First National Bank of Botswana (FNBB), the second biggest bank on the stock exchange, intensified its campaign to be the leading bank in product innovation and the fastest growing by launching the first fixed repayment scheme dubbed ?Islamic Finance?.
?The fixed rate financing ? interest caller ? works exactly like the Islamic Finance because it does not attract interest,? FNBB Managing Director, Danny Zandamela, said in an interview on Friday.
The Islamic Finance is based on the principle of transparency and certainty and is not affected by the movement in the interest rates. Globally, it started some 40 years ago and presently is valued at around US $ 500 billion in 40 countries. The product is also used by the world?s leading banks such as HSBC and Citigroup, among others.
In Botswana, FNBB is the first bank to introduce it and is open to people of all different religious beliefs, including atheists.
?The product is targeted at Muslims who are the natural members of this market and will also include the conventional market,? he said.
According to FNBB?s head of Islamic Finance, Uzair Razi, the product will be open to vehicle and asset finance, transactional banking and property. In Botswana, there are between 15,000 and 25, 000 Muslims.
?The principle is that there is no interest, no uncertainty and the bank has to agree with the customer on a fixed repayment over the agreed period of time,? Razi said, adding that the repayment is treated as ?Ijarah? (rental). However, the product which will be available in all 14 branches of the FNBB cannot be used to generate interest, investing in breweries and pork related activities.
The launch of Islamic Finance last week coincides with tough trading conditions in the market which were propelled by high interest rates as inflation went through the central bank ceiling of 4-to-7 percent to a double digit in the better part of last year. The move resulted in jaded corporate lending which affected the banking sector?s margins.
However, FNBB emerged with a strong performance in all the sectors as its financial statement during the six months to December 31, 2006 recorded interest income which was up 99.3 percent to P 495 million from P 249 million last year. Earning for the period was P 143 million, compared to P 133 million, while lending was moving at a pace of 17.7 percent for the six months.
Though on the overall the financials were boosted by the Bank of Botswana Certificates, it came better than its peers as it mortgage book was 30 percent up or P 1.3 billion to match Botswana Building Society (BBS).
?The net interest income increased by 26.1 percent compared to the corresponding period as a result of strong growth in interest income from advances which have grown 17.7 percent, compared to the corresponding period, and also as a result of the significant increase in the holding of Bank of Botswana Certificates (Bobcs), which increased by 502.3 percent on the corresponding period following the Bank of Botswana?s change in policy restricting Bobcs trading to commercial banks with effect from March 1, 2006,? Zandamela said during the announcement of the results.
The impact of the Islamic Finance is expected to be reflected on its end of year results due in June. The product is likely to impact positively given the nature of Botswana?s interest rates which has never been below 12 percent in many years.
FNBB traces its roots to South Africa, a leader in world banking technology. Late last year, it rolled-out cell-phone banking which is one of the latest banking products across the world ? including in the advanced countries of Europe.
Praising the technology, Zandamela said ?Cell-phone banking is a bank on the phone. It allows a customer to do anything relating to account transactions at anytime.?