New Page 2

Religion and economics: the development of Islamic banking in sub-Saharan Africa

On 31 May 2007, Kenya licenced its first ever Islamic bank, which is operating entirely according to Islamic Shari'ah principles. This marks a milestone in the East African region, where conventional banks have been slowly working towards adapting the concept of Islamic banking, which prohibits the lending of money at interest.

The bank is called the First Community Bank Limited, is a joint venture between Kenyan and Kuwaiti nationals and has a paid-up share capital of Sh 1 billion. Furthermore, it plans to open new branches in Tanzania and Uganda, which might trigger major competition among other players in the local banking industry, as well as in the sub-Saharan one, who have already introduced selected products from Islamic banking in the global financial sector.

The licensing of the bank by the Kenyan Treasury and the Central Bank of Kenya (CBK) is the result of recent amendments to the local Banking Act, allowing banks to widen their services. Kenya's decision to legalize the service is a welcome move for Muslims, who have requested it for a long time. Yet, it should be noted that leading banks had already taken advantage of the amendments to introduce Islamic banking products. Thus, already last year, the Kenya Commercial Bank introduced an Islamic banking service to specifically address the needs of the Muslim community. Some of the specifications that come with this service include interest-free loans. Barclays Bank of Kenya also introduced the La Riba current account to serve the Muslim community and compete effectively with the Kenya Commercial Bank. Included in the catalogue of the Islamic banking products are interest-free banking services, mortgages and car financing, as well as health financing products. But, with large numbers of Muslims in Kenya still not using the services of those banks, the market niche of Islamic banking is still considered to be untapped and open for competition.

Thus far, other banks in the country have also shown interest in operating Islamic banking. The Gulf African Bank was due to open in April 2007. A consortium of investors, including Bank Muscat Unit, the Dubai government investment agency Istithmar, Saudi investors and the Free Trade Area Bank were the main shareholders of this bank. Gulf African Bank was due to start with $25 million in capital so that it could expand to other African countries where Islamic banking is still underdeveloped. In addition, the Dubai Bank applied recently for permission to fully operate as an Islamic bank, even though the Treasury and the CBK are yet to give a verdict. Nevertheless, the bank has begun offering a wide range of Islamic products.

In this sense, Kenya is seen by Gulf banks and financial institutions as the gateway to East and Central Africa. This might be true even in the case of neighboring Southern Sudan. On 19 April 2007 - only a month before the licensing of the first Islamic bank in Kenya - Samson Kwaje, spokesperson for the semi-autonomous Southern Sudan government, announced that banks operating in Southern Sudan using Islamic banking systems have to either convert to conventional banking or leave this part of Sudan. Conversion means paying interest on deposits and charging interest on loans to customers. He based his position on Southern Sudan's interpretation of the north-south peace agreement signed in January 2005. According to this agreement, the south will have its own conventional banking system, in parallel with the Islamic banking system operating in the mainly Muslim north. In spite of the ban on Islamic banking, which sparked an outcry from the Muslim community, there are nowadays three conventional commercial banks active in the south, as well as at least four Islamic banks - Umdurman National Bank, Faisal Islamic Bank, Bank of Khartoum and an agricultural bank. Those four banks were given time to decide whether they would convert to conventional banking or leave the south, and in the meantime continue to provide Islamic banking services to the local Muslim community.

The growth of Islamic banking in present-day Kenya should be seen against the background of the stepping up of the 'war on terror' in Kenya, which is closely linked to the developments in the Somali crisis, and to the Kenyan government's strong wish to avert a spillage of radical Islamism from Somalia into Kenya. Thus, Kenyan Muslims are regarding themselves as being much more discriminated against and harassed by the Kenyan government than previously. Furthermore, they seem to perceive the Kenyan government as a collaborator with the US against themselves, all of whom the US regards as potential terrorists. Since it is an election year in Kenya, and since the current Kenyan government has every reason to be afraid that the Muslims will try to topple it in the elections, it is trying to come to terms with them and to reconcile with them, as far as possible. In light of this delicate situation, the licensing of the first Islamic bank is an act destined mainly to show the Muslims that the Kenyan government does not only neglect or discriminate against them, as they perceive it does, but also tries to respond to their needs.

The growth of Islamic banking in Kenya should also be seen against the background of the dramatic growth in acceptability that Islamic banking has evidenced globally. Its main distinction is that it offers fixed-profit lending, which shields borrowers in times of rising interest rates. In addition, in adverse circumstances, where conventional banks levy penalties and penal interest on default by borrowers, Islamic banks work in partnership with borrowers to realize repayment of loans. Depositors in Islamic banks also have a potential upside to returns on their deposits in case the underlying assets perform well, because the banks share profits with depositors. That is why, according to a report written by Kenyan financial experts entitled A Growth Model of Islamic Banking, as of 2006, there were "about 270 Islamic banks around the world, including subsidiaries of conventional banks, of which they together held assets worth more than $265 billion". The potential growth of the Islamic banking concept, especially among the approximately 1.3 billion Muslims worldwide, has recently made major banks, such as HSBC and UBS, use Islamic banking systems in their branches.

However, Kenya is not the only gateway to the African continent. On 19 May 2007, ABSA Islamic Bank of South Africa announced that it "would use the ABSA group's expertise and its expansion into Africa to tap into Africa's populous Islamic banking market". ABSA Islamic Bank is the youngest of the Islamic banks operating in South Africa. It began offering Islamic banking services at five branches in September 2006. Although it controls a relatively small share of the market, it still hopes to wrestle more of the market from its rivals. So ABSA Islamic Bank, which is offering mainly retail products, is due to launch its corporate and business bank offering in South Africa this month (July 2007). So, if it ever finds that it cannot compete with its rivals, it seems to have found a new market among the ever-growing Muslim population in sub-Saharan Africa.

To sum up, it seems that the growth of Islamic banking in sub-Saharan Africa reflects the dramatic growth in global acceptability of this system, and the wish of the various secular African regimes to come to terms with their considerable Muslim communities and to try to reconcile with them. However, much more importantly, it also reflects the ever-growing conversion of black Africans to Islam, and, thus, the need for a religious banking system that will respond to their needs, since many of them are still unbanked. Furthermore, the penetration of the concept of Islamic banking into the heart of Africa follows in the footsteps of the penetration of Islam into Africa in the nineteenth and twentieth centuries, whereby Kenya has served as a gateway into East and Central Africa, and South Africa has served as a gateway into south-eastern and south-western Africa.
Source: Moshe Terdman - PRISM, 6 Aug 2007

(...) Leaders and officials from Asian and African countries have decided to build a new strategic partnership between the two continents, saying it is not directed against anyone.

The new partnership was designed to help improve the life of Asians and Africans, they said at the Asian-African Summit which concluded here Saturday.

Leaders have signed on a declaration on the New Asia-African Strategic Partnership, which will be officially endorsed as they visit Bandung, the venue of the first Asian-African summit in 1955, on Sunday.

The partnership between Asia and Africa, which have a total population of 4.7 billion, will feature economic and socio- cultural relations apart from political solidarity, which was the focus of the Bandung conference.

Summit Co-chairman and Indonesian President Susilo Bambang Yudhoyono expressed confidence with the partnership, saying "we will create in the years ahead a legacy of socioeconomic and cultural development to future generations of Asians and Africans".

A business summit and an Asian-African trade fair held on the sidelines of the meeting put weight on the economic dimension of the gathering.

Susilo hailed the declaration of the partnership as "a milestone in history," saying such a relationship will serve as a bridge between Asia and Africa for the betterment of their peoples ' interests in meeting various challenges in today's world.

Delegates from African and Asian developing countries have complained of problems like poverty, globalization and underdevelopment, calling for joint efforts to address them.

Answering questions at a press conference at the end of the two- day meeting, both Susilo and another co-chairman Thabo Mbeki, president of South Africa, stressed that the partnership is not against anyone.

Asked if the multilateralism advocated by the leaders is targeted against unilateralism by certain countries, Susilo said " the spirit of the summit is not to confront, but to connect," adding that the partnership will serve to facilitate exchanges and cooperation within the two continents and with other parts of the world for the benefit of Asians and Africans.

He said the conference was a success as reflected by the massive attendance and the high level of representation in the gathering.

Leaders and representatives from 89 Asian and African countries out of 106 countries on the two continents have participated in the summit plus chiefs of world and regional organizations, including UN Secretary-General Kofi Annan.

The number of Asian and African countries attending the summit is compared with the 29 countries in the previous one held in Bandung, a town about 180 kilometers southeast of Jakarta.

The presence of about 50 leaders at the conference bespoke the high level of political attention attached to the meeting, Mbeki said.

Mbeki said another achievement of the summit is that the leaders have decided on the follow-up of the Asian-African conference.

They agreed that such a summit will be held every four years together with a business summit, and a foreign ministerial conference every two years to discuss cooperation between the two continents.

The summit, with a theme to reinvigorate the Bandung Spirit, has blamed a lack of mechanism for a failed follow-up of the historic meeting.

The Bandung Spirit, with the core principles of solidarity, friendship and cooperation, guided the fight by newly independent countries against colonialism and hegemony in the world at the time and led to the birth of Non-Alignment Movement.

Egypt and Japan have volunteered to host the next ministerial meeting in 2007 and South Africa, who first put forward the idea of re-convening of the Asian-African summit, is asking to host the next one in 2009, according to Susilo.

The leaders also signed a joint statement on the two continents ' cooperation on natural disasters like tsunami and earthquake.

US ambassador to Russia Alexander Vershbow believes that excessive state involvement in the Russian oil and gas sector may decrease the volume of foreign investment, Interfax news agency reported.

"The Yukos story, the forthcoming merger between Gazprom and Rosneft and the presence of government officials on the boards of directors of large companies indicate that the Kremlin intends to tighten its control over the oil and gas sector," Vershbow said on 29 March in Moscow at a conference "Economic situation and investment climate in Russia", organized by the American Chamber of Commerce.

"Each country can manage its oil and gas resources in its own way, but excessive government restrictions may produce a big negative effect and decrease investments," he said.

Speaking about Russia's WTO prospects, Vershbow stressed the need "to contain protectionist forces that turned to be very strong in the spheres of agriculture, aircraft industry and financial services". He also indicated that "intellectual property is not fully protected in Russia". He said that "the time for joining the WTO depends on Russia and the deadlines it sets for itself".

Vershbow said that an oil pipeline from Western Siberia to the Barents Sea coast should be built in order to boost Russo-US cooperation in energy sphere.
The ambassador stressed US interest in a strong and democratic Russia. "A strong and democratic Russia will be a guarantor of regional stability and buy more American goods," he said.

In a separate report Russian news agency ITAR-TASS quoted Vershbow as saying that shortening the period for reviewing privatization deals will influence the investment climate in Russia favourably.

"If Russian president's declaration is fulfilled, the investors will react positively," he said.
Vershbow acknowledged that the volume of direct foreign investments in the Russian economy is very low. It is one-third of what it is in the Czech Republic, one-tenth that of Brazil and one-sixteenth that of Italy, he said. Business needs clear-cut and transparent rules of the game, he said.

The president of the American Chamber of Commerce in Russia, Andrew Sommers, criticized in his speech at the conference the recently adopted amendments to the Russian law "On subsoil resources". "They are not targeting foreign investors directly but encroach upon their interests and do not increase Russia's investment attractiveness," he said.

Source: Interfax news agency, Moscow
ITAR-TASS news agency, Moscow
BBC Monitoring

Breaking the Dependency Cycle

Senegal calls for more two-way trade with Canada

Equalizing the trade imbalance and boosting overall growth between Senegal and Canada is what Amadou Diallo calls a strategy of "economic diplomacy." While appreciative of Canada's financial assistance, Mr. Diallo, the Senegalese Ambassador to Canada, wants to one day break free from the cycle of dependency through greater trade promotion between the two nations.

Until now, the French-speaking West African nation has largely been a foreign aid priority for Canada. It is one of the few nations identified by the Canadian International Development Agency as a 'country of focus,' having received $90 million over the last five years. Canada is the fifth largest donor to Senegal. The West African coastal nation ships about $100 million worth of goods to Canada each year, mostly raw materials and computer parts. Meanwhile, Canada sends over about $40 million in asbestos, wheat and other manufactured goods.

Mr. Diallo told the Senator Foreign Affairs Committee on March 23 that his country has hosted two economic missions from Canada in recent years. About 50 Canadian companies are currently operating in that country. He said that Canadian businesses setting up factories there is an important way to transfer technical and manufacturing skills to their workforce. And by doing so, Senegal will develop the ability to manufacture "value-added" products itself, he says. He cites the potential for one of the country's major agriculture products, groundnuts, to arrive on Canadians' breakfast tables directly from Senegal. "The peanut butter that you eat here should come from Senegal," he said.

Mr. Diallo added that he's encouraging an "air bridge" between Canada and Senegal as a shipment route for products. The embassy's commercial section is vigorously trying to position its sellers more prominently in Canada, and aiming to tap into niche markets, said the ambassador.

In his testimony, Mr. Diallo criticized the liberalization policies of the International Monetary Fund and World Bank that had "disastrous" consequences on Senegal's economy.

On the foreign aid front, the education sector gets about 60 per cent of Canada's funding, said Mr. Diallo, noting it's a well-chosen target. However, he said it would be useful if Canada invested more heavily in infrastructure, adding that CIDA's past projects, like a journalism school, have got people talking. "People point to these projects and say look what Canada did," he said.

Mr. Diallo's appearance before the Senate Committee was part of its wholesale study of Africa. The committee session was interrupted temporarily when Senators were called to the Red Chamber for a vote. Mr. Diallo and three advisors watched from the gallery, but reconvened in the meeting room 15 minutes later to resume testimony.

By Sarah McGregor

Source : News Story