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Tapping the Islamic banking potential in Africa

The demand for Sharia-compliant products across the continent has been growing for both Muslims and non-Muslims

Gulf News

The United Arab Emirates has often been described as a gateway to Africa. Over the years, this been followed up with increasing investment between both the UAE and Africa. Just recently, it was reported that non-oil trade between Dubai and Africa amounted to Dh577 billion from 2012 to 2016; highlighting how the two are key trading partners. Today, Africa represents a continent that is rich in natural resources and has growth drivers which are becoming increasingly diverse, led by resource-based, construction and service sectors.

According to various industry reports, it is estimated that seven out of the 10 fastest growing economies in the world will be in Africa in the next few years. Expected favourable demographics and closer regional ties are likely to further drive this growth, especially in East Africa. In terms of demographics, Africa currently has a population of more than one billion people with the number of young, middle-class Africans rising increasingly.

* Banking on potential

If we examine this trend further, according to ‘The Wealth Report 2017’, over the last 10 years, the number of Ultra High Net-worth Individuals (UHNWIs) have risen by 13 per cent in Africa, and is expected to grow by 33 per cent in the next 10 years. In fact, of the twenty countries globally whose UHNWI population has grown the fastest over the last ten years, 11 are in Africa. Additionally, around 50 per cent of the total population are Muslim — which includes a high percentage of Muslim expats from Asia, who have settled there.

These figures suggest that Africa represents a huge untapped market for Islamic Banking in particular. The demand for Sharia-compliant products in Africa has been growing for both Muslims and non-Muslims, and most countries such as Senegal, Uganda, Morocco, Kenya, Gambia and Nigeria, have already reformed banking laws to allow the setting up of Islamic institutions. To cater to this growing demand, there are over 50 financial institutions operating in a Sharia-compliant finance space in Africa, according to industry reports. Kenya has been at the forefront of this, with three Islamic banks as well as five conventional banks offering Shari’a-compliant products, through dedicated Islamic windows.

* Demand for Islamic wealth

While, there is a large demand for Islamic Banking, the availability of Islamic Wealth Management Products are still relatively small, leaving a large opportunity for UAE banks — as most African companies leverage Dubai as their trading hub due to its geographical proximity and convenient access to other markets in Asia. This means that Dubai is well-placed to be the natural choice for African clients to invest their wealth, especially in real-estate.

Some of the wealth management products most in demand from the African market are various investment and wholesale banking driven products such as sukuk, structured products and mutual funds. Given the high level of interest, some UAE banks have either actively installed branch offices abroad, acquired other companies within the region to service the local population or created dedicated teams in the UAE that exclusively serve existing and potential clients based in Africa.

At Noor Bank, for example, each of our international clients are assigned a dedicated relationship manager (RM) and customer service officer, who cater to financial needs the client may have, and even visit them.

Going forward, there is no doubt that the African market holds great potential for the UAE Banking sector, and international operations are expected to expand in the coming years. Latest forecasts indicate that Africa’s GDP will grow to 3.7 per cent in 2018 (according to the African Development Bank), which holds positive signs for the overall economy, and sums up the large opportunity.

Renoy Kundukulam is head of Wealth Management at Noor Bank. The views expressed in the column are the writer’s own and do not reflect those of the bank or newspaper.