Islamic finance traces its formalisation to the late 1960s, it is today considered a very promising field within the banking space, and it is apparent that First National Bank Botswana (FNBB) caught on the drizzle of its burgeoning rain.
The top local bank re-launched its offering of Islamic banking, which it introduced into the local market a decade ago, last week Thursday in the capital of Gaborone. In the room was Islamic banking’s proponents, the majority of which was the Muslim community in Botswana. When launching the new offering the bank’s Chief Executive Officer (CEO), Steven Bogatsu, said the re-packaging was done to “ensure relevance in the market” and expressed that vast opportunities lie ahead. He added that they have identified dynamic growth areas with Islamic banking asserting itself as an important part of financial intermediary going forward.
According to Dr. Fazlur Rehman Moorad, Senior Lecturer in the Department of Educational Foundations at the University of Botswana, Muslim traders began establishing businesses in Botswana in the early 1900s. He cited examples of traders such as Dada who set up shop in Kanye, Khan and Kablay who plunged into Molepolole, Habib Khan who cut tracks in the remote outposts of the Kgalagadi Desert in Khakea and Rasool-Khan who ventured into Manyana to mention but a few. As Moorad put it, “the Muslim traders reached the remotest parts of the country such as the middle of the Kalahari. They established trade routes, businesses, and literally cut tracks and helped provide goods and services to people who lived off the beaten tracks.” It is from this origin that today a prominent business community exists within the local economy, as was evidenced from their presence at the re-launch. FNBB’s revamped offering consists of financial products that comply with Shari’ah Law practices. Shari’a denotes the way of life based on the Qur’an and traditions of Prophet Muhammad.
The prohibition on interest, is by far the most distinguishing factor between Islamic banking and that of the conventional banking system, which in accordance with Shari’ah Law, instructs that depositors must not receive income from money alone. “Stay away from interest and partake in trade,” spelt out Amman Muhammad, FirstRand’s Islamic Financial Services CEO based in South Africa who had come to provide context to FNB’s participation in Islamic banking. The emphasis by Muhammad is that income can only be received through money engaged in trading activities over it being earned through interest. Resultantly the bank and the depositor share the profit from such trading activities. Based on the FNBB offering a quarterly profit is calculated and paid to the transactional accounts, for both personal and business accounts. Under the Shari’ah Law overdrafts are not permitted.
According to Muhammad FNBB’s Shari’ah compliance provides a ‘triple safety net’ which includes one, a Shari’ah Advisory Committee comprising of three esteemed scholars who ensure oversight by approving, reviewing and supervising the products on offer; two, internal and external audit and three, internal Sharia’h division.
With the overarching practice of interest proscription, Islamic banking uses unique financial structures or arrangements. This includes lease agreements in which the bank and the depositor (individual or business) enter into a joint partnership over a specified fixed term. This agreement works for either car or home purchase in which for the agreed period the bank owns the said objects whereas the depositor exercises the right to use them and at the end of the fixed term ownership of the object will be transferred to the depositor. The FNBB car offering is available to individuals and businesses with a repayment period of up to 72 months and the home purchase offering has terms between 5 and 20 years, and for commercial properties between 5 to 10 years.