Islamic banking open to all
OU don’t have to be Muslim to bank at Al Baraka Bank, says the bank’s chief executive, Shabir Chohan. He said a focused strategy to attract all South Africans to what he described as banking based on “moral and ethical codes” was getting up steam.
“Traditionally the general public have seen us as a bank only for the Muslim community. That is not true and now we are engaging in a focused marketing strategy to change that perception,” he said.
Despite commanding 0.1 percent (40 000 clients) of the South African banking market, Chohan said the institution, which complied with sharia (Islamic law), had developed products which were not only attractive to Muslims but to the general public who, he believed, were “tired” of paying high interest rates and the exorbitant bank charges demanded by the main commercial banks.
“Many people will go to the ATM and draw just R50 at a time. They then get charged a withdrawal fee which can be as much as R15. I don’t think that is ethical,” he said.
“For 10 years we have had a growth rate of 18 percent year-on year. Yes, we are still a small bank, but we are now a fully fledged commercial bank and we are ready to heighten our profile in non-Muslim communities,” Chohan said.
The bank’s total assets have grown from less than R1 billion 10 years ago to R4.4bn last year. Total deposits topped R3.9bn, with after-tax profits showing a 14.6 percent improvement over the previous period, amounting to R29 million. Headline earnings per share increased by 13.5 percent to 14.7 percent.
YChohan said new products, which included a cheque book feature, business banking facilities and full foreign exchange services, would be introduced. “Cheques are still used extensively in the Muslim community. We have also converted some of our products into more practicable financial tools for clients meeting the criteria necessary to be regarded as a commercial bank.”
He said earnings from foreign exchange had increased by 177.4 percent last year.
Chohan said the National Treasury’s successful issue of its first sukuk in September for $500m (R5.5bn) was another indicator that Islamic financial concepts were no longer the exclusive domain of Muslim communities.
“For many South Africans the words may sound foreign, yet, internationally sukuk are taking the world’s capital markets by storm. In 2013 alone, sukuk in excess of $250bn were issued,” he said.
Sukuk is an Arabic word which is plural for the word sakk and literally means document. In modern Islamic financial terms the word stands for certificates representing ownership in an underlying asset which generates predictable returns against the traditionally styled loan which draws interest.
In sharia, charging interest is forbidden.
For example, if a client wants to buy a car, the bank buys the car from the dealer then sells it on to the client at a profit. “That means the repayments are the same each month and don’t fluctuate with the changing interest rate,” Chohan said.
He said the same principle applied to buying a home or any other financing deal, for that matter. “We don’t offer micro-loans,” he said.