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The hopeful continent

Published: 04/12/2012 05:26:17 AM GMT
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Dr. Suleiman Ahmed Walhad believes that the world needs to learn about Africa in a new light, and the Islamic Banking Summit Africa, hosted in Dji (more)

Dr. Suleiman Ahmed Walhad believes that the world needs to learn about Africa in a new light, and the Islamic Banking Summit Africa, hosted in Djibouti, is a good place to start. "We need to talk about Africa because Africa wasn't able to sell itself. One of the reasons we have organised this conference is for people to come and see real Africa.

"People only see what is on the television, where they just show starving children. This is not the full story. If you go to Mombasa, Kinshasa or Durman, to name a few, you can see an Africa that isn't portrayed on TV. People talk about poverty and AIDs, but they never film the centre of the cities that are developed. Awareness is what is needed - true Africa must be known. Africa must be able to market itself, and that's what we're trying to do with this conference - and the ones that will come after."

INTRODUCING AFRICA

The Arab countries, Asia, Europe and the Americas have witnessed the growth of Islamic banking and finance through various delivery mechanisms of the industry, namely Islamic financial institutions and a multitude of conferences, Walhad explained.

"Africa did not have this kind of opportunity and especially this region of the continent as much as those in other parts of the world," he said. "Islamic Banking Summit Africa 2012, we hope, will help the continent get exposure to the growing Islamic financial industry."

And it's important that Africa gets this exposure, as Islamic finance may prove to be its most important channel for investment. "Many investors and businesses from across the globe frequently ask us what the best ways are to invest in Africa, knowing that African economies have been growing at a fast pace these past few decades and knowing that Africa's general governance infrastructure has been improving over the years. They want to access this continent of vast resources; be they minerals, water, human capital and so on.

"Many African corporations, companies and governments ask themselves day in day out how to raise capital for business ventures and other requirements, to help their respective countries and corporations rise up from the poverty that the continent is almost synonymous with, despite its vast rich natural resources."

SUKUK STORY

Walhad explained that Islamic instruments such as Sukuk could help unlock Africa's potential. "The Sukuk industry has been growing and it has crossed into all of the continents, however Africa uses Sukuk the least to raise funds. Sudan issued the first Salam Sukuks in 2007 and followed with similar issuances in the years of 2008, 2010 and 2011. Similarly The Gambia, Egypt and South Africa have issued some Sukuk.

"It is good to note that South Africa issued Sukuks worth $200 million in January 2012 and, having tasted the product, is planning to raise a further $500 million in 2013. This proves the universality of the services and products and Africa needs to open its eyes and ears in this regard."

Africa is known for its vast natural resources, and can and should use the Sukuk industry to raise capital both domestically and internationally. "Sukuk benefit not only the investors but also the users of the funds," said Walhad. "They are beneficial for the investors since there is recourse to the specific asset which was the basis of the Sukuk in addition to the income it would generate for them. They are beneficial for the end users of the funds as they provide a source of funds for their businesses and other needs.

"For domestic issuances, governments can raise funds from the local market and help its citizenry participate in the national development while being rewarded for this participation. They can also use them as a tool for monetary policy and open market operations. Countries such as the Sudan use Sukuk issuances for the purpose of controlling liquidity in the market."

Walhad explained how Sukuk can also provide much-needed funding for businesses. "The private sector can also issue Sukuk to raise funds for their private and public business. It is an ideal structure to finance long term projects such as shopping malls, private hospitals, industrial projects, mining, etc.," he said. "Sizeable equity funds based on Islamic structures can also be created to invest in agriculture, agro-industries, textiles and Africa's stock markets after screening for Shari'ah compliance.

"As a fast growing market, Islamic Sukuk and capital market products and services have roles to play in transforming Africa from a primary material producer to an industrial continent, at least transforming most of its mineral base into finished or semi-finished goods."

Walhad reiterated that for Africa to reach its potential, it needs to make more noise. "To help Africa to develop its Islamic capital markets, and especially the Sukuk industry, awareness is the key," he said.

"Conferences of this nature will help introduce the industry, particularly the Sukuk industry, to the continent. So far, as we note, other than the Northern part of the continent, which is a natural franchise of the industry, the rest of the continent needs to be explored by the Islamic industry leaders and financial institutions, as much as they would market their products and services in any other part of the world."

HIGH DEMANDS

Walhad explained that bringing Islamic finance to Africa is serving a basic need of its population. "Africa has a population climbing to some one billion people and a substantial number of the continent's citizenry are Muslim. This large population needs to be served and it is on the onus of Islamic financial institutions and industry leaders to bring Islamic financial services to the continent and its large Muslim population.

"Even in the Arab world, Islamic finance was driven by the population who saw it as a real alternative. I wrote a book - Islamic Banking: The Way Forward, that says Islamic finance has universal implications. It's not confined to specific communities or faiths. Funds and cash are used productively - that appeals to everyone."

Walhad believes that the academic industry should also play a role by introducing studies to Africa's educational institutions to remove, as he put it, "the unfortunate suspicions created through Islam-related events of the last decade across the globe."

Walhad is aware that Islamic finance can be a tough sell. When he joined Dahabshil International Bank in December 2011, he found one of the main difficulties was converting conventional banking clients to Islamic finance. "There are a lot of sceptics," he said. "People didn't understand Islamic banking, how it differed from local banks and how things were structured. Those who were banking were already banking with commercial banks. They were kind of already married, and it was hard to break them away from that. Starting new relationships is not easy.

"So what we did was concentrate more on those who have never banked: on microfinance customers and traders, who have only worked with their own cash and resources, not the banking industry. That's what's lacking on this continent. Businesses don't grow; someone might start a business, build on it, and then grow old and die and the business dies with them. There is no continuity. That's where we will be useful for the market."

A GOOD HOST

Walhad explained that Dahabshil International Bank picked Djibouti as its host country because it is fertile ground for Islamic finance and a gateway to the region. Indeed, Djibouti has one of the most liberal economic regimes in Africa and a business-friendly environment. "Its people are Muslims," he explained, adding that as the bank has its roots in Somalia, Djibouti was a natural choice.

"Our bank is a Somali bank - our owners are Somali and Somalia was going through a difficult process for a long time," he said. "We had to establish somewhere so we chose Djibouti because of its strategic location. We are the largest financial services company in Africa. We move money for people from across the globe to this region. It was a natural progression to go to the next level to establish a bank. We are present, as a group, in 144 countries and have some 24,000 offices across the globe.

"In Somalia, we were the conduit through which money was transferred. Why? Because the Government collapsed and there was no other service provider. So we took the opportunity and we are now doing very well. It was a natural progression to go from a money transfer company to a bank."

Having successfully established in Djibouti, Walhad said that the bank would now like to return to its roots in Somalia, to tap the "huge" potential for Islamic finance in the country. "The Somali population is mostly Muslim - they will not bank with non Islamic banks in the environment they are in today. If you want to establish a bank it must be Islamic. I was looking at Somali Central Bank's requirements - and they are entirely Islamic. They know that people will not deal with conventional banks. It's not driven by the capital owners - it's driven by the people. It's natural to have Islamic banks there."

After that, Dahabshil Islamic Bank has its sights set on expansion the East Africa region, then Central Africa, and is considering West Africa after that. Ambitious plans for a bank that, at two-years-old, has barely learned to crawl?

"We are driven to contribute to the local and regional communities that we serve by increasing access to bank accounts and connecting the region to the international financial system," Walhad said, adding, "But we need Africa to start selling itself!"

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