Leading Innovation in Islamic Banking
Islamic finance has been practiced for more than 1400 years but it was formalised into a banking system in the 1960’s so that Muslims could also enjoy the benefits of participation in banking. Islamic Banking was first offered on the African continent in Egypt in 1956 and launched in South Africa in the 1980’s.
Islamic Banking product offerings were quite basic at first, with customers being offered cheque and savings accounts, investments, vehicle finance and wills. The product development process for Islamic Banking products is far more complex than for conventional products as they must comply with South African Financial Service Board and tax regulations, banking regulations and Shari’ah. This means that the process of developing a full customer value proposition has been slower than banks would like. Islamic Banking product development requires a depth of understanding of Shari’ah product structuring and an innovative approach to matching customer needs to approved product structures.
Absa Islamic Banking has been recognised for its depth of Shari’ah expertise and innovation in Shari’ah compliant financial products and services and is regularly acknowledged as the Best Islamic Bank in South Africa. The purchase by Absa of Takaful has enabled further development of products that offer Islamic financial risk cover. Absa is still the only bank in South Africa which offers its customers Takaful.
Many Islamic banking customers trade internationally, which created the demand for a Shari’ah compliant Forward Exchange Contract (FEC). Working with Absa Capital, Absa Islamic Banking is the only bank offering an Islamic FEC. This support for customers who conduct international trade and who travel internationally was further enhanced by Absa with the launch of the first Multi-Currency Cash Passport. This debit card designed for international travel allows customers to load up to four difference currencies on one card, thus supporting the international traveller as well as those going on Hajj.
Another product with which Absa Islamic Banking has been first to market is a variable rate for Islamic Vehicle and Asset Finance. Previously customers compared the fixed rate for Islamic vehicle finance with the variable rate offered on conventional finance and felt that Islamic finance was more expensive. The variable rate offering developed by Absa Islamic Banking still allows customers a level of certainty, as required by Shari’ah in that rates may only change quarterly if there is a requirement for that. This product is offered so that those who choose to use Islamic finance now have two options which are priced similarly to conventional finance. This means that Islamic banking customers are not disadvantaged in any way when applying for vehicle and asset finance.
All products that are developed are sent to the Independent Shari’ah Supervisory Board and only launched once their approval is received. Although much has been achieved in the area of product innovation in Islamic banking, the process continues as Islamic banks continue to strive to offer a more comprehensive customer value proposition.
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