. 

He said plans were afoot for the return of South Africa to the Islamic debt capital market, with an eagerly anticipated local currency sukuk (bond), five years following the maiden US$500 million sukuk issuance in 2014. 

The market, through the efforts of the various Islamic financial institutions, is enjoying a heightened level of awareness and potential customers are better placed than before, he added. “They understand what they require from an Islamic finance institution.”

This has been driven by a greater variety of products that have been offered to the market, and of critical importance, is the pricing parity that these institutions can offer customers looking for an Islamic finance alternative. 

“We are also working on delivering Islamic finance specific liquidity management solutions and innovative ways in which to manage excess liquidity positions. At this stage, we still struggle in finding appropriately skilled resources and identifying Shari’ah scholars with a finance specialisation remains a challenge. Having said that, the various banks and the Islamic banking industry body in South Africa are working on programs to upskill individuals.” 

“In addition, the Islamic banking industry through the South African Banking Association, are working with the various financial regulators and National Treasury to establish consistent compliance and governance standards,” he said. 

Going forward, Amman anticipated that the Islamic financial services industry will evolve to become an even more relevant player in the overall South African banking industry. 

“Given South Africa’s highly developed financial infrastructure and sophisticated banking system, this country could just well be the launch pad that international players use to catapult themselves into the highly lucrative market that is Africa.”

He adds that, with its enhanced capability, through an alternative funding source in the form of Sukuk, South Africa should be even more attractive to the Muslim markets previously not tapped by this emerging economy. 

“Globally financial institutions are aggressively strategising penetration plans into Africa incorporating Islamic Finance as part and package of their offerings. A few South African banks, including FNB, currently successfully offer Islamic banking in countries outside South Africa, but with the success of the overall market, all eyes will be focussed on an even greater thrust into the African Muslim markets, strategically placing South Africa at the helm for such a move,” Amman concluded.  

Related articles

CFO Innocent Gumbochuma: A strategic revival

South African Qualifications Authority (SAQA) CFO Innocent Gumbochuma shares how he is shaping the financial trajectory of the organisation and has ambitions of setting it on a path of innovation, resilience, and diversified revenue streams.