"The guidelines are intended to provide a broader framework for conducting Islamic banking services in the country," Fundanga told IOL. |
Zambia is tapping into the thriving Islamic finance industry by formulating guidelines for Shari`ah-compliant banking services for the first time, with bankers expecting the move to accommodate Muslim clients and help the economy of the Southern African country.
"The guidelines are intended to provide a broader framework for conducting Islamic banking services in the country," Bank of Zambia Governor Dr. Caleb Fundanga told IslamOnline.net.
BoZ has finalized regulatory and banking framework for banks that will be offering Islamic financial services in the country.
Dr. Fundanga says the new regulations will enable people to have access to credits for capital investment from the financial institutions according to Islamic principles and without paying interest.
"In Zambia, Muslims are excluded from the banking system on account that Shari`ah prohibits interest."
Islam forbids Muslims from usury, receiving or paying interest on loans.
Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.
Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.
Fundanga says one challenge that would face the industry in Zambia is the lack of adequate guidance from Islamic scholars.
"The availability of these Shari`ah scholars in Zambia may pose a challenge given the small proportion of Muslims in Zambia."
According to the Islamic Council of Zambia (ICZ), Muslims constitute over 12 percent of the country's 12.5 million people.
Benefits
Experts believe that Islamic finance concept would be very beneficial to the national economy.
Chama Mwanya, a member of Zambian think-tank the Economic Association of Zambia (EAZ), says Islamic finance would help on the issue of borrowing, one factor that the Zambian financial sector has been grappling with for a long-time now.
"Lending rate is still high in Zambia making borrowing for capital investments prohibitive."
Dr. Fundanga, the Bank of Zambia Governor, hopes by introducing Islamic finance to the market and encouraging Muslims to use the system, Zambia will get a crucial push for its development.
"Islamic banking should be viewed in light of its potential to inject liquidity in the financial markets and its ultimate impact on the cost of funds as well as its ability to capture those who would otherwise be excluded from the banking system on religious grounds."
This is the first time Zambia looks into developing its Islamic finance industry.
It is taking the cue from several African and would countries which begun developing Islamic finance services to attract wealth and create jobs.
The Islamic banking system is being practiced in 50 countries worldwide, making it one of the fastest growing sectors in the global financial industry.
Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.
A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.
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