BOZ Gondwe: Islamic finance essential for African growth.

By: Mushtak Parker.

Dr Michael Gondwe says “Islamic finance is a system built on ethics and confidence, which has to be maintained through its various processes with the emphasis on fairness, responsibility and transparency. “As we know, the 2008 global financial crisis mostly emanated from greed and lack of transparency. I see Islamic finance as a strong alternative. For us in the developing world, the appetite for finance is so deep we need any other financing that can work and deliver,” he says.

During a visit to Malaysia in September with a delegation from BoZ, Dr Gondwe saw at first hand the impact Islamic finance has in financing infrastructure, industry, manufacturing, housing, agriculture and even wealth creation. Bank Negara Malaysia, the central bank, is one of the driving forces.

Dr Gondwe and his Malaysian counterpart, Governor Dr Zeti Akhtar Aziz of Bank Negara Malaysia, signed an agreement whereby the highly-regarded Kuala Lumpur–based Asian Institute of Finance (AIF) would help with the training of Zambian bankers.

Bank Negara is also in talks with BoZ to help build its Islamic finance regulatory architecture, as with other African countries, Nigeria and Kenya. Dr Gondwe strongly believes Islamic finance has a role in contributing to development in Africa and “this potential to help Africa grow and to promote financial stability is tremendous”.

African countries, he urged, should facilitate the necessary regulatory and enabling legal framework to enable Islamic financial products to be introduced. He confirmed he would be pushing Islamic finance high on the agenda at the next meeting of governors of central banks of the SADC (Southern African Development Community) countries.

Governor Gondwe confirmed that under the Banking and Financial Services Act 1996, and its subsequent amendments, an Islamic bank could be authorised in Zambia subject to capital and other provisions, and in line with the objectives of the Financial Sector Development Plan. The Act also recognises mainstream Islamic financial products such as Murabaha (cost-plus financing) and Ijara (leasing).

“We have done our homework. We have a team of three senior officers who have had very intense meetings with very many people in different jurisdictions. So it would be possible for someone to make an application to incorporate an Islamic bank in Zambia today. What we want to ensure is that there is no confusion at the beginning that would undermine the Islamic finance system,” he explained.

The BoZ is also encouraging conventional banks to open Islamic finance windows to start the ball rolling. Dr Gondwe has already met with several CEOs of banks to that effect.

Too early for Zambian sukuk.

As for issuing a sovereign sukuk, he says that would not be realistic at present given that the regulatory and legal framework is not yet in place. In any case, capital market regulation comes under the purview of the Securities Exchange Commission. But the plan is to issue the first set of Islamic bank licences and to encourage the establishment of Islamic finance windows, in tandem with educating the market about Islamic finance.

He welcomes the debut South African sukuk issuance, which would have a positive impact for the rest of Africa. “We would learn from it and it will pave the way for other issuances to come. The more the issuers, the better the experience and the learning curve for the rest of us. We all know South Africa has been a leader in many areas including the financial sector, which is second to none on the continent. Because of their strength they have managed to get their banks to reach out in many countries.

“In Zambia, for instance, we have Standard Bank, which is called Stanbic. We also have First Rand Bank, which is the parent of First National Bank (FNB). They both have strong Islamic finance businesses and growing. Islamic finance assets now total almost $2 trillion, a development no one can ignore any more,” he maintained. He sees Islamic finance playing a potentially fruitful role in all sectors but primarily in infrastructure financing, agriculture (the backbone of the African economies), industry and manufacturing.

In fact, in his previous job at the PTA, he helped to provide Shariah-compliant financing for a steel manufacturing project in Zambia and was also involved in the establishment of the first Islamic bank in Kenya, Gulf African Bank, which today includes the International Finance Corporation (IFC), the private sector funding arm of the World Bank Group, as one of its shareholders.

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