As the concept of Islamic finance captivates the international market, a paper released by Malawian researchers has supported the idea of introducing such banks in Malawi.
The paper, authored by scholars Abdul Sheriff Kaunde and Abdullah Omar I. Mdala, titled “A Case for Islamic Banking in Malawi” and released in April this year argues that Islamic banking and finance run in accordance with Islamic principles and the law of the land.
Their research follows Reserve Bank of Malawi’s (RBM) refusal to licence the Islamic Bank of Malawi on the grounds that Islamic banking had Shari’ahh elements embedded in it.
The application was made by Shari’ahh Investments Limited.
However, it’s the paper argues that Islamic banking follows the three essential features of banking stipulated in the Banking Act.
It further warns that the country risks losing millions in Foreign Direct Investment (FDI) due to her rigid laws and, with it, prospects of propping up her foreign currency reserves.
“As such, it could neither be seen to be at odds with the secular principles enshrined in the Constitution, nor as a means to support or promote a particular religion, as we may rightly suspect it here in the decision (to turn down the application).
“Secondly, the term ‘banking’, as defined in the Banking Act has three essential features: acceptance of deposits from the public; the use of money so accepted for lending or investment, and; liberty to the depositor to withdraw the money,” argues the paper in part.
Kaunde and Mdala say, going by this definition, the Banking Act does not require an Authorised Dealer Bank to pay interest on deposits or charge interest on lending, “nor do the requirements beg the need to comply with that”.
Under the RBM Act, an institution interested in opening shop first provides a synopsis of the nature of business to be conducted, after which the central bank determines whether the application has potential and is compatible with the interest of the national economy.
Applications to conduct banking business are made to the Minister of Finance through RBM, which is mandated to conduct an evaluation before making recommendations to the minister.
Apart from paying a licensing fee of US$1,250, the applicant is assessed on performance history, financial position, expertise, capacity to maintain an adequate capital base, soundness, solvency and liquidity of proposed business operations, impact of business on prospective customers, capacity to commence business within 12 months, among others.
Mdala, who holds a Bachelors Degree in Islamic Sciences, backed his paper in an interview last Friday.
He said he and United Kingdom-based lawyer Kaunde came up with the paper after noting that the Islamic Bank of Malawi met all the requirements to operate in Malawi.
“The ultimate test of such an alternative is whether it is successful or not. It can be safely said that Islamic banking has been successful (and) that is why it is not surprising to find several international banking institutions establishing their own Islamic units, windows, branches or fully-fledged Islamic banks to better serve their customers.
“Financial centres such as Singapore, Hong Kong, Geneva, Zurich and London have either changed laws or tweaked existing regulation to accommodate the Islamic Finance industry.
A March 2011 Economy Watch report estimated that the Islamic finance industry is worth US$800 billion and that it is growing at between 10 to 15 percent a year.
“To date, two major leading banks in South Africa- FBN and ABSA- have Shari’ah compliant services.”
Another paper prepared by Boston Consulting Group in the United Kingdom says that the focus is “on leveraging deep and long-term relationships with worthy Muslim clients from the Middle East who are seeking private Islamic banking services”.
At the peak of the derivatives boom, for instance, the industry body International Swaps and Derivatives Association even structured what it called an ‘Islamic swap’.
The United Kingdom has not lagged behind, with commercial banks now offering Shari’ah-compliant mortgages. In 2003, for instance, HSBC became the first mainstream UK bank to offer mortgages designed to comply with Shari’ah, followed by United Nations Bank Limited’s launch of the first Islamic product called UNB Islamic Mortgage.
“Malawi, as a former colony of the united Kingdom, largely borrows its laws from this colonial master, and has a lot to learn from the adjustments to allow an Islamic system of finance,” Mdala said.
He said the country could get guidelines from the Islamic Financial Services Board, an association of central banks, monetary agencies and government organisations established on November 3, 2002 to develop universal Shari’ah compliant finance standards.
From humble beginnings in the 1990’s, Islamic finance has become a trillion-dollar industry.
