WHAT THE BANKS OFFER

Mohammed Kaka, the executive director of Al Baraka Bank, says the South African Islamic banking market is very small, but there is the potential for growth in Africa. He says it has been estimated that only 10% to 20% of the Muslim community in South Africa uses Islamic finance.

The Islamic banks offer essentially the same services as conventional banks; the big differences are that they don’t provide unsecured credit in the form of personal loans, overdrafts or credit cards, and there are no predetermined returns on deposits.

• Transaction accounts: on cheque and savings accounts, you transact with an ATM/debit card. Internet and cellphone banking are generally available. Debit cards must have a positive balance.

• Deposit accounts: Islamic banks offer notice accounts, fixed deposits, facilities for investing a specific amount monthly and lumpsum investments that provide an income. They do not fix rates of return on deposits, because this would be tantamount to paying interest, but they pay out a share of the bank’s profits to depositors.

• Investments: Albaraka has unit trust investments in the form of the Old Mutual Albaraka Equity and Balanced funds (see “Collective investment schemes”, left).

• Financing for concrete assets, such as vehicles, is mainly based on the “ijara” (leasing) model, with the option to own the asset on settlement. Home loans are based on the “diminishing musharakah” model, whereby the client gradually owns a bigger and bigger portion of the property. The bank and client initially own the property in, say, an 80%/20% partnership (the 20% is the deposit on the property). The bank’s share is divided into units and the client undertakes to purchase from the bank one unit a year over an agreed period (for example, 10 years). The client becomes the sole owner of the property at the end of the period.

• Shariah-compliant insurance for your vehicle, household and business, based on the “takaful” model whereby contributions are pooled in a co-operative system.

• Wills and estate planning.